June Portfolio Strategy: North American Portfolio Strategist Martin Roberge has updated his Monthly Chartbook for June. The GDP windfall from lower oil prices and bond yields hasn't yet been felt. This is due to more expensive heating bills this winter, rising health care coverage/spending and thinner pay cheques.
Over the long term Martin still feels that the US $ is in a long term uptrend. In the near-term the dollar continues to consolidate and correct, which favours cyclical investments. The rising US $ acts as a significant tightening in monetary policy. Thus, Martin's baseline scenario continues to call for a winter rather than a fall rate hike by the Fed.
Martin's Chart of Week shows that the US stock-to-bond ratio could break above its July 2007 peak soon. Contrary to 2007, bond yields (2.4%) remain below US real GDP growth (2.7% YoY) which he considers fair value. Thus, in a valuation contest, equities still win the prize for the cheapest asset class; hence the likelihood of further equity outperformance this year.
Initiation of Pipeline Coverage: Pipeline analyst David Galison initiates coverage on the Canadian Midstream sector and in conjunction with this industry primer, he has published five individual company initiation reports. His selection for the relative ranking of recommendations was based on a number of factors. He favours companies with good growth profiles backed by long-term contracts providing good visibility of earnings and cash flows. He also favours companies with strong balance sheets and stable dividends and dividend growth over time backed by sustainable payout ratios. His price targets are primarily based on an Enterprise Value to EBITDA (EV/EBITDA) methodology in addition to considering relative Free Cash Flow (FCF) and dividend yields. David recently added Pembina Pipeline (PPL) as his Focus List pick.
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