A ‘short window’ for this ‘best buy’ consumer stock

PI Financial’s Guy Lapierre’s ‘best buy’ stock is The Walt Disney Company. But he sees a short window of opportunity while this consumer stock enjoys the world-wide release of both Rogue One: A Star Wars Story and The Great Wall. After that? “We’ll probably sell at that point,” says Mr. Lapierre.

The U.S. Federal Reserve’s decision to finally raise interest rates and reserve chair Janet Yellen’s indications that two more rate increases will occur in 2017 suggest profitable trades to come south of the border, according to Vancouver-area financial executive Guy Lapierre.

“I’m optimistic short- to medium-term with a particular emphasis on the U.S. S&P 500 as a trading position,” says Mr. Lapierre, who is a vice-president, portfolio manager, and branch manager for brokerage PI Financial in Port Coquitlam, B.C. “I think U.S. markets are benefiting from Yellen’s pronouncements about the economy.”

Mr. Lapierre notes that U.S. blue chip stocks performed admirably in the first half of December. However, the aforementioned series of gradual interest hikes that Ms. Yellen alluded to means that in the medium-to-long run, investors will expect growth to roll over and prices will cool down again, he explains. When that happens, he plans to realize his clients’ gains using trailing stops.

On the other hand, PI Financial is picking up more medium-term bonds since higher interest has attracted more interest to such investments. Thus, the portfolio manager says: “We are constructive on Canadian equities and, short-term, the S&P 500 and corporate bonds with the capacity to pay the interest.

“As far as the Canadian market, I’m extremely encouraged. The prospect of Keystone XL approval in the first quarter of 2017 bodes well for the survivors in the oil patch, particularly Suncor.”

Mr. Lapierre recommends that investors look for buying opportunities among Canadian telecommunications stocks, financial stocks, and energy stocks, in particular BCE Inc. (TSX—BCE; NYSE—BCE), Bank of Montreal (TSX—BMO; NYSE—BMO), and Suncor Energy Inc. (TSX—SU; NYSE—SU), respectively. “Those three I’m looking to accumulate long-term,” says Mr. Lapierre.

More generally, he advises investors to avoid the European markets until the United Kingdom’s withdrawal from the European Union is complete, and expresses concerns about the southeast Asian markets because of the potential for a trade war between the United States (under Donald Trump) and China.

Disney magic transcends borders

Although uncertainty surrounding international trade relations has caused him to shy away from investing in farther-flung markets, Mr. Lapierre’s first ‘best buy’ selection, consumer stock Walt Disney Co. (NYSE—DIS), is nevertheless betting that an American cultural juggernaut will continue enjoying worldwide fandom.

“Being Star Wars fans, we added Disney starting in November and broadly speaking, we’re looking at over six per cent in the last 30 days and we’ll be looking to crystallize those gains,” says Mr. Lapierre. He explains that PI Financial opted to buy Disney shares in anticipation of a price bump resulting from the release of Rogue One: A Star Wars Story last December.

Disney should ride yet another bump when Rogue One premieres in China this February, the portfolio manager adds. (Mr. Lapierre notes that The Great Wall, a U.S.-China co-production directed by Zhang Yimou and starring Matt Damon, opened in China last month and is due for a February release in North America, thereby dodging competition with Rogue One in either market.)

“We’ll likely sell at that point,” he says, citing ongoing concerns about the costs associated with sports broadcasting rights.

A sweet stock in a sweet spot

Mr. Lapierre’s second ‘best buy’ choice is tied to something even more universally appetizing to humanity than Star Wars: sugar, as processed, distributed, and marketed by Vancouver-based consumer goods stock Rogers Sugar Inc. (TSX—RSI). The company fills 90 per cent of Western Canada’s sugar demand. “Basically, there’s four brands of sugar in the stores and they own them all,” says Mr. Lapierre.

“I like the food sector, including Potash [Corp. of Saskatchewan], but until the merger with Agrium is completed, I don’t think we’re going to see any upside,” he says. “In the case of Rogers Sugar, we like the increase in the profit margin, which is up in 2016 to 19.66 per cent EBITDA. Those earnings translate to a healthy balance sheet and, more important to me, cash flow statement.”

Despite rising 56 per cent year-to-date as of mid-December, Mr. Lapierre argues that further gains are likely thanks to factors such as a low Canadian dollar, strong sugar demand, and expanded company refining facilities in Montreal with an eye to export markets.

In the meantime, Rogers’ dividend yields about 5.4 per cent.

(Disclosure: PI Financial holds positions in RSI and DIS.)

 

This is an edited version of an article that was originally published for subscribers in the January 6, 2017, 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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