MARKET OUTLOOK:
Friday’s news surrounding the Omicron variant and subsequent designation as a variant of concern by the WHO catalyzed concerns swirling for weeks as case counts had already been on the rise in Europe during November.  

The resulting negative market action was swift and perhaps exacerbated by reduced trading volumes during the U.S. Thanksgiving holiday. Clearly, a step change in the path of the pandemic would be a material risk to markets but it is too soon to determine the magnitude, if any. Given Newhaven portfolios were already positioned defensively prior to this news, I see little reason to change course at present. 

Energy demand (especially for electricity and natural gas) remains robust, while supply remains constrained, creating a solid environment for producers and infrastructure providers. Portfolio dividends have grown by double digits in 2021 and appear poised to grow significantly in 2022 as well with the return of bank dividend increases.  

Additionally, any weakness in the market or the economy as a result of COVID is likely to push back tapering/tightening schedules for both central banks and OPEC+, offsetting at least some of the potential pain. The pandemic changed the world within a few weeks in 2020, as such markets rightfully treat developments in the path of the pandemic, both positive and negative, with a healthy amount of respect. As time has passed though, each development has become less material to the path of the market and economy and I expect this trend to continue as it relates to Omicron.

TOP PICKS:

K-Bro Linen (KBL TSX)
Last bought at $34.50
K-BRO is a new holding for my portfolios, a rare event given our low turnover ratio. Following takeovers of companies representing over 8 per cent of my holdings, I have cash to put to work and deployed 2.5 per cent into K-BRO.  

I like the fact that the company has already invested in capacity expansions over the past 5 years while maintaining a clean balance sheet. Lost business from the hospitality sector has largely been replaced by the health care sector making their business more defensive, while maintaining upside to normalization in other areas of the economy.  

Nearly all the company’s business is contracted for terms up to 10 years with inflation protection built in. The dividend is solid at nearly 3.5 per cent and has room to grow as utilization improves. Management is focused and conservative and the business is a nice diversifier for my infrastructure heavy portfolio.

Pembina Pipeline (PPL TSX)
Last bought at $38.50
Pipelines handled Friday’s dramatic oil price sell-off remarkably well compared with past episodes which was heartening. The recent departure of CEO Mick Dilger seems to be having more of an effect on the Pembina share price at present, which I believe is overdone. CFO Scott Burrows is a capable and well known replacement with a long runway ahead.  

Missteps over the past few years (Jordan Cove, PDH/PP Facility etc) are in the rear view mirror and we are now looking through the windshield at a very positive environment for natural gas in Western Canada, especially as LNG Canada comes into focus in the second half of this decade. Pembina’s 6.5 per cent dividend is well covered and should steadily grow from current levels. The shares are very attractive below the $40 level in our view.

NFI Group (NFI TSX)
Last bought at $21.50
NFI has endured a difficult couple of months, dropping guidance in September due to supply chain issues followed by an unexpected capital raise more recently. Both these factors are important but temporary.  

The company’s growing backlog remains strong as does their opportunity set as the only North American-based provider of zero emission electric transit buses. As fleet renewal continues over the next 20 years, public transit authorities are incentivized to green their fleet.  

NFI has the best Zero Emission Bus (ZEB) in the market and is in position to grow market share. Patient investors should look at NFI’s growth potential from current levels given the temporary issues holding them back. 

PAST PICKS: November 4, 2020

TC Energy (TRP TSX)

• Then: $52.66
• Now: $61.02
• Return: 16%
• Total Return: 22%

CAE (CAE TSX)

• Then: $23.47
• Now: $31.54
• Return: 34%
• Total Return: 34%

Fortis (FTS TSX) 

• Then: $52.84
• Now: $55.96
• Return: 6%
• Total Return: 11%

Total Return Average: 22%