Four for the money

Stocks with potential for strong gains

Around this time of the year, readers always ask for my top stock picks and forecasts for the year. So here are four stocks I will be watching closely as 2019 unfolds.

Enbridge Inc. (TSX: ENB). This widely-held utility was on my list last year. At that time, I wrote, “The stock’s performance this year will tell us whether the market can come to terms with the enlarged company and the new business plan. If investors remain skeptical, the share price will flatline, despite the attractive yield.”

It did worse than flatline. In early January last year, the shares were trading in Toronto at close to $51. They closed on Friday at $47.92. Enbridge has been reporting decent numbers, and the yield is up to 6.1%, but investors still aren’t convinced.

Complicating the outlook further, the company has run into political resistance in Minnesota over its plans to upgrade its Line 3 pipeline, which had previously obtained approval from state regulators. It also faces opposition from the new governor of Michigan over its proposal to replace the aging line that runs under the Straits of Mackinaw.

The company will probably raise its dividend by another 10% or so this year. Whether that will be enough to give the stock a boost is anyone’s guess. But as things stand right now, this appears to be an undervalued company, and unless the whole market melts down, we could see the price back in the $50 range by year-end.

Apple Inc. (NASDAQ: APPL). On a price-earnings basis, Apple was the most reasonably priced major tech stock. But that didn’t stop the shares from losing nearly 40% since its high last October, after the company announced a big revenue shortfall in the fourth quarter.

Some commentators are now describing Apple as a spent force that has lost its technological lead and is faced with a deteriorating market for its number-one product, the iPhone. Looking back, Microsoft was once described in the same way but managed to reposition itself and remains a potent force to this day. Don’t bet against Apple doing the same.

Still, the company has to contend with several headwinds, not the least of which is the U.S.-China trade war, which Apple CEO Tim Cook said is one of the main contributors to the revenue shortfall. On a p/e basis, the stock looks like good value at 18.5 (it closed on Friday at US$170.41, up nearly 20% since the beginning of the year). Whether investors continue to see it that way will be one of the key stock stories of the year.

Suncor Energy Inc. (TSX: SU). This is Canada’s largest petroleum company, and its stock is a bellwether for the industry. The shares hit a high in Toronto of $55.47 in mid-2018 but trended down to the end of last year. But things turned around in the new year, and Suncor has steadily rallied, closing Friday at 42.81, up 20% since its low on Dec. 24.

If energy stocks continue to rally (and it’s a big if), Suncor could move significantly higher over the next 12 months, potentially to the $48-$50 range. The stock has started the year well. We’ll see if that pattern holds.

Royal Bank (TSX: RY). Just as Suncor is a proxy for the energy sector, Royal Bank is the leader among financials. As it goes, so goes the sector. Last year was a bad one for bank stocks, which came as a bit of a surprise as they usually prosper during periods of rising interest rates. That didn’t happen this time around – the sector was down 12.5% on the year and Royal Bank fell 17% from its January high of $108.52 to a low of $90.10 in late December. It has since staged a decent rally, closing Friday at $100.91, up about 12% from its December low.

Concerns about a slowing economy hurting bank earnings plus persistent worries about the still-overvalued housing markets in Toronto and Vancouver have contributed to pushing bank shares lower – perhaps too low. Thanks to a recent dividend increase, RBC stock now yields 3.8%. That’s an attractive return from Canada’s largest bank. According to Yahoo! Finance, analysts have a one-year estimate of $111.79 on the stock. That strikes me as a little optimistic, but it would not surprise me to see the shares flirting with $100 by year-end.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.