The Lato Letter: Volume 3, Issue 11.

The Lato Letter: Volume 3, Issue 11.

I apologize for being a little tardy but here’s the commentary I submitted to BNN and Globe & Mail for my Market Call Tonight appearance on Wednesday night. I have also provided a link to the Report on Business online article which has a link to the video of the Top Picks.

Market Outlook

We have come through a very turbulent few weeks in the equity markets and the question in the forefront of investors’ minds is whether or not we have seen the last of new all-time highs in the indices for a while. My answer is that we have NOT, particularly as we enter the historically strongest six months of the four year US election cycle. The six months from November to April of the year of the mid-term election, as measured by the S&P 500 return, has greatly outpaced any of the eight six month periods in the four year cycle. In addition, we have not yet witnessed many of the usual signs of a market top such as an inverted yield curve, recession fears or relatively attractive bond yields among others.

Top Picks

Parex Resources (PXT-TSX)

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This well managed, well financed oil and gas company is the proverbial baby that has been thrown out with the bath water of falling oil prices. The stock is down over one third from its high in late July. Parex has no debt, a self-funded exploration program that has seen tremendous growth in reserves and production (25% of which is hedged for the 4th quarter at $103US/bl). Analysts’ projections indicate that at an oil price as low as $70US/bl, Parex will still generate approximately $2.50 CDN in cash flow in 2015 to be trading at just over 4.0X cash flow.

Jarden Corp. (JAH-NYSE)

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While falling oil prices may been negatively impacting the energy sector, this consumer products giant is clearly reaping the benefits. Jarden is the company behind dozens of consumer products including truly iconic brands such as Coleman, Sunbeam, Rawlings, Mr. Coffee, K2 Skis, Oster and First Alert among many others. The company has grown both organically and through acquisition and recently reported a 19% year over year growth in revenue for the 3rd quarter. Long term earnings are projected to grow by 13% per year while the company is trading at a very reasonable multiple of 14.5X next year’s earnings.

Toronto Dominion Bank

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Canadian banks should be the cornerstone of all Canadians’ equity portfolios and particularly when they have retreated from their highs to become even more compelling. TD Bank has sold off approximately 6% from its latest all time high registered in August. At current prices the stock yields a very attractive 3.4% and is trading at a modest 11.8 X next October’s earnings. While investors may be concerned about long time CEO Ed Clark’s departure, the bank will remain in great hands under the stewardship of long time lieutenant, Bahrat Masrani.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change without notice.

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