Within our stock portfolios we continue to have an emphasis on growth stocks, particularly those tied to the global economy.  Energy remains a key overweight sector, with a focus on the long-term asset values of the thermal oil stocks as well as the oil services sector.  The recent announcement by Suncor that they are going ahead with the $13.5 billion Fort Hills project (planned output of 180,000 bpd, with a planned start-up in 2017) should provide further support to many of the infrastructure service companies such as Aecon Group.  The copper stocks still look good among the basic materials stocks.  Worries about over-supply, in our view, are overdone as demand from China continues to be strong and production supply targets are rarely met.  Capstone Mining and Lundin remain our favourite smaller companies due to strong growth profiles and recent acquisitions.  Among the larger names we are now seeing better value in First Quantum Minerals due to its concentration on copper and nickel and strong mining execution as well as its purchase of Inmet Mining and their huge Cobre Panama project.  On the other side, we have taken money out of Teck Resources following recent gains.  Their concentration on metallurgical coal versus copper is less attractive to us in the short-term as is the fact that their 20% interest in the Fort Hills oil project will basically use up all their excess cash flow over the next four years while the project is being built.  Also in the basic materials sector, the agricultural group is currently being hampered by over-supply of corn and fall-out from the failure of the potash cartel.  But the longer-term value of integrated companies such as Agrium continue to be attractive.

Gold stocks are a much tougher call in the short term.  Recent strength in the U.S. dollar is a headwind for gold prices and the US$1200 level is an area of key support below which many of the mining companies will need additional capital.  However, we still see longer-term problems for the U.S. dollar due to the excessive levels of borrowing and their need to ‘grow’ their way out of the debt, something that is easier to do with a weaker currency.  Competitive devaluation of most of the world’s major currencies as well as the risk of longer term inflation due to the massive amounts of new money being created continue to be the best long-term arguments in favour of gold.  Moreover, gold stock prices relative to gold remain near multi-decade lows.  With the recent rationalization moves by most of the major gold producers, the stocks could be setting up for a serious upside move if gold prices can hold in the current $US1300-1400 range.

Other stock sectors of interest include the beaten-up newspaper group.  While the industry has clearly been in decline for some time, recent corporate activity involving the New York Times and Washington Post in the U.S. as well as last week’s news that a U.S. group has taken a stake in Post Media in Canada suggest that the bargain hunters are ‘sniffing around’ this group.  Torstar, owner and operator of the Toronto Star and Metroland Media group, stands out as the cheapest big play in the group.  In the health care sector, we have taken profits on Valeant Pharmaceuticals as it has achieved our short-term target price and we were growing less comfortable with their excessive debt level and need for larger and larger acquisitions.  We shifted the funds to Catamaran Corporation, a leader in the field of Pharmacy Benefits Programs, and a clear beneficiary of the Affordable Care Act in the U.S., also knows as ‘Obamacare.’

Bank stocks in Canada had a superb month in October and have recovered nicely off the lows earlier this year when they became targets of U.S. short sellers who had negative outlook on our housing market.  We have not reduced our overall weight in the group but we did add ScotiaBank to the portfolio below $60 on the strong prospects for their international growth.  The biggest wins in the past few months though have come from the transportation sector.  While the rail stocks have been strong, the best gains have come from the airline sector.  Air Canada has gone up by more than 150% over the past three months while Transat has gained over 60%.

In the technology group, our favourite names are still mostly in the U.S., including Google and Facebook, both of which reported superb growth recently.  Core ‘old technology’ names such as Microsoft and Cisco also represent exceptional long-term value and some potential for higher growth from core product offerings.  The big one to watch this month will be the public launch of Twitter Inc. the small issue size and strong growth prospects suggest that the stock could move sharply higher from the proposed $17-20 offering price.  The bad news is that no one we know of is actually getting on stock on the offering since it is so tightly controlled.  On the service side, we are still concerned about the telecom sector in Canada due to high valuations for the core names (BCE, Telus, Rogers) as well as slowing growth and extreme confusion with respect to government policy in the sector.  Clearly the government wants a 4th national player in wireless and lower prices for the consumer.  How they will achieve this seems to be where the mystery is but we can’t help thinking that, whatever their ultimate solution is, it won’t be good for stocks in that sector.

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