Could 2014 be 2004 (and 1994) all over again?
Why David Rosenberg thinks that the U.S. economy is poised to surprise to the upside. Also, two Alberta-based picks from James Hodgins
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at email@example.com
by Max Fawcett
David Rosenberg, the chief economist at Gluskin Sheff + Associates, thinks 2014 could surprise some people. In his 2014 forecast, Rosenberg said the next 12 months could look a lot like 2004 and 1994 – years in which a prolonged (and labored) recovery finally got traction. “In a nutshell, I feel like 2014 is going to feel a lot like 2004 and 1994 when the economy surprised to the high side after a prolonged period of unsatisfactory post-recession growth,” he said, “as reparation of highly leveraged balance sheets delayed, but in the end did not derail, a vigorous expansion.”
That doesn’t mean the markets will see the same kind of breakout to the upside. In 1994, the S&P 500 returned just 1.3 per cent, while in 2004 it registered a more robust 10.9 per cent gain. And after a year in which it returned nearly 30 per cent, it’s unreasonable to expect another gangbuster year on the markets. Then again, as the late 1990s demonstrated, the market is capable of stringing together a series of years like 2013. And if the U.S. (and, by extension, global) economy really is on the verge of turning? Well, stranger things have happened.
Meanwhile, on a recent appearance on BNN’s Market Call, James Hodgins, the chief investment officer at Curvature Hedge Strategies, made some interesting top picks. One of them was Axia NetMedia (TSE:AXX), which has seen a substantial rally due in large part to a new contract with the Alberta government. Hodgins says there’s still more to come for shareholders, though. “The value of that infrastructure is only increasing, and the great thing about Axia’s stock here is that you’re not paying for it. They have almost 60 per cent of their market cap in net working capital, between cash and receivables – and most of that is in cash. We’re expecting a very large special dividend – possibly in the range of $0.50 a share here. It’s just too cheap.” He thinks that $3 is easily attainable for Axia’s shares in 2014.
He also tabbed Painted Pony Petroleum (TSE:PPY), a popular choice among analysts and one that he says deserves a much richer valuation than the market is giving it right now. “Painted Pony, we think, has the single best upside per share, in terms of resource per share, in the Montney. Even if you look at just their PDP [proved developed reserves] plus their land value, you get easily $9 to $10 per share. If you look at it on a P2 reserve basis, you’re looking at the mid-teens. Now, the stock has been beaten down over the last couple of years, but the difference between Painted Pony and some of its competitors is that they haven’t taken on a lot of debt. There’s lots of room on the balance sheet to fund growth on a go-forward basis, and as gas prices start to increase the LNG theme emerges we think PPY has the most upside of any name.”