PI Financial portfolio manager Guy Lapierre picks three oil and gas stocks and a sugar producer as his ‘best buys’. [ed.–How did a sugar producer get in with his oil and gas picks? Well, it is an energy stock of sorts, isn’t it?]
Before last winter’s correction hit, Vancouver-area PI Financial portfolio manager Guy Lapierre cautioned investors to be careful not to burn themselves by hanging on to high-flying (especially US) blue-chip stocks for too long. At the time, the markets were still looking forward to better corporate earnings across the board.
A week after he shared his views in our pages, in late January, the market had transformed into the shakier animal that it is today. So, what now?
“Broadly speaking, our reaction to the market changes since we last spoke is, we’ve been looking to protect any profits,” says Mr. Lapierre.
Specifically, he has adjusted exposure to equity by 10 per cent in the portfolios he devises for his clients in favour of more fixed-income investments. At present, his growth portfolio is made up of 60 per cent equities and 40 per cent fixed income, while his growth and income portfolio consists of an even split between equities and fixed income.
Summing up his more defensive position at present, the portfolio manager says: “Fixed income is about getting your money back. Equity is about growth.”
Time to add some fixed-income securities
Mr. Lapierre points out that interest rates have risen over the last four months to five months, increasing his willingness to take on some longer-term fixed income investments, although he adds that he has avoided any bonds with a term five years or longer.
“That leaves us a little lighter on cash . . . but we’re quick to take profits on the equity side.
“We did some active trading with Apple, and we have some long-term positions that are still very profitable to sell, but not as profitable as eight months ago.”
Thus, he has added major corporate bonds yielding between four per cent and 4.5 per cent annually to his clients’ holdings, which the portfolio manager describes as an acceptable return under current circumstances. Mr. Lapierre has also invested in mortgage-backed securities yielding from seven per cent to 7.5 per cent annually.
The portfolio manager urges investors to pay attention to the ease of exiting from any fixed income investments they take on. “First and foremost is liquidity.”
The recent mortgage-backed securities that he bought into, for example, may be completely sold back to the issuer if necessary. “At a discount, of course, but we can get our money out.”
The greenback is still king
Mr. Lapierre notes as well that he is betting on an overall rise in the US dollar against other major currencies, including the loonie. International trade conflict or inflation would buoy the currency upwards, he says.
“There is no place to go. In a trade war, arguably the strongest hand is played by the Chinese.” However, the euro and yuan are both vulnerable, the portfolio manager argues. As such, he says, “We are proponents of the king dollar.”
As for gold (and its miners), he says: “We see gold as disconnected from inflation.” Mr. Lapierre asserts that gold price changes generally reflect shifts in the value of the US dollar rather than supply and demand issues specific to gold.
“I don’t see gold as a holder of wealth. There’s just too many other commodities you can trade like gold.”
3 oil stocks and . . . a sugar producer
Looking ahead over the next quarter to half-year, Mr. Lapierre says: “We’re constructive on select Canadian oil companies, the US retail banking sector, water in general, and the German economy in specificity.”
The portfolio manager names AltaGas Ltd. (TSX—ALA), Pembina Pipeline Inc. (TSX—PPL; NYSE—PBA) and Rogers Sugar Inc. (TSX—RSI) as his ‘best buys’.
Explaining his endorsement of Pembina, he says: “It’s summed up in the absence of a pipeline to Tidewater.” The company’s pipelines are doing brisk business and its dividend yields 5.31 per cent, with little debt to hamper it. “We’ve added AltaGas, Pembina Pipeline, and Suncor Energy Inc. (TSX—SU; NYSE—SU), reflecting the strength in oil prices, partially attributable to Middle East tensions rising. These three fossil fuel investments provide significant dividend income.”
Regarding Rogers Sugar, a long-time, “high-conviction pick” for Mr. Lapierre, he notes that the company’s yield has become even sweeter since dropping about 22 per cent from a peak share price of $6.29 on Jan. 2. Since he was happy to recommend Rogers Sugar when it was more expensive, the portfolio manager says simply: “It’s cheaper, so we like it.”
(Disclaimer: Mr. Lapierre held no positions in any stocks named above at the time of writing.)
This is an edited version of an article that was originally published for subscribers in the July 6, 2018, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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