In the U.S. market we continue to like technology as the top sector.  While Facebook and Google were 2 of our best performers last year, we also like Broadcomm and Qualcomm in communications chips, Cisco for its networking gear, Apple and Microsoft on valuation and renewed growth for their core products.  The financials in the U.S. are seeing strong earnings growth as the economy ramps up further.   JP Morgan and Citigroup were big winners in 2013 and we continue to hold both names.  Other names in the U.S. included Disney for its long-term growth and strong media content, General Motors on valuation despite the gains last year and KB Homes as a pure play on western U.S. housing. Outside of the U.S. we still think that China should do better in 2014 as the market valuation is at a multi-year low and growth continues.  We own the iShares China ETF (ticker FXI).   We also think that Japan has further upside but are concerned about more Yen depreciation so we have switched to the currency-hedged DXJ, which is an ETF on Japanese stocks with the Yen movements neutralized.

In Canada the bank stocks continue to look like excellent value after managing through the ‘Great White Short’ period in mid-2013 when U.S. investors were shorting our bank stocks on the view that our housing market was going through a period similar to theirs in 2007-10.  Those views have yet to prove correct and the banks delivered superb earnings in the meantime and also pay dividend yields higher than the 10-year bond yield (so you basically get the same yield as a bond and get the growth for free!).  Our top bank names are CIBC, National Bank and TD Bank.  Air Canada and Transat AT were our 2 biggest winners last year and, while we don’t expect a repeat performance in 2014 from that sector, we still see some further upside in both names from better industry discipline and attractive valuations.  In the energy sector we have moved to some natural gas producers such as Long Run Exploration, Encana Corp and Bellatrix Exploration.  Copper names are starting to do better as production estimates continue to get cut back and demand picks up again in the emerging economies.  Capstone Mining had a very strong 2nd half last year.  We also like Lundin Mining and Teck Resources.  While not being overall gold bulls, we do see many of the stocks as being oversold and gold prices seem to have found a bottom in the critical US$1180-1200 range.  With better cost discipline and record low valuations, the gold stocks should provide better results than their disastrous 2013 results.  The commodity that we are most bullish on though is Uranium.  While short-term excess supplies from the closure of Japanese and German nuclear reactors has pushed the price down into the US$35 per pound range, the long-term price remains at $US57 and the cost-curve for new production is above US$65.  Also, there will be a substantial increase in demand from China as new reactors come on line over the next few years. The most direct sector plays are Canadian producer Cameco, as well as Uranium Participation Corp.

Some stock specific ideas in other sectors include Catamaran in health care.  This company provides pharmacy benefits management (PBM) services and healthcare IT solutions to the healthcare benefits management industry.  Catamaran will be a prime beneficiary of the roll-out of the Affordable Care Act (Obamacare).  While the next few quarters could be volatile as the programs are introduced, the company has shown better than 20% growth and its valuation is at the lowest level in the past few years.  Another stock we like is Tricon Capital Group, a North American real estate manager and principal investor and one of the best ways to play the recovery in the U.S. housing market.  Our best growth plays in the financials sector would also include Element Financial Corp, which offers leasing financing services in the industrial sector and has been supplementing internal growth with accretive acquisitions.  Last year saw specific sectors being either in or out of favour and stocks moved accordingly.  We think that 2014 might be more driven by individual stock selection.  Specific earnings growth and valuations will be the biggest call.

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