Stick to value stocks says BMO investment manager

Coxe used the reference in a speech to the Rotary Club of Toronto
about the recurring inflation of the US$, a phenomenon he referred
to as “re-flation.”

Re-flation occurs when consumers spend too much on foreign goods.
And the government,, in an attempt to counteract rising consumer prices,
reacts like drunken adolescents by grossly exaggerating the value of
the dollar.

However, re-flation, like any market trend, is unsustainable. The
U.S. is not looking at any long-term solutions and, as a result,
another rate hike is looming.

So how will a volatile U.S. market affect Canada? “The next [U.S.]
rate hike could create a dollar account deficit crisis, like it did in
’87,” says Coxe. “New York will drag down Toronto initially, but
[longer term], the Canadian market will outperform the U.S. because
it’s cheaper. The Canadian dollar benefits from being a quasi petro-
dollar.”

His advice to investors is to look for value stocks. That means
Internet stocks are out and, as a consequence, Nasdaq should be
avoided. “Sure, it’s the third largest market in the world and its
market multiple is 103 times earnings, but this [kind of growth] is
unheard of. It’s a Frankenstein market,” says Coxe.

Canadian equities, he says, are the way to go. Coxe ranks oil and
gas stocks first, followed by pipelines, base metals and finally
banks. “Banks are so beaten up right now. For the value investor,
it’s a good time to buy.”