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Stock Opinions by Dennis Mitchell, CFA

DON'T BUY

(Market Call Minute.) Huge payout ratio. Deteriorating asset quality.

electrical / electronic
COMMENT

(Market Call Minute.) Buy this if you are going to be patient. There are ongoing concerns about leasing in downtown Manhattan.

property mngmnt / investment
COMMENT

(Market Call Minute.) Not a fan of lodging REITs. This one has had a lot of difficulty in the last few years.

investment companies / funds
TOP PICK

The best and largest mall REIT globally. NAV is about $180 with a target price as high as $213. Feels it is worth $185-$186. 2.9% dividend yield.

investment companies / funds
TOP PICK

Global utility/infrastructure name. Have assets in North America, South America, Europe and Asia. Also, into rail, storage and an Australian terminal. He sees them taking assets out of low single digit ROE investments and putting them into mid-teen ROE assets. Has delivered a 20% compound annual return over the last 5 years and grown its distribution by over 7% a year for the last 3 years. 4.67% yield.

Energy Infrastructure, Industrials & Utilities
TOP PICK

Significantly levered to oil sands development and TransCanada Pipe’s (TRP-T) announcement of the Energy East pipeline benefits this company as well because they have a number of pipelines that will take oil sands into the Hardesty. Should benefit through increased volumes, particularly through their Cold Lake pipeline. Have a couple of expansion projects that should see higher RRs as a result of Energy East. Recently announced a conversion to a Corp which will expand their investor base. Yield of 4.90%.

oil pipelines
N/A

Interest Rates. Low rates, attractive looking dividends, etc. Nothing has really changed and looking forward it doesn’t look like it is about to change anytime soon. Whether it’s Bank of Canada, the Fed or Bank of England, it looks like rates in developed countries are pretty much on hold. This just increases the attractiveness of dividends and distribution paying companies. Challenge now is that it has become a stock picker’s market in that you really have to sift out those companies that have the ability to grow cash flow and subsequently growing dividends versus those that are just harvesting cash flow and are winding down.

Unknown
HOLD

Purchased about $700 million of real estate recently. Have been a couple of transactions the market hasn’t taken a shine to. Happier with the performance in the last couple of years than what they have had recently. Cheap but not overly bullish on this.

investment companies / funds
COMMENT

Good time to be staying in pipeline stocks or stay in REITs instead? First of all, you should have a diversified portfolio. The quarter they just reported was a little bit light and had to do with volumes through their systems. However, they reiterated their guidance for annual 12% earnings growth out to 2015 and this is backstopped by a portfolio of about $15 billion in growth projects. Not cheap on a historical basis.

oil / gas pipelines
DON'T BUY

Around 14% is pretty typical yield for mortgage REITs. This owns Agency Mortgage REITs, both fixed and adjustable rates. If you look through the results of the capital raise they did recently, it was dilutive, so their book value per share was about $7 which dropped to $6.70-$6.80. He doesn’t like to see this. Core earnings equate to a 12.5% on ROE and their distribution yield is 14%, which tells you they can’t cover their distribution.

Financial Services
COMMENT

Big drag had been there property in Belleville but they seem to have got it back on pace. Occupancy across the rest of the portfolio has been solid. Rent growth is one of their strong suits. Tend to cater to residents capable and willing to pay $3000 plus per month. Recently increased their dividend so doesn’t believe there is another one in the cards for later this year.

REAL ESTATE
BUY on WEAKNESS

Fully valued. He has been trimming some of his holdings. Had a bad quarter due to a bad hedge but this has been rectified and this recent quarter was very good. Traditionally grown the dividend yield by about 8% per year. Would consider buying at $50-$52.

oil / gas
COMMENT

Likes this one but valuation does not offer a compelling rate of return at this point. Has a safe, stable dividend but upside is probably capped.

mngmnt / diversified
BUY

Offers a 10%-12% total return from these levels. Likes it, but owns enough that he wouldn’t want to add much more at this point unless it was in the $24 range. Have been very acquisitive and shifting their portfolio away from the GTA and Eastern Canada and into Western Canada. Management has been very effective at finding new ways to grow in the last couple of years.

investment companies / funds
DON'T BUY

Largest US mortgage REIT. Historically has been pretty much the index so that when people have been taking money out of mortgage REITs, it has generally come out of this one. Trading below Book so it is cheap. Book has been deteriorating over the last 12 months but has stabilized recently. Prefers others at this point.

investment companies / funds
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