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FRIDAY .... BNN Report ....

posted on May 30, 2014 07:16PM

Market Call Newsletter: May 30, 2014

Market Call:

For video, market analysis and more click here

Jon Case, Portfolio Manager, Sentry Investment

FOCUS: Precious Metal Stocks

Market Outlook:

The gold price has been under pressure because of:
Optimism in other asset classes, such as the U.S. Market, and concern over a tapering of QE, has caused investors and speculators to more out of gold into other asset class.

The selling, mostly out of the ETF, has come at a time when one of the largest consumers in India has implemented an import ban on gold to take pressure off the current trade account, so they have been unable to buy. China is buying every increasing amounts, but growth in China cant offset the removal of India on its own.

Seasonal Weakness
We believe the current supply-demand dynamic as temporary. On the supply side, the ETF sales are already reduced, and at these prices mine supply is not sustainable.
On the demand side India has a new government in power which has stated they will relax the ban, and we are seeing a stronger rupee, which should help bring demand back Indian demand back up.
We don’t see a scenario where gold can stay down here.

Right now, we see demand down 300t but supply off 400t, so we believe there is a 100t deficit, and as Indian demand comes back up we think that deficit will rise.

TOP PICKS:

Detour Gold (DGC TSX)
Detour gold is a single asset gold producer with annual production of 500koz coming from the Detour Lake gold mine in Northern Ontario. The mine is new, and the company is ramping up production. They need to continue execute to get there, but there is a lot of runway for this stock to continue to move higher if they do. With a 15moz reserve, this could asset producing for 20 to 30 years - a strategic asset that could become a M&A target.

Argonaut Gold (AR TSX)
What it is: Mid-sized gold producer, production of ~140koz a year at attractive cash costs. The production comes from two mines in Mexico – good jurisdiction for mining. Cash costs are $775/oz and all in costs are around $950-$1,000/oz - a business that generates cash in this environment. The stock has been under pressure from a weak Q4, driven by lower than expected gold recoveries. The operational results will begin to improve as their main mine moves to a better part of the open pit later this year. The share price weakness looks like a buying opportunity to us.

Alamos Gold (AGI TSX)
Alamos is a mid-tier gold producer with production from the Mulatos mine in Mexico, and development stage assets in Turkey and Mexico. Annual production out of Mexico is 150koz-170koz at cash costs of 630-670 and all in costs of $960-$1,000, so the business generates free cash at spot gold prices. Alamos has one of the strongest balance sheets in the space, lowest costs, and is in a great jurisdiction. If you look at the FCF, the yield is now 4% growing to 10%, which is an attractive entry level for us.

Disclosure:

Personal

Family

Portfolio/Fund

GDC

AGI

Past Picks: May 4, 2013

Alamos Gold (AGI TSX)

Then: $14.54

Now: $8.82

-39.34%

TR: -38.72%

B2Gold (BTO TSX)

Then: $2.41

Now: $2.61

+8.30%

TR: +8.30%

Osisko Mining (OSK TSX)

Then: $4.37

Now: $7.83

+79.18%

TR: +79.18%

Total Return Average : +16.40%

Disclosure:

Personal

Family

Portfolio/Fund

AGI

BTO

OSK

Fund Profile

Sentry Precious Metals Growth Fund, Series A

Performance as of: April 30, 2014

Fund

Index*

1 Month

1.40%

1.60%

1 Year

-1.60%

-7.20%

3 Year

-22.40%

-22.10%

*Index: S&P/TSX Global Gold Index
*Returns are total annual compounded returns, net of management fees and operating expenses.
Source: Bloomberg LP, Sentry Investments

Top 5 holdings & weightings

Detour Gold - 9.80%
Sandstorm Metals - 9.20%
Primero Mining - 9.00%
B2Gold - 8.30%
Osisko Mining - 8.10%

Twitter: @Sentryinvest
Website: http://www.sentry.ca

Market Call Tonight:

For video, market analysis and more click here

Gordon Reid, President & CEO, Goodreid Investment Counsel

FOCUS: U.S. Equities

Market Outlook:

The U.S. equity market continues to experience rolling corrections targeting perceived over-valued areas such as social media and biotech stocks. As a group, stocks are fairly valued, suggesting that broad indexes can work higher in 2014, but at a rate that correlates more closely to earnings growth than we witnessed in 2013. Additional opportunity lies in highlighting undervalued specific situations.

TOP PICKS:

Visa (V NYSE)
Latest purchase in May 2014 at $211
Revenues and earnings are growing very rapidly as the world moves to electronic processing in place of cash to settle transactions. Debit transactions now account for almost 60 percent of Visa’s transactions. International expansion is driving growth, and as a major sponsor of the upcoming FIFA World Cup and the 2016 Olympic Games in Brazil, watch for Visa to capture market share to propel growth.

Wabash National (WNC NYSE)
Latest purchase in May 2014 at $13
Wabash manufactures trailers for commercial trucking. With the average age of trailer fleets now almost 9 years, the replacement cycle is taking hold. Price increases are sticking, margins are expanding, and volumes are kicking in.

Walgreen (WAG NYSE)
Latest purchase May 2014 at $70
Walgreen, the largest drugstore chain in the U.S., has a number of positive catalysts propelling growth. Customers continue to migrate back after the resolution with Pharmacy Benefit Manager, Express Scripts and their generic drug sales are getting a boost from a distribution agreement with Amerisource Bergen. Earnings are also benefiting from synergies achieved from the Alliance Boots acquisition.

Disclosure:

Personal

Family

Portfolio/Fund

WNC

WAG

Past Picks: May 8, 2013

Community Health Systems (CYH NYSE)

Then: $46.10

Now: $41.77

-9.39%

TR: -9.39%

Wellpoint (WLP NYSE)

Then: $75.05

Now: $108.36

+44.38%

TR: +47.02%

Deere & Co. (DE NYSE)

Then: $92.35

Now: $91.17

-1.23%

TR: +1.09%

Total Return Average : +12.91%

Disclosure:

Personal

Family

Portfolio/Fund

CYH

WLP

Fund Profile

Goodreid's North American Balanced Fund

Goodreid’s balanced approach allows investors to participate in the potential growth of equity holdings while mitigating risk through ownership of quality fixed income instruments.

Performance as of: March 31, 2014

Fund

Index*

1 Year

18.70%

12.80%

3 Year Annually

8.60%

5.10%

5 Year Annually

12.00%

10.10%

*Index: Globe Balanced Peer Index Average
*Returns are Net after fees and include reinvested dividends

Website: www.goodreid.com

This newsletter is for information purposes only and is not tailored to the needs of any particular individual or company, is not an endorsement, recommendation, or sponsorship of any entity or security, and does not contain investment advice.

BNN strongly recommends that you seek advice from a qualified investment advisor before making any investment decision.

One or more affiliates of BNN may invest or otherwise hold interests in entities which may be referenced in this newsletter. This newsletter is not intended to describe securities bought, sold, or held on behalf of any affiliate of BNN, and is not an indication of any intention to buy, sell, or hold any security.