Our Genx Conservative portfolio is one of the weaker portfolios return wise. The portfolio has returned just over 8 percent since October and it hasn’t really bounced back from the Q4 bloodbath that the TSX faced.
We’re put in a position now where we have to choose to ride the portfolio out or make changes. With this portfolio, it doesn’t make sense to make any changes at the moment. The portfolio contains some strong dividend options in Suncor, Fortis and CIBC. Making changes to this portfolio would effect the overall goal of the portfolio, which is preservation of capital.
Our growth options in this portfolio are really only Parkland Fuels (PKI) and CGI Inc (GIB.A). Parkland Fuels was bought at somewhat of the peak back in October and selling right now would be a fairly big mistake. CGI on the other hand has performed very well, being the biggest gainer in the portfolio at 20+ percent.
Much like the construction of this portfolio, it’s key that we keep it slow and steady.
CIBC (CM.TO)
CIBC is one of the strongest dividend stocks in the country. In fact, I’d rank it a close second to TD Bank. The company pays a very healthy 5.30% dividend yield with only a 47.7% payout ratio. The stock has lost about 1 percent since October, but with its large yield it has still provided somewhat of a gain.
CIBC, along with all the other Canadian banks is significantly undervalued right now. Trading at a price to earnings ratio of under 10 and a price to book of only 1.48, if this portfolio had some wiggle room, I’d be adding more.
Interest rates staying stagnant has had somewhat of an effect on Canadian bank stocks, but over the long haul they are very likely to prosper.
Fortis (FTS.TO)
**Daniel Kent and Mathieu Litalien are long FTS.TO
If you’re looking for stability, Fortis is probably one of the best companies to look at. The company has a dividend streak that spans over decades (40+ years) and its 3.66% dividend with a 66% payout ratio is about as strong as it gets. The company does business in a highly regulated industry where cash flows are often consistent.
The fact the stock has returned over 15% to investors since its purchase in October is just icing on the cake. However, much like CM, with stagnant or decreasing interest rates potentially on the horizon we could see Fortis prosper even more. Make no mistake, Fortis is the type of stock that often gets bought and sticks in an investors portfolio for a long time.
Parkland Fuels (PKI.TO)
**Daniel Kent is long PKI.TO
Parkland is this portfolios main source of growth, and the stock was purchased at one of its peaks. So, the only thing we can do right now is be patient. The growth prospects of the company are quite possibly the brightest within the portfolio. A 2.92% dividend yield (albeit a high payout ratio of 76.50%) is a huge bonus. The company has topped estimates in sales over the last 5 quarters, yet struggled with earnings, missing in the last two.
With earnings growth over the last year of 151% and five-year earnings growth of 20.9% on average, the company has proven it is capable of strong growth. So for that reason, we’re holding strong.
Suncor Energy (SU.TO)
**Daniel Kent and Mathieu Litalien are long SU.TO
Suncor provides one of the most reliable dividends in the country with a 3.82% yield and a 71.29% payout ratio. And although the company has remained relatively stagnant growth wise (a 2.30% gain since October,) there are a number of reasons to stay positive.
For one, the Alberta election is finished, and a United Conservative victory will likely bode well for the oil and gas industry. Although changes wouldn’t happen overnight, the UCP’s platform is heavily weighted towards making big corporations, particularly those in oil and gas, happy again.
The reduction in corporate taxes and the urgency to get shovels in the ground for pipeline projects could spark some investor interest in the oil and gas sector. And if changes do come, in time we may see a little life breathed in to a struggling industry. As such, we will continue to hold Suncor in this portfolio.
CP Rail (CP.TO)
CP Rails earnings are coming out in a few weeks, so I won’t have much to say about the stock at this time. It’s one of the more reliable companies on the TSX, and with the current pipeline gluts, transporting oil via rail is still the most popular option.
Although this may change, it won’t be changing anytime soon and as such, we’ll hold on to CP Rail for its consistent growth and (albeit small) its strong dividend.
Loblaws (L.TO)
A consumer defensive stock in this conservative portfolio, Loblaws has generally disappointed. The company is somewhat of a mixed bag in terms of results. Loblaws has missed sales estimates in 2 straight quarters, albeit by a very small margin. In terms of earnings, the company has surprised analysts in 5 straight quarters.
The company is somewhat overvalued right now, trading at a price to earnings of around 33. But, we have this stock inside of this portfolio because we view it as one of the stronger consumer defensive stocks out there. The gains will come in time, and an added bonus is the fact that Loblaws has a proven track record of performing during times of economic uncertainty.
Magna International (MG.TO)
At the time of purchase, the fear of auto tariffs was turning a lot of investors away from companies like Magna. However, we seen past the fears and realized this stock was significantly undervalued.
As such, the stock has returned nearly 20% to the portfolio since its October purchase, along with a healthy 3% dividend. Magna has missed sales projections by small amounts (under 1% in the last two quarters) and has beat analyst expectations in terms of earnings for 2 straight quarters and 4 of the last 5. A 10.6% dividend increase instills a lot of confidence as well, and their involvement in self-driving vehicle technology is promising in terms of growth.
Manulife Financial (MFC.TO)
We purchased Manulife back in October due to the threat of rising interest rates. If you are unaware, insurance companies thrive when interest rates are high. They bank on reinvesting cash flows and if interest rates are higher, they are earning more money. The company has generally hit the mark in terms of earnings over the last 5 quarters.
The company has returned just over 17% for the portfolio since October. Couple that with an excellent 4.42% dividend yield and a 5 year annual expected growth rate of over 10%, and this portfolio will more than likely hold Manulife for a long time.
CGI Group (GIB.A)
** Mathieu Litalien is long GIB.A
I love Canadian tech stocks. You’ll see stocks like OpenText, Shopify and CGI group in most of these portfolios. Why? Well, because the Canadian tech sector simply outperforms the TSX as a whole. At least in the last little while it has.
CGI has hit the mark or exceeded earnings expectations in 5 straight quarters. In terms of sales, the company has only missed once in the last 5 quarters. Unlike Shopify, CGI isn’t ridiculously overpriced. A price to earnings ratio of 18.89 and a price to book of 3.76 is expensive, but not outrageous. I expect big things from CGI in the future as they have proven to be extremely capable at both acquiring solid companies and driving organic growth.