One of my goals for this year is to make $50k in addition to
my income. Having a goal is nice, but like most people if you don’t have a plan
you are not going to get there.
There is only two ways I believe that I can get there.
Starting a company or investing. I believe I don’t have enough passion to start
a company. After spending some time understanding entrepreneurs and what drives
them to start companies I don’t have what it takes. I don’t want to solve anyone’s
problem, there isn’t an idea I passionately believe in. I simply want to make
money and prove to myself that I can. That is probably my passion.
Keeping that in mind and keeping in mind that already a
month has passed in the current year , I decided to get started on my investing
goals.
I am lucky enough to have access to research material on
stocks, macro-economic trends, investing ideas etc. One such document had a
list of 30 stocks that it highlighted as good ideas for the year. I read
through the document and picked stocks that I believe will do well for the year
given my understanding of the world economy and the Canadian economy.
A large percentage of my investing capital is currently in
Canadian Currency. As such I don’t want to pick a stock that only trades on the
US exchange. I simply don’t want to convert my CAD to $ at the current exchange
rate.As such my picks are stocks that trades on a CAD exchange.
There are 6 Canadian companies recommended in the report I
read.
Alimentation Couche – Tard Inc (TSX:ALD.B)
“Alimentation Couche-Tard Inc.
operates convenience stores. The Company is engaged in the sale of goods for
immediate consumption, road transportation fuel and other products through
corporate stores and franchise operations. “
The analyst has a price target of 69$ . Current
price is $60.98 . That is a gain of 13% if it is able to reach that price.
Personally,
I am not interested in the convenience store market. So this stock is a no for
me. Also I am not too sure if this sector will fair will if our economy
struggles.
For
this stock I placed an order for $5000 at market price in my TMX simulator so I
can keep an eye on this stock. Based on how this stock does this year, I would
know how valuable this analyst’s recommendations are.
Canadian National Railway
Company (TSX:CNR)
“Canadian National Railway Company
is engaged in the rail and related transportation business. It transports goods
for business sectors, ranging from resource products to manufactured products
to consumer goods. “
I
have a soft place in my heart for CN. Our final year MBA project was on CN.
This is an 8 month project that looks at the industry the company operates in,
the suppliers, customers, the upcoming trends that will impact the company, the
competition, and the internal financials and culture of the company. All this
analyses is to help determine the future strategy for the company. Our group
did a presentation to the senior management team of CN, including the CEO.
Based
on the current price of CN stock and the target price of the analyst of $82 the
return on this investment would be around 7%.
One
of the things that is always highlighted about CN is its efficiency ratio. It
has the best efficiency ratio in North America. This is an important ratio for
railroads. It helps track how much a rail road is utilizing its assets. The
better this ratio is the lower the cost of operating for a rail road. This will
be helpful in tough economic times when it is a struggle to increase top line
growth.
CN’s
revenue is dependent on the money it makes transporting various goods such as
oil, commodities, automobiles, lumber etc. When different industries are
struggling such as oil there will be a reduction in CN’s business. Based on
review of last year’s financial numbers CN was able to do well regardless of
the struggles from Oil because it had an increase in business from other
sectors such as automobiles.
For
this year I believe there will be challenges because of dropping oil prices,
decrease in demand for commodities from emerging markets , but I also believe
it may be able to offset the drops from increase in demand for automobiles ( US
Economy is expected to do well) , and increase in lumber from the housing
industry in the US.
I
also believe CN is a good stock to hold for long term, and is a stable stock.
Its return is about 7%, good to hold in a portfolio if you have other more
volatile stocks.
I
am going to buy some for my RRSP and leave it in for now.
Enbridge Inc. (TSX:ENB)
“Enbridge is an energy transportation
and distribution company. Enbridge conducts its business through five business
segments: Liquids Pipelines; Gas Distribution; Gas Pipelines, Processing and
Energy Services; Sponsored Investments and Corporate.”
From
the research list Enbridge has the highest forecasted increase in the Canadian
company categories. It is expected to increase 30% within the next year.
I
am not familiar with the energy sector. I found the projected return
profitable, so I did some research.
Here
are my findings:
The
Good
- Enbridge owns the pipelines which Oil flow through. It has
set contracts with Oil companies, regardless of Oil Volume. As long as a
specific company has some traffic it will get paid. However, if Oil prices are
depressed for a long time, new contracts will be at risk.
- Enbridge does a good job acquiring other companies to
expand its growth. Recent acquisition of Tupper Main and Tupper West gas plants
is one such example.
- My personal believe is that Oil will move backup near the
$50 per barrel toward the end of the year. Enbridge will benefit from rising
oil price. Will be sharing my analysis on Oil prices in a future post.
- Enbridge has a history of paying dividends and Canadians
looking for income producing stock typically purchases Enbridge. A good portion
of its return will be from dividends.
The Risks
- One of the complaints about Enbridge is that it
raises dividends while going out to the equity market for more funding for
growth. Companies normally have three sources to invest, either use the income
they have earned, go to the debt or equity markets. Using the income they have
earned is the cheapest source of investing. It can also be argued that paying
out dividends forces a company to return cash that it does not have a good use
for. As a result when it finds a good oppourtunity it may not have enough cash
on hand, and may need to go to the capital markets.
Based on my findings I purchased
103 shares at the start of February 2016 at a price of $46.54 per share. My goal
is to keep this till end of 2016 and reassess at that point. I may re-evaluate
my stock holdings if any major events occur.
The Toronto-Dominion Bank (TSX:TD)
“The Toronto-Dominion Bank and its
subsidiaries provide Canadian Personal and Commercial Banking, U.S. Personal
and Commercial Banking, Wealth Management, Insurance and Wholesale Banking. “
TD has been recommended by the analyst among the big Banks
in Canada for the following reasons:
- Less exposure to Oil in comparison to its peers
- Less exposure to Western Canada
- 25% of its earnings coming from the US retail
business, which will benefit from US rising interest rate.
Risks:
- Td has a law suit pending from the Stanford
Ponzi Scheme
- Mortgage loan risks in Canada, which will affect
every bank in Canada
- Overall economy deterioration, which will affect
most stocks
The expected return from TD is approximately 14%. For now, I
am not going to invest in TD or any of the big banks. I may reconsider, but at
the moment it is a no. I worry that if the Canadian Economy struggles due to
weak Oil Prices and falling currency the effects may be seen by the bank
stocks.
I have placed an order for $5000 worth of TD stocks in my TMX
Simulation program to monitor the stock.
Intact Financial Corporation (TSX:IFC)
“Intact Financial Corporation is the largest provider of
property and casualty insurance in Canada. Intact offers home, auto and
business insurance through Intact Insurance, belairdirect, Grey Power,
BrokerLink and Jevco. “
I will purchase some IFC shares as a defensive measure
against upcoming challenging macro-economic climate. General theory of
portfolio management dictates that you hold a balanced portfolio to minimize
risks. It is considered a defensive buy because insurance industry premium
growth is not related to economic growth, this stock will not suffer from a bad economy
like a bank or other financial stocks, and it has a long track record of growth
and profitability.
The stock has an average volume of about 200k which is
smaller than the trade volume of companies I normally trade on. I am not too worried, since
this company is Canada’s largest property and casualty insurer.
Based on the analyst estimate of a price possibility of $104,
if I set a market order to buy shares tomorrow morning (Feb 2nd,
2016) at a price of around $83.43, I stand to gain around 17% to 19% if the
price target is met.
I have also added this stock to my TMX simulator to
monitor its performance.
Cenovus Energy Inc. (TSX:CVE)
“Cenovus Energy Inc. and its
subsidiaries, are in the business of the development, production and marketing
of crude oil, natural gas liquids (“NGLs”) and natural gas in Canada with
refining operations in the United States. “
The
last company on the top pick list is an oil company with a very strong balance
sheet. This company has a price target of $23 with its current price it will
yield over 27% in return if it is able to reach its price target. I believe Oil
prices will be getting better toward the end of this year, however it may drop
more before it gets there. As such I will monitor this stock by buying it in my
TMX simulator.
Based
on the 6 recommendations, I have invested in two of the companies, and is targeting to invest in CN Rail in the near future. I will post
updates as I readjust my portfolio and move some other cash holdings into
securities. Good luck with your investing.