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Fiscal deal good for stocks

Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846
 
 – Edited from an article by Keith Richards
 

By this time, you already know America isn’t going to go over the fiscal cliff — at least not yet.

Just as this paper was going to press, Congress and President Obama succeeded in bringing an end to the stand off that had threatened to shut down the government.

The deal will be attacked by many as nothing more than “kicking the can down the road.” Still, a rise in the U.S. debt ceiling will buy some much-needed time.

Indeed, markets will likely respond positively to any progress the legislators make.

And a positive move in the markets, like the one back in January during the last debt ceiling crisis, will leave many investors chasing stocks, waiting for a pullback, wishing they had bought in earlier. As a result, the early part of October was likely the best time for scooping up under priced stocks.

So, we made a strong effort to pick out attractively priced companies with top technical profiles. And with good reason, since markets will likely continue to rise over much of the winter before the bear starts to growl later in 2014.

But in the meantime, here are several stocks which we recommend: Pembina Pipeline Corp. (PPL-TSX, $33.19). Based in Calgary, Pembina’s main asset — wait for it! — is 7,800 kilometres of pipeline throughout Western Canada . The company also has processing plants.

Not only do we love Pembina because it’s expanding, we also love it because of the renewed interest in pipelines as a safe method of moving oil. Moreover, Pembina’s chart is great. And its five percent dividend yield doesn’t hurt either.

We also like Keyera Corp. (KEY-TSX,  $57.65). A Calgary-based pipeline operator, Keyera now boasts a good yield — specifically four percent.

Still, with oil and gas, we have a soft spot for Parkland Fuel Corp. (PKI-TSX, $18.36).  Although its market cap is the smallest of all our holdings, Parkland has solid business prospects, being Canada’s premier distributor of heating fuel. It also owns a few convenience stores and gas stations. With a dividend yield of close to six percent, as well as a great chart, Parkland is now very attractive.

Enough of the energy sector! we can hear you screaming. But we’re not finished just yet.

Indeed, we also like Enerplus Corp. (ERF-TSX, $17.08), a Calgary-based oil and gas play. Having cut its reliance on natural gas, Enerplus now sports a higher cash flow, but lower capital expenditures. It also boasts a six per cent yield — something we think is stable.

Moreover, Enerplus’s recent technical breakout from a consolidation pattern gives us confidence its shares have upside potential.

In the Oct. 18th issue, we singled out CAE Inc.  (CAE-TSX, $11.17), a maker of flight simulation devices, as a good bet for the long term.  And we continue to believe the Quebec-based company will hit its old highs of just under $13 a share before too much time has passed. We also opined that U.S. banks offer much more value than their Canadian counterparts. We continue to believe so.

True, America’s big banks are logging lower trading revenue. But they’ll likely be able to offset this over the coming quarters with higher quality mortgage revenue.

And although the fall pullback in U.S. bank stocks provided a great entry point in October, U.S. banks may still be a good bargain. To play the broad U.S. banking sector , consider the BMO Equal Weight US Banks Hedged- to-CAD Index ETF (ZUB-TSX, $18.11). (Note : despite the fund’s listing on the TSX, it is a U.S. play).

Other stocks which we’re now watching for a good entry point include insurance companies in both Canada and the U.S.

In the U.S., we like American International Group Inc. (AIG- NYSE, $51.26). North of the border, we like Manulife Financial Corp. (MFC-TSX, $17.87).

Although both these insurance giants faced challenges during the market meltdown, both are now showing marked improvements in their operations, as well as in their technical profiles.

If we’ve been watching the insurance sector, we’ve been doing the same with high tech. Investors who follow seasonal strategies will know of the tendency of tech stocks to do well between October and the end of January.

To play the entire sector, consider the iShares US Technology ETF (IYW-NYSE, $79.71). This exchange-traded fund holds all the biggies in a cap-weighted index. Google Inc. (GOOG-NASDAQ, $882.01), Apple Inc. (AAPL-NASDAQ, $498.68), Oracle Corp. (ORCL-NYSE, $33.02), Microsoft Corp. (MSFT-NASDAQ, $34.64), Facebook Inc. (FB-NASDAQ, $51.13) — you name it. This ETF has them all.

Moreover, the tech sector now shows a good chart. Indeed, it would be a great place for investors to buy when it dips.

Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846