The Sell-in-May-And-Go-Away season is upon us. For those who are unaware, the theory goes that markets tend to perform better when stocks are held from November to May and investors should sell their stocks in May and rather enjoy the summer. While the effectiveness of this strategy is debatable, for long term investors such as myself – May can provide a good buying opportunity. The Sell-in-May effect has been missing in action for the last couple of years, which could possibly be attributed to the QE and/or the buyback programs. The buyback trend is still going strong, so we may not see one this year either. Nonetheless, I stay on the sidelines waiting for an opportunity.
The Fed has started turning a bit hawkish and expects the economy to pick up despite a weak first quarter. The Fed has hinted and left a summer/fall hike on the table. The market seems to be pricing in one rate hike in 2015 and three rate hikes in 2016. On the Canadian front, the Bank of Canada (BoC) is taking a wait-and-see approach after the rate cut in January. BoC expects to see some major headwinds in western Canada after the oil rout, but also sees better times for eastern provinces, which have a bigger manufacturing base.
Outlook for May 2015
In February, we started putting together an index-based ETF portfolio for my wife’s portfolio. In order to avoid buying at a market top, we started off with a modest amount of funds put to work. We will continue building our position over the course of the year. The portfolio details are shared here. As for my portfolio, I hold a decent amount of cash as discussed in my 2015 goals post. I am on target maintaining 3-5% of cash position to take advantage of market corrections.
Portfolio Considerations
Some of the stocks that I am keeping an eye on from my existing holdings:
- Amgen Inc (AMGN) is a biotech giant and has a relatively short dividend payment history (since 2011). Nevertheless, the numbers are impressive, with a 3-yr DGR of 63% and the company raising its dividend by 30% last year and guiding to raise it again by 30% this year. I started with an initial position of 10 shares. I will be looking to add more shares to my portfolio possibly this month. See my post on why Amgen is a great buy here.
- Magna International (MG.TO) is the most undervalued stock in my portfolio. The fundamentals are absolutely fantastic and because this company is relatively unknown outside of Canada, unless you follow the automotive sector closely, the stock prices remain subdued. I am tempted to add to my position in this automotive parts giant with a 5-yr DGR of 76%. Magna raised its dividend recently by 16% and the stock split 2:1.
- Main Street Capital (MAIN) is a Business Development Company that operates in southern US. The company pays monthly dividends and currently yields 6.7%. The high-yielding dividend grower also pays semi-annual supplemental cash dividend and announced last week an extra dividend of $0.275/share in June on top of the regular monthly dividends.
- After the recent rises in General Electric (GE) and AT&T (T), I have decided to put those companies on the back-burner as I seemed to have missed the boat on adding at an attractive price. I would still like to add them, but the recent rise in stock prices has pushed me to the sidelines when it comes to these two companies.
Possible new additions that I am looking at:
- Baxter International (BAX) is a medical device and pharmaceutical company. The company is on the verge of spinning off its biotech arm in mid-2015, called Baxalta, which is expected to create immense value for shareholders. Baxter has a record of spinning off companies which are either successful independently (Edwards Lifesciences was a BAX spinoff), or subsequently acquired by others (Caremark spunoff from BAX was acquired by CVS, Allegiance Healthcare spunoff from BAX was acquired by Cardinal Health). This dividend challenger has a 8-yr track record of raising dividends with a 5-yr DGR of 14.2%.
- Canadian banks have reached attractive valuations after the rout in the energy sector. The banks are exposed to the expensive Canadian oil sands and the drop in energy prices has resulted in a drop in the Canadian dollar – which will affect the banks’ balance sheets in the coming quarters. Banks that I would like to own are Royal Bank of Canada (RY) and Bank of Montreal (BMO) or add to my existing position in Bank of Nova Scotia (BNS) or Toronto-Dominion (TD). Read details of why I think the banks are attractive to buy now.
- I am also looking to add an insurance name to my portfolio. Some of companies that I am looking at are Intact Financial (IFC.TO), Power Corp (POW.TO) and Chubb Corp (CB).
- In the food and beverage sector, I am looking to add Tyson Foods (TSN), Coca Cola (KO), PepsiCo (PEP), or Starbucks (SBUX).
- I am looking to add another pipeline to my portfolio: looking at either Enbridge (ENB) or TransCanada (TRP).
- I am also looking at adding another REIT to my portfolio: in this space, I am considering international office REIT company Dream Global REIT (DRG.UN.TO) and/or healthcare REIT to complement my position in Omega Healthcare Investors Inc (OHI) and looking to add either HCP Inc (HCP), Ventas Inc (VTR) or Health Care REIT (HCN).
Dividend Increases
I am expecting dividend increase announcements from just one company in May.
- Cineplex Inc (CGX.TO) – last increase was 4.2% in May 2014
What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.
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