If you were an analyst, what stock would you buy?
In a survey of the top picks of Canadian brokerages, this analyst finds nine large cap stocks that stand out — each a leader in its industry.
The Street has spoken.
And by and large, it speaks with a fairly conservative voice.
The top brokerage firms in Canada (not all of them actually on Bay Street, of course) have revealed their top stock picks for 2010.
Ms. Jennifer Dowty, assistant VP and portfolio manager at one of those firms, scanned the stocks that surfaced among the top analysts’ picks at nine brokerages, and found nine names that kept popping up.
There was one prevailing trend in the survey, Ms. Dowty writes in Investor's Digest of Canada. “The top picks indicate a certain amount of conservatism as we head into the new year.”
The brokers gravitated to large cap stocks that stand at the top of their industries. And in five of the nine cases, that industry dealt with commodities.
The picks the analyst sifted through were originally issued in the first half of January. It is interesting to see how each has progressed now that we are between Groundhog Day and the opening of the Olympics.
Away from small caps
“For 2010, analysts are definitely tilted towards high quality, larger cap industry leaders, and are steering away from recommending speculative small cap stocks,” notes Ms. Dowty.
The top picks are clearly linked to a global economic recovery, she adds. But there’s another reason these large cap stocks top the list.
The unprecedented stock market gains of the past 10 months are enough to breed a certain amount of caution among analysts. Many think the market will slow down to a more subdued pace, says the analyst.
So they’re opting for larger growth stocks. And here they are.
Free from hedging
The list begins with the world’s largest gold producer, Barrick Gold (TSX-ABX). Barrick, of course, finally freed itself of its hedging positions over the past two years and can fatten up on the spot price of gold.
The company suggests production may increase to between 7.7 million and 8.1 million ounces in 2010 — it was 7.4 million in 2009. Cash costs (already among the industry’s lowest) are expected to come down this year as well.
Trading at about $42 when this issue went to press, the shares are now at $38.23. They yield just over 1 per cent on the dividend of US$0.40.
Research in Motion (TSX-RIM) is facing a lot more competition for the BlackBerry these days, but it’s still a stock that’s hard to ignore. “This is a solid company with a strong growth profile,” comments Ms. Dowty.
Among other things, it has a robust balance sheet, with over $4 per share in cash and a return on equity of better than 30 per cent.
The shares have moved from $67 to $71.39 since this issue was published. To the frustration of income investors, this tech giant has still not declared a dividend.
As we all know, Petro-Canada is no more. Having swallowed it whole, Suncor Energy (TSX-SU) is now the nation’s largest energy company.
Suncor has a reserve life of several decades, points out Ms. Dowty. Its production and cash flow growth are both impressive, she says, and as long as the price of oil moves with the economy, the shares should too.
The share price has gone the other way of late, from $37 at press time to $32.21 today. The stock yields 1.2 per cent on its 40¢ dividend.
An exotic name
So far, the names on this list have been familiar. But Pacific Rubiales Energy Corp. (TSX-PRE) throws a slightly more exotic name into the ring. It’s the largest independent oil and gas firm in Columbia.
80 per cent of its production is in oil and 20 per cent of this year’s production is hedged. Pacific Rubiales has an active drilling program and expects to more than double its production in 2010.
At less than 12 times forward earnings, it’s attractively valued. The price has moved little of late and stands at $14.84. There is no dividend.
Bombardier (TSX-BBD.B) needs no introduction, although it could use a little help in its Aerospace Division. Bombardier’s Transportation Division is the world’s largest when it comes to rail equipment.
But its plane sales have suffered in the past few years. “The idea is that, as economic conditions improve, people will travel more and orders for airplanes will increase,” says Ms. Dowty. “In other words, the worst is over for Bombardier.”
The stock trades at a discount to its peers. It has risen very slightly to $5.63. The restored dividend of 10¢ yields 1.8 per cent.
There’s lots of debate about China’s economy these days, but Sino-Forest Corp. (TSX-TRE) has generally done well out of China’s growth. It has 475,000 hectares of trees under management.
Unlike North America, China has a wood deficit and Sino-Forest is aggressively expanding its timber base.
The stock has moved very little in the past few weeks and trades at $19.73. There is no dividend.
A better bet later
Competition is hot in cable TV, the Internet and mobile phones, but the Street believes Rogers Communications Inc. (TSX-RCI.B) can more than hold its own.
The company offers investors modest growth and income. The analysts expect steady growth in the future, with accelerating earnings per share projections for each of the next two years.
Steady is the word for the stock, which has hovered close to $32 lately. It yields a solid 3.5 per cent on the dividend of $1.16.
When Thomson joined Reuters, it was a marriage made in information heaven. Thomson-Reuters (TSX-TRI) is the world’s leading purveyor of legal and financial information.
Nonetheless, Ms. Dowty believes the analysts may be a bit premature with this recommendation. Last quarter’s revenues were weaker than expected. That makes it a better bet later in 2010, she says.
Meanwhile, it gives investors a 3.2 yield on the dividend of $1.19. And the stock has ticked up almost $2 since publication, to $36.33.
We end with a very conservative recommendation. TransCanada Corp. (TSX-TRP) basically stores and moves gas around. Not terribly exciting, but reliable.
The appeal here is a 4.3 per cent yield on a dividend of $1.52 that may increase in 2010. The shares have barely moved in a few weeks and stand at $34.62. This stock is “stable and safe,” says Ms. Dowty.
Indeed, safety and conservatism seem to be the themes for these picks, the analyst tells her a href="/newsletters/investorsdigest_summary.html">Investor's Digest of Canada readers.
The Street has spoken. And it’s not taking many chances.
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