BNN Market Call Tonight – Market Outlook
Investors’ concerns came to the forefront during the first month of 2016 as many of the global stock markets posted negative returns. Fears of slowing economic activity precipitated much of this sell-off as indications of weaker conditions in China and more countries adopting negative interest rate policies (notably Japan), less than anticipated economic indications from the US and a technical recession in Canada appeared to corroborate this negative sentiment.
In this environment, industries are transitioning as many companies face economic hardship. Within the energy and metals markets, producers have cut back capital expenditures, reduced expenses and lowered or eliminated dividends to a significant degree. Consolidation is beginning to occur within these industries along with increasing asset dispositions at distressed prices. Fiscal realities will eventually cause Saudi Arabia and other large oil producing nations to come to terms with continuing to feed oversupply while running massive budgetary deficits. These actions will serve to re-balance supply/demand factors along with the reduced supply stemming from the lower level of capital expenditures.
As we enter the next reporting period, the effects of the strong US dollar will be reflected in the profitability of US companies doing business abroad. Margins will also come under pressure as wage demands increase while low inflation undermines the ability to increase prices, especially with growing substitution from countries with weaker currencies. Business leaders will be prompted to devote more capital to research and development to regain longer-term competitive advantage.
In Canada, the effects of the downturn in the energy and mining sectors are still reverberating throughout the economy. We have seen a pull back in the prices of securities in the financial, consumer discretionary and other sectors that could be further impacted by the fallout. Some relief was evident from the neutral stance of the energy royalty review announced by the Alberta government in the face of current conditions. We can only hope that the federal and other provincial governments will exercise similar restraint. At the federal level, we enter this period in a strong fiscal position.Canadian industry should derive some benefit from the weak Canadian dollar to the extent that they export products and services.
During this time of transformation, investors have the opportunity to reposition their portfolios and invest in those companies with the financial and managerial wherewithal to take advantage of current conditions and prosper.
BNN Market Call Tonight – Top Picks:
Bank of Nova Scotia, BNS-T, Owned personally and by clients, Last Purchase December 23, 2015 $57.16
The Bank of Nova Scotia is the most international of the Canadian banks with branches in the Caribbean, Central and South America. The Canadian banks have been impacted by the recent volatility in the markets. BNS is now selling at levels that long term investors should find attractive as the premium valuation has fallen. The dividend yield is now greater than 5%
ARC Resources Ltd, ARX-T, Owned by clients, Last Purchase December 17, 2015 $15.95
ARC Resources Ltd. is a Canada-based oil and gas company. The company’s business activities include the exploration, development and production of crude oil, natural gas and natural gas liquids in five core areas across western Canada. The Company is also engaged in the Sunrise gas plant construction. Its operations are focused in five core areas across western Canada. ARC Resources has a strong balance sheet. The shares currently yield 6.6%.
HudBay Minerals Inc., HBM-T, Owned Personally and by Clients, Last Purchase December 23 2015 $5.71
HudBay Minerals is one of Canada’s leading producers of zinc, copper and precious metals with operations in Canada, Peru and the US. Constancia, a major copper-molybdenum-silver mine in Peru, has been ramping up production over 2015. It is expected that recoveries will improve as mill throughput and head grades have exceeded expectations. With other projects coming on stream over the next few years, we anticipate that valuation levels will increase.
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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.