With the previous appearance on Market Call, some of the driving factors behind Peter’s top picks were a lower Canadian dollar, lower oil and a strengthening US economy. With these trends remaining intact and not looking like they will end any time soon, we think companies that have energy as a major input cost and exporters remain an interesting area to consider for investors. A newer trend that we have been watching is that of a slowing Canadian economy and acquisitions, big acquisitions. Interestingly, we have yet to see many US companies take advantage of the lower Canadian dollar and acquire companies North of the border.  Here is a short list of some noteworthy acquisitions as of late:

• DH Corporation (held in the model income portfolio) acquires Fundtech for $1.25 billion.
• Kraft merges with Heinz in $36.6 billion deal.
• Concordia Healthcare purchases Clovis assets for $1.2 billion.
• Royal Dutch Shell purchases BG group for $88 billion.
• Alamos Gold and AuRico Gold merge in a $1.5 billion dollar deal.
• Catamaran Corp acquired by United Health for $12.8 billion.
• Alter NRG purchased for $147 million by Harvest International.

We think the two interesting areas to note from above are that acquisitions and mergers are happening across industries, and companies seem less afraid to make big deals and take advantage of cheap debt.  However, since we would very rarely want to invest on speculation of an acquisition, it still leaves investors with the question of where to invest? We think the answer is found when looking at the declining oil price.

No, we are not referring to oil companies specifically; rather the effect lower oil is having on Canada as a whole. As things slow down in the oil sector, one of the primary industries where investors look for growth within Canada will likely be relegated to the ‘doghouse’.  With this in mind, investors will need to look elsewhere for growth and this is why we feel non-resource growth companies may be an interesting area to keep an eye on. Not only will there be less options for growth investments, but a lagging Canadian market could mean less growth on average across the TSX (due to larger companies that are closely tied to GDP growth). We think this lowering of expected returns may push capital into some higher risk/return prospects in an attempt to improve the growth orientation of investors’ portfolios.  Obviously, we would not view every growth company as an investable option but would prefer to stick to companies with strong balance sheets and a good operating history where management has proven their abilities in the past. 

Miss Peter on BNN? See his Top Picks here.