Tuesday, October 6, 2015

Stock Watch List for October 2015

After publicly posting my stock watch list for the first time ever last month, I’ve been anxious to draft the October edition. Not only did September’s list help focus my research and tracking efforts on four companies, it increased my accountability to readers. I even felt guilty in September after purchasing shares of Enbridge Income Fund Holdings which was not on my watch list for the month (Full disclosure: I recently sold those shares of this wonderful company for a gain). Although I’ll again make an effort to only buy companies listed below, I keep some cash aside in my RRSP in order to take advantage of great opportunities as they emerge.

Two of the four companies listed on my September list (Alaris and Canadian Utilities Limited) remain on my October list. TransCanada Corporation and Omega Healthcare Investors Inc both have seen their stock prices rise to the point where I no longer think they represent excellent value. As I did in September, I'm including a target price at which I’d likely buy the below mentioned securities (assuming adequate cash resources when the price was reached).  Here are the stocks I will consider purchasing in October 2015.

Alaris Royalty Corp. (TSX = AD); Target Price = $26 (up from $25 last month)

Despite already having a full position in Alaris in my RRSP, I remain open to adding more shares in my RRSP or initiating a position on this high yielding (~6% currently) dividend growth royalty company in my unregistered account. There are so many things to love about this company, but a few of my favorites are their diversified royalty revenue stream, the fact it’s a monthly payer, their very affordable P/E of 15.4X, and the fact they recently started looking at smaller opportunities through a new business development stream. My revised target price represents a yield on cost of 6.2% and is slightly higher than their 52-week low price of $25.50.

Canadian Utilities Limited (TSX = CU); Target Price = $34.50 (up from $34 last month)

This boring utility company remains on my watch list due to its long history of dividend growth (over 10 years), reasonable price with their P/E of 17.5X, stability of their revenue stream, and strong financial position reflected in their A/Negative issuer rating.  The recently announced Trans-Pacific Partnership could prove to be a catalyst for the company as it should open up further opportunities in the United States.  The company is set to report their latest quarterly results late in the month, and I expect some volatility in share price around that time. My target price equates to a 3.4% yield on cost and is higher than their recent $31.00 52-week low that occurred on black Monday.

Royal Bank (TSX = RY); Target Price = $70

The main reason I’m looking to add to my position of Royal Bank in my unregistered account is so that I can subsequently sell the same position in my RRSP in order to complete my portfolio transformation. After initiating the position in RY in my unregistered account in June 2015, I’ve been overweight Royal Bank, making it my largest Canadian bank holding. I haven’t lost any sleep over being overweight this wonderful company since it’s fairly priced (P/E of 11X), has a healthy 4.3% dividend yield, and has very shareholder friendly policies. My target price represents a small premium over the $68 52-week low and was almost reached last week when Canadian bank stocks were getting sold off after reaching their ex-dividend dates.

Kinder Morgan (NYSE = KMI); Target Price = $27

With only a limited amount of funds in my RRSP, and given the current USD/CAD exchange rate of ~ $0.76, I’m extremely cautious before buying shares in US companies. I’ve spent a lot of time trying to determine if Kinder Morgan’s current and projected dividends are sustainable. As a result of my research, I’m comfortable enough to intentionally go overweight on this holding as I continue to have faith in Mr. Kinder’s ability to create long-term shareholder value by leveraging the company’s current and future pipelines. My target price is slightly higher than the 52-week low of $25.80 achieved recently.

There you have the list of companies I’ll be playing close attention to in October.  I debated including Proctor and Gamble on the list, as I’ve been tempted by this globally diversified consumer products company as its dividend yield inches closer to 4%. Microsoft also warrants an honorable mention, as I continue to be interested in adding to my position in that company, but at a price closer to $40.

What companies are on your watch list this month? Do you have differing positions on any of the four companies outlined above?

2 comments:

  1. I am still a fan of the large Canadian banks. I currently hold TD, BNS and RY but have been considering some industrial names as well such as EMR and CAT because of their recent route. Thanks for sharing your considerations.

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    1. It's hard to bet against the 3 banks you mentioned at their current levels. You might also add National Bank since it's down after their announced dilution. CAT is starting to look very interesting to me as well.

      Thanks for stopping by Keith.

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