Rebecca Teltscher’s Top Picks for January 2, 2025

Rebecca Teltscher, portfolio manager, Newhaven Asset Management
FOCUS: Canadian dividend stocks

Top Picks: Canadian Natural Resources, Savaria, NFI Group

MARKET OUTLOOK:

The disconnect between equity valuations and the underlying economy continued to increase, in our view, for the second straight year. Fuelled by optimism surrounding AI as well as central bank rate cuts, markets delivered another strong year for investors. It seems we are testing the bounds of the goldilocks environment of not too hot, or cold, economic/inflation data over the past 12 to 18 months.

Clearly the incoming Donald Trump administration will be a major catalyst over the next 12 months and at first glance the trade and immigration policies look inflationary to us. The promised reductions in government spending will be difficult to achieve and the bond market is clearly nervous, as is the U.S. Federal Reserve. We are closely watching the 10-year bond yield, which has climbed one per cent as the Fed reduced short-term rates by one per cent, a very unusual circumstance. The equity market begrudgingly acknowledged this disconnect following the most recent Fed meeting where projections of future interest rates rose for the first time in over a year.

We would not be surprised to see the recent equity market weakness extend into the new year, absent a retreat in long-term interest rates. As such, our portfolio continues to be defensive and conservative despite the risk-on sentiment continuing into the new year. We are happy to continue to collect a large chunk of our returns up front in the form of a dividend, reducing the reliance of stock price volatility and capital appreciation for most of our total return.

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TOP PICKS:

Canadian Natural Resources (CNQ TSX)

Canadian Natural Resources is truly a Canadian success story. With one of the strongest management teams in the world, it manages to keep costs low, maintain premium low decline assets and make accretive long-term acquisitions at extremely attractive prices. CNQ is the largest crude oil producer in Canada and the second largest natural gas producer in Canada with an approximate 60 per cent oil/40 per cent gas production mix. Following the acquisition of Chevron’s Western Canadian assets at the end of 2024, the company refreshed its shareholder returns framework in which 60 per cent of FCF will be allocated to shareholder returns once debt falls below $15 billion.

Once debt falls below $12 billion, 100 per cent of FCF will be allocated to shareholder returns via dividend increases and share buybacks. Over the past six months, the stock has dropped 10 per cent (seven per cent in the past month alone) as investor sentiment shifted away from energy stocks. We view this as an attractive entry point for clients looking to initiate or add to an existing position in a stellar long-term compounder that has increased their dividend each year for the last 25 years. We initiated a position in CNQ back in 2018 and continue to add to the name for new clients coming in.

Savaria (SIS TSX)

Savaria is a North American leader in the accessibility industry benefiting from aging demographics, a shortage of healthcare workers, and a desire to live at home as long as possible. The accessibility business segment includes stairlifts, elevators and wheelchair lifts while their patient care segment includes items such as beds, mattresses, slings etc. The stock had performed exceptionally well for most of 2024 as management delivered growth in revenues as well as solid margin expansion.

However, the stock has dropped more than 10 per cent in the past month amid tariff concerns. Savaria generates almost half of its revenue in the U.S. and production facilities are in Canada, Europe and the U.S. as well as a new facility in Mexico. While the concern surrounding Savaria’s exposure to potential tariffs is valid, we believe the stock price reaction is overblown. In the past, Savaria’s products have been exempt from tariffs given that they are FDA-regulated. In addition, Savaria has other facilities in the U.S. in which production can be shifted and can pass along at least a portion of the impact to their distributors and consumers.

NFI Group (NFI TSX)

NFI Group is the leading manufacturer of transit buses and motor coaches in North America. It also provides after market parts and services. During the pandemic the stock was penalized due to supply chain issues for several bus components. Management has worked hard to alleviate these issues, and the stock has rebounded nicely in 2024. However, recent issues with seat availability have caused the stock to give back most of its gains it made throughout the year.

Despite some short-term supply issues that management has previously demonstrated they can resolve, NFI’s backlog continues to grow which will support bus delivery through 2026. Also, since the pandemic, many competitors have left the space making NFI one of the few remaining players. As demand for zero-emission busses surges, NFI is only manufacturer that is compliant with buy-America standards. After climbing almost 40 per cent in the first half of this year, the stock has given back most of its gains creating an attractive entry point for long term investors.

PAST PICKS: FEBRUARY 5, 2024

CAE (CAE TSX)

• Then: $26.45
• Now: $35.62
• Return: 35%
• Total Return: 35%

Brookfield Infrastructure Partners (BIP.UN TSX)

• Then: $42.03
• Now: $45.89
• Return: 9%
• Total Return: 15%

Emera (EMA TSX)

• Then: $47.67
• Now: $53.69
• Return: 13%
• Total Return: 17%

Total Return Average: 22%