Rebecca Teltscher, Portfolio Manager, Newhaven Asset Management
Focus: Canadian dividend stocks
Top picks: NFI Group, Brookfield Renewable Partners, Premium Brands
MARKET OUTLOOK:
Geopolitical risk is high. The risk of a weakening economy is high. The U.S. and Canadian stock markets are at all-time highs. For those following the markets this year, particularly in the last quarter, it has certainly been a wild ride for investors.
The S&P 500, The Nasdaq and the TSX closed the quarter with fresh record highs. The S&P 500 posted its best quarter since December 2023. The Nasdaq posted its best quarter since June 2020. It has gained a staggering 33 per cent from its “Liberation Day” low point on April 8. The TSX has been flirting with new record highs for most of May and June.
Looking at stock markets alone, one would think things couldn’t be better. However, when you look at the economy, the data tells a completely different story. The same quarter that saw record gains in the market also saw declining retail sales, negative GDP growth, plummeting consumer confidence and slowing employment. Coupled with heightened geopolitical risk and an unpredictable government with regards to trade policy, I would say things feel far from great. Yet, as we commence the beginning of the third quarter, investor optimism remains elevated despite a weakened economic backdrop.
We expect volatility to increase in the latter part of 2025 as market valuations are expensive, and uncertainty related to government policy remains outstanding. Our positioning continues to be on the conservative side as we believe a broader pullback is inevitable given current valuations.
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TOP PICKS:
NFI Group (NFI TSX)
NFI Group had another busy quarter securing new contracts including 55 additional buses for Bampton Transit and up to 750 new buses for New Jersey Transit. NFI Group continues to grow its record backlog amid a desire to electrify and update aging bus fleets. They are currently booking orders into the end of 2026 providing medium term visibility in unit growth and pricing. Recent supply chain issues with seating availability are starting to alleviate and are trending in the right direction with a full recovery from delivery delays expected in the second half of this year. Public transit funding in the U.S. remains stable and demand for zero emission busses continues to grow. NFI continues to operate in a favourable competitive condition and should be poised for long-term growth ahead.
Brookfield Renewable Partners (BEP-U TSX)
As the demand for clean power continues to rise on both the corporate and government side, Brookfield Renewable is well positioned to participate in this growing trend. In May 2024, Brookfield and Microsoft announced the largest-ever corporate clean energy deal for 10.5 GW. Brookfield Renewable will deliver wind and solar power generation to Microsoft between 2026 and 2030 in North America and Europe. Once complete, the project would increase BEP’s total power generation by almost 1/3. We believe this deal is the first of many corporate PPA’s particularly with technology companies as they require significant power to run data centres. Brookfield Renewable’s exposure to Westinghouse’s Nuclear development and servicing business has also experienced significant growth as the demand for stable, carbon neutral baseload power continues to grow globally as many governments are now looking at nuclear energy as a source of power.
Premium Brands (PBH TSX)
The food industry remains a challenging environment with a nervous consumer demonstrating value seeking behaviour. However, we feel Premium Brands is well positioned to grow despite poor economic conditions. Over the past few years, Premium Brands has invested in significant U.S. capacity expansions in order to satisfy large customer needs. As these expansions near completion, Premium Brands will benefit from significant organic growth, decreasing leverage and margin expansion in the near term. In the longer term, any macro improvement will result in additional tailwinds down the road. We believe the stock is at an inflection point and there is an opportunity for significant upside as new customer wins and U.S. growth initiatives come to fruition.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| NFI TSX | Y | Y | Y |
| BEP-U TSX | Y | Y | Y |
| PBH TSX | Y | Y | Y |
PAST PICKS: June 10, 2024
Pembina Pipelines (PPL TSX)
Then: $51.30
Now: $50.76
Return: -1%
Total Return: 6%
BCE (BCE TSX)
Then: $46.64
Now: $31.04
Return: -33%
Total Return: -24%
Northland Power (NPI TSX)
Then: $24.39
Now: $21.94
Return: -10%
Total Return: -5%
Total Return Average: -8%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| PPL TSX | Y | Y | Y |
| BCE TSX | Y | Y | Y |
| NPI TSX | Y | Y | Y |
