Weekly Investment Ideas

Transcription

1 Weekly Investment Ideas Scotia Wealth Management Portfolio Advisory Group December 17, 2015 In this issue Recap of Previous Weekly Trade Ideas CANADIAN EQUITY Switch Sun Life Finanical (SLF) Power Corp of Canada (POW) Previous Recommendation REDUCE BUY Switch idea still valid Current Recommendation H&R REIT (HR.UN) BUY BUY U.S. EQUITY Intel Corp. (INTC) BUY Take profits Switch Wal-Mart (WMT) Home Depot (HD) FIXED INCOME Pipeline Bonds: Enbridge (ENB) & TransCanada (TRP) Switch Rogers Communications Shaw Communications SELL BUY Maintain sell Hold buy on weakness BUY Pipeline bonds still attractive SELL BUY Switch metrics no longer apply; SELL Shaw on acquisition news Alimentation Couche-Tard BUY Reiterate Sell See December 2 nd report PREFERRED SHARES Non-NVCC Bank Prefs BUY BUY Switch Brookfield Asset Management Resets (BAM.A) Brookfield Asset Management Perps (BAM.A.) ETFs Consumer Discretionary Select Sector SPDR ETF (XLY) ishares 1-5 Laddered Corporate Bond ETF (CBO) BUY SELL BUY BUY BUY BUY Switch idea still valid All initiated trade ideas are highlighted in an appendix at the end of this report December 17,

2 Weekly Investment Ideas Canadian Equity Trade Idea Recap Himalaya Jain Director Canadian Equities, Portfolio Advisory Group Warren Hastings Associate Director Canadian Equities, Portfolio Advisory Group 28 Oct/ Add Power Corporation of Canada (POW) / Reduce Sun Life Financial Inc. (SLF) This switch idea premised on SLF s historically wide valuation premium to POW despite SLF s slower growth profile and lower dividend yield a rationale which remains largely intact. Through 15 Dec/2015, it has generated 315 bps of outperformance, though this is down from the 825 bps peak reached on 17 Nov/2015. We continue to recommend this trade. 11 Nov/ Add H&R REIT (HR.un) We recommended H&R units for income-oriented investors based on an AFFO payout ratio expected to remain below 90% through F17, a business model premised on long term leases to credit worthy tenants, and attractive valuation. While the units have declined in price since we made our recommendation, this has served to improve their valuation; based on Scotiabank GBM estimates, H&R units now trade at approximately a 17% discount to NAV. We continue to recommend investors accumulate H&R units. 2

3 Exhibit 2: Price Performance of POW versus SLF Source: Bloomberg Exhibit 3: Price Performance of HR.un Source: Bloomberg December 17,

4 Weekly Investment Ideas U.S Equity Trade Idea Recap Caroline Escott Director US Equities, Portfolio Advisory Group Return to Dec 15, 2015 Date Company U.S. Recs S&P /21/2015 Buy Intel (INTC) 4.61% 1.21% 11/18/2015 Sell Wal-Mart (WMT) -2.12% -1.93% 11/18/2015 Buy Home Depot (HD) 3.75% -1.93% Intel (INTC) We highlighted INTC as an opportunity in the October 21 st Weekly Investment Ideas report. The stock has performed well, up ~4.6% since we featured it, exceeding the S&P 500 s return of ~1.2% over the same period. INTC hosted its Investor Meeting on November 19 th, where management provided a solid outlook for 2016 with revenue and earnings growth driven by the Data Center business, Internet of Things, and memory products. Management said it believes the Data Center business can grow in the mid-teen percentage range, and it also spoke to its expectations for stabilization in the PC market and its rationale for building memory fabs. While PC units are expected to decline slightly in 2016, INTC is expected to deliver flat to low-single-digit revenue through continued innovation that has resulted in higher share and ASPs. Consumers are also expected to choose long battery life notebooks and 2-in1s versus tablets in the coming year and INTC expects continued declines in tablets in We believe INTC remains well positioned to deliver improved operating leverage in the coming year, and expect management to continue its strong focus of returning capital to shareholders, as demonstrated by its recent 8.3% dividend hike. We continue to have a positive outlook for INTC and believe the risk/reward profile remains attractive over the medium and long-term. However, given the outperformance relative to the S&P 500 over the past eight weeks, we suggest investors with a shortterm focus take profit. Sell Wal-Mart (WMT)/Buy Home Depot (HD) We recommended investors sell WMT and buy HD on November 18. This trade idea has also performed well since we wrote about it, with Wal-Mart down 2.1% and Home Depot up 3.8%, for a total gain of 5.9%. We continue to have a neutral to cautious view of WMT and a positive view of HD. We acknowledged that while WMT s share price already reflects a cautious outlook, we expect the stock will remain range-bound as investors watch for additional evidence of a turnaround in the sales and profitability trends before awarding a higher multiple to the stock. In addition, the stock was trading at a 1x premium to its 5-year historical average, 14.5x versus 13.6x. Since that time the multiple has declined modestly, and is currently 14.1x. We believe there could be additional compression in the earnings multiple, as earnings estimates are forecast to decline over the next two years. As such, we continue to believe WMT will, at best, remain range-bound, and could decline further and we recommend investors limit exposure to the stock. 4

5 HD remains very well positioned to continue delivering strong shareholder returns over the medium and long-term. The company has consistently delivered better than expected results as it has benefitted from the improvement in the U.S. housing market as well as strong operational performance as management has executed very well through this housing cycle. We believe that HD will continue to be a very strong retailer and will continue to generate industry leading profitability and operating efficiency measures. We also expect the U.S. housing market to remain on a positive trajectory and that spending on home improvement will continue to be a bright spot in retail spending, albeit likely at a modestly slower rate than what we have seen over the past few years. HD is expected to continue to deliver industry leading profitability and operating efficiency measures, which we believe will provide support to the valuation. The stock is trading at a premium to the 5-year historical average, 21.6x versus 18.0x, and while we believe a premium valuation is justified, we expect the upside potential from current levels will be driven primarily by earnings growth, which is forecast to be in the range of 15% next year. We continue have a positive view of HD over the medium and longterm, but believe the share price may be somewhat limited in the near-term in the current environment. We would view any share price weakness as a buying opportunity. December 17,

6 Weekly Investment Ideas Fixed Income Trade Idea Recap Andrew Mystic Director Portfolio Advisory Group Andrew Edelberg Associate Portfolio Advisory Group Idea of the week (10/21/15): BUY: We continue to see Enbridge Inc. paper as a BUY based on relative valuation Performance since Initiation Enbridge Inc. bonds have generally provided positive returns and continue to offer value in our view. - Since initiating our trade on October 21, 2015 Enbridge Inc. has generally offered positive returns, barring the performance of the Enbridge Inc. 23s which have seen some spread widening. - Enbridge Inc spreads had tightened in about 9bps before sliding close to 18bps. - Enbridge Inc. 23s have generally outperformed TransCanada, although notably TransCanada 2025s have provided a decent return over our time horizon %. We continue to see TransCanada as the stable performer within the pipelines complex. - TransCanada 2023s spreads have tightened in ~10bps since initiating our trade idea. Table 1: Returns Over the Holding Period Price Coupon Maturity 10/21/ /15/2015 Interest Total Return Enbridge Inc % 9/2/ $ % Enbridge Inc % 3/9/ $ % Enbridge Inc % 2/1/ $ % Enbridge Inc % 3/11/ $ % Enbridge Inc % 12/5/ $ % Enbridge Inc % 6/30/ $ % TransCanada Pipelines 3.690% 7/19/ $ % TransCanada Pipelines 3.300% 7/17/ $ % Source: PC Bond Idea of the week (11/18/15): BUY to SELL: WIND Mobile Acquisition Could Result in Near-Term Weakness Performance since Initiation Shaw Outperforms Sector, Lags Rogers - Since initiating our trade on November 18, 2015 both Shaw bonds as well as both Rogers bonds have positive returns (Table 1) - On average over the same period spreads for the whole Canadian Telecom space widened by just over two basis points while Shaw widened less and Rogers spreads tightened-in (Table 2) - When we initiated the trade we recommended buying Shaw instead of Rogers. It s clear at this point we underperformed on a relative basis, but are still pleased with the positive returns of the Shaw bonds thus far 6

7 Table 1: Returns Over the Holding Period Price Coupon Maturity 11/18/ /15/2015 Interest Total Return Shaw 5.650% 10/1/2019 $ $ $ % Shaw 5.500% 12/7/2020 $ $ $ % Rogers 5.380% 11/4/2019 $ $ $ % Rogers 4.700% 9/29/2020 $ $ $ % Source: PC Bond Table 2: Average Spread Change Bench Spread 11/18/ /16/2015 Change Canadian Telecom Rogers Shaw Source: Bloomberg Event Shaw Communications Announces Acquisition of WIND Mobile for $1.6b - This morning (December 17, 2015) Shaw announced the acquisition of WIND Mobile for an approximate value of $1.6 billion - Financing terms of the transaction have not been released yet but bond issuance is expected. However, Shaw s press release stated the company is, committed to a financing plan that maintains its investment grade status - Expectations from Scotia GBM are for the company to push its leverage up to 2.9x which is enough to, keep SJR debt at investment grade without any urgency to issue equity or conduct assets sales - We also think the increase in leverage could be enough for S&P to remove their positive outlook on Shaw bonds Outlook for Trade SELL and Review in the New Year - Following the probable new issuance and higher leverage going forward we expect Shaw bonds to underperform the rest of the Canadian Telecom sector in the near/mid-term - Expectations are for this deal to become accretive when WIND achieves a 4GLTE network and becomes cash flow positive (2018 exp.) - Performance of the bonds in the longer-term will depend on management s execution and ability to de-lever after the deal - We will reassess this trade in the New Year after the bonds have adjusted and more is known about the financing mix of the deal - Currently we recommend taking current profits and SELLING - We think it s time to take our ball and go home on this one at least for the time being. December 17,

8 Weekly Investment Ideas Re-Print: Closing Trade from 12/2/15: SELL Alimentation Couche-Tard Raise CASH Short Term Improved Financial Flexibility in Q2/F16 Will Likely See Acquisitions Increase - On December 2, 2015 we reversed our previous BUY recommendation to a SELL for Couche-Tard bonds - At that time we noted that the Q2/F16 financial results could lead to increasing acquisitions and leverage - The potential future increase in leverage combined with the recent performance of the bonds led us to reverse our previous recommendation - Performance of the bonds as of December 2, 2015 is in Table 1 Table 1: Return Over the Holding Period Price Name Coupon Maturity 9/17/ /2/2015 Interest Total Return Couche-Tard 2.861% 11/1/ $ % Couche-Tard 3.319% 11/1/ $ % Couche-Tard 3.899% 11/1/ $ % Couche-Tard 3.600% 6/2/ $ % Source: Bloomberg - For more information on our recommendation, please see our December 2, 2015 report 8

9 Preferred Shares Trade Idea Recap Tara Quinn, CFA, MBA Director Equity Hybrids, Portfolio Advisory Group Chelsea Campbell Associate Equity Hybrids, Portfolio Advisory Group Idea of the week (10/14/15): The Good Ole Non-NVCC Bank Securities Non-NVCC bank rate resets have been unfairly punished during the selloff experienced in the preferred share market and offer investors attractive yields due to the expectation of being redeemed at the next reset date. Issuer Ticker Reset Date Bank of Montreal 3.39% Ser 16 BMO.PR.M Aug 25, 2018 Bank of Nova Scotia 1.82% Ser 30 BNS.PR.Y April 26, 2020 National Bank 3.80% Ser 28 NA.PR.Q Nov 15, 2017 TD Bank % Ser Y TD.PR.Y Oct 31, 2018 Performance: Since this trade idea was sent out to the field 3 of the 4 securities have outperformed both the preferred share market and the rate reset Index and have generated a positive price return for investors as seen in the tables below. Outlook: Ticker Performance Index Return BMO.PR.M 1.05% Preferred Share Index 0.87% BNS.PR.Y 0.58% Rate Reset Index 0.77% NA.PR.Q 3.89% TD.PR.Y 3.04% Avg Return 2.14% The preferred share market continues to experience price swings on a daily basis. And the non- NVCC bank securities should experience less volatility in these markets as they are expected to be redeemed due to Basel III regulations. Going forward, the rationale behind investing in non-nvcc bank rate resets remains convincing, therefore we continue to recommend these securities. December 17,

10 Weekly Investment Ideas Idea of the week (11/11/15): BAM Switch: Sell Fixed Perpetuals & Buy Rate Resets With the expectation that the Canadian yield curve will be dragged higher once the Fed starts to increase rates, we suggested to investors to sell their BAM perpetuals and buy longer-dated BAM rate resets. Ticker TYPE BUY/SELL BAM.PR.M Perpetual SELL BAM.PR.N Perpetual SELL BAM.PF.A Rate Reset BUY BAM.PF.G Rate Reset BUY Performance: Since the theme of switching from fixed perpetuals into longer dated rate resets was highlighted, both the 5-year and 30-year yields moved lower by 0.21% and 0.18% respectively. This move in yields hindered the performance of the switch as perpetuals outperformed, while rate resets underperformed in a declining rate environment as shown in the table below. Additionally since highlighting this switch, there has been an abundance ($1.6 B) of new rate reset issuance which has put pressure on existing rate reset securities including our BAM.PF.A & BAM.PF.G recommendations. Ticker Performance Index Return BAM.PR.N -9.62% Preferred Share Index % BAM.PR.M -9.82% Rate Reset Index % BAM.PF.A % BAM.PF.G % Outlook: While the performance of rate reset securities underperformed that of fixed pereptuals we believe that over a longer period of time, the resets will outperform. The market will continue to be influenced by any additional supply (new issuance). The rationale behind this trade idea is still valid and we continue to recommend this switch. 10

11 Exchange Traded Fund Idea Recap Joël Bériault Associate Director ETFs, Portfolio Advisory Group Idea of the Week (10/14/2015): BUY Consumer Discretionary Select Sector SPDR ETF (XLY:US) XLY is for investors looking for access to a broad basket of companies within the Consumer Discretionary sector. The ETF is a passive strategy that tracks a concentrated portfolio of 90 US companies diversified across multiple sub-industries: Ticker Name Weight (%) Industry Equity Holdings Weight (%) 1 AMZN Amazon.com Inc Media DIS Walt Disney Co Specialty Retail HD Home Depot Inc Internet & Catalog Retail CMCSA Comcast Corp Hotels, Restaurants & Leisure MCD McDonald's Corp Textiles, Apparel & Luxury Goods SBUX Starbucks Corp 3.85 Top 5 Total % of Assets NKE Nike Inc PCLN Priceline Group Inc LOW Lowe's Companies Inc TWX Time Warner Inc 2.55 Top 10 Total % of Assets Source: S&P Capital IQ Performance: Overall, from October 14 to December 14, 2015, XLY underperformed the S&P 500 TR parent index by 41 basis points however, year-to-date XLY (as of November 30, 2015) XLY has significantly outperformed by a margin of over 10%. source: Bloomberg October 14 to December 14, 2015 YTD RoR Consumer Discret Sel Sect SPDR ETF S&P Difference Outlook: We maintain our rationale going forward as we remain bullish on the US Consumer Discretionary sector. The earnings growth for 2016 is the strongest amongst all US sectors (S&P Capital IQ) and the valuation multiples are respectable versus their long-term historical numbers. December 17,

12 Weekly Investment Ideas Idea of the Week (10/28/15): Stepping Up Portfolio Diversification with a Laddered Approach to Fixed Income: BUY the ishares 1-5 Year Laddered Corporate Bond ETF (CBO) CBO can be used as a stand-alone passive strategy complementing equity or diversified fixed income portfolio exposures (e.g. Provincials, Municipals and Federal paper). This ETF is suitable for investors looking to diversify equity portfolio risk and reduce overall portfolio volatility. Rationale: The CBO provides better credit quality exposures than many other comparable ETF products. The potential for risk re-pricing on the back of Fed liftoff suggests corporate credit investors will likely want to remain defensive in the next 1-6 months. Laddered fixed income strategies such as the CBO can act as ballast for equities evening out performance and reducing overall portfolio volatility. The advantage of a passive fixed income strategy is that it allows investors to remain interest rate neutral, assuming even credit/rate exposures across various exposure buckets. Key Characteristics: Ticker XBB XCB CBO PSB Name Benchmark Outlook: Our positioning was predicated on the view that Fed hiking would spur volatility and a re-pricing of risk. Recent movements in credit spreads proved this expectation correct. Relative to the XBB, which holds longer dated credit exposures, the CBO has outperformed by 0.26% (0.18% vs % from October 28 to December 15, 2015). ishares Canadian Universe Bond Index ETF FTSE TMX Canada Universe Bond Index ishares Canadian Corporate Bond Index ETF FTSE TMX Canada All Corporate Bond Index ishares 1-5 Year Laddered Corporate Bond Index FTSE TMX Canada 1-5 Year Laddered Corporate Bond Index PowerShares 1-5 Year Laddered Investment Grade Corporate Bond Index ETF FTSE TMX Canada Investment Grade 1-5 Year Laddered Bond Index MER (%) # of holdings Trailing 12-month yield 2.87% 3.32% 3.87% 4.08% Duration 7.37 yrs 6.00 yrs 2.97 yrs 3.06 yrs Credit breakdown AAA AA A BBB Other Data as of December 11, 2015 Our positioning for the CBO also factored in the view that there would be limited benefit to the Bank of Canada (BoC) easing further in With the U.S. Fed expected to follow a hiking path, and the BoC expected to remain steady, we felt the CBO would provide a more defensive positioning in anticipation of Fed hiking. 12

13 Since our last update, a route in energy and commodities has proven more bearish for Canada with implied probabilities now suggesting a 44.5% probability of another cut by the December 7, 2016 meeting. Probabilities of a cut begin to rise above 30% by the BoC s May meeting. The resulting Canadian market bearishness has kept Canadian rates at relatively lower levels and been mildly supportive for credit. As a result, we have underperformed the XCB (0.26%) and PSB (0.20%) by approximately 0.08% and 0.01% respectively. We d suggest investors continue to hold the CBO into 2016 while assessing the possible impact of diverging monetary policies between Canada and the U.S. December 17,

14 Weekly Investment Ideas Appendix Trade Status (Outstanding/Closed) Price Performance Original Trade Idea Starting Trade Date CANADIAN EQUITY Switch: CPG to CWB 16-Sep-15 Outstanding 3.38% Switch: MG to LNR 30-Sep-15 Outstanding 16.66% Switch: SLF to POW 28-Oct-15 Outstanding 2.98% Buy: HR.UN 11-Nov-15 Outstanding -2.91% US EQUITY Buy: DIS 9-Sep-15 Closed - 4-Nov % Buy: GE 23-Sep-15 Closed - 4-Nov % Buy: SBUX 7-Oct-15 Outstanding 2.04% Buy: CMSA 7-Oct-15 Outstanding -3.26% Buy: NKE 7-Oct-15 Outstanding 5.33% Buy: HD 7-Oct-15 Outstanding 9.73% Buy: RCL 7-Oct-15 Outstanding 3.51% Buy: INTC 21-Oct-15 Closed Dec % Switch: WMT to HD 18-Nov-15 Outstanding 5.87% FIXED INCOME Buy: Ford Credit Canada 2.634% 11/21/16 2-Sep-15 Outstanding 0.454% Buy: Ford Credit Canada 3.32% 12/19/17 2-Sep-15 Outstanding 0.160% Buy: Ford Credit Canada 3.7% 8/2/18 2-Sep-15 Outstanding 0.083% Buy: Ford Credit Canada 2.939% 2/19/19 2-Sep-15 Outstanding 0.019% Buy: Ford Credit Canada 2.45% 5/7/20 2-Sep-15 Outstanding 0.108% Buy: Alimentation Couche-Tard Inc % 11/1/17 17-Sep-15 Closed - 2- Dec % Buy: Alimentation Couche-Tard Inc % 11/1/19 17-Sep-15 Closed - 2- Dec % Buy: Alimentation Couche-Tard Inc % 11/1/22 17-Sep-15 Closed - 2- Dec % Buy: Alimentation Couche-Tard Inc. 3.6% 6/2/25 17-Sep-15 Closed - 2- Dec % Buy: Canadian Western Bank 3.077% 1/14/19 7-Oct-15 Outstanding 0.457% Buy: Canadian Western Bank 2.751% 6/29/20 7-Oct-15 Outstanding 0.589% Buy: Canadian Western Bank 3.463% 12/17/24 7-Oct-15 Outstanding 0.527% Buy: Enbridge Inc. 4.77% 9/2/19 21-Oct-15 Outstanding 0.304% Buy: Enbridge Inc. 4.53% 3/9/20 21-Oct-15 Outstanding 0.207% Buy: Enbridge Inc. 4.26% 2/1/21 21-Oct-15 Outstanding 0.651% Buy: Enbridge Inc. 3.16% 3/11/21 21-Oct-15 Outstanding 0.239% Buy: Enbridge Inc. 3.19% 12/5/22 21-Oct-15 Outstanding % Buy: Enbridge Inc. 3.94% 6/30/23 21-Oct-15 Outstanding % Buy: TransCanada Pipelines 3.69% 7/19/23 21-Oct-15 Outstanding 0.635% Buy: TransCanada Pipelines 3.3% 7/17/25 21-Oct-15 Outstanding 1.203% Switch: Rogers to Shaw RCI 5.38% 11/4/19 to SJR 5.65% 10/1/19 18-Nov-15 Closed - 17-Dec % RCI 4.7% 9/29/20 to SJR 5.5% 12/7/20 Closed - 17-Dec % PREFERRED SHARES Buy: ALA.PR.U 2-Sep-15 Outstanding -2.90% Buy: ENB.PR.U 2-Sep-15 Outstanding -4.94% Buy: ENB.PF.U 2-Sep-15 Outstanding -4.35% Buy: ENB.PR.V 2-Sep-15 Outstanding -4.94% Buy: ENB.PF.V 2-Sep-15 Outstanding -4.44% Buy: HSE.PR.C 23-Sep-15 Outstanding % Buy: BAM.PF.B 23-Sep-15 Outstanding % Buy: BPO.PR.A 23-Sep-15 Outstanding -7.11% Buy: FFH.PR.C 23-Sep-15 Outstanding -6.10% Buy: BMO.PR.M 14-Oct-15 Outstanding 1.74% Buy: BNS.PR.Y 14-Oct-15 Outstanding 0.47% Buy: NA.PR.Q 14-Oct-15 Outstanding 3.49% Buy: TD.PR.Y 14-Oct-15 Outstanding 1.85% Switch: BAM.PR.N to BAM.PF.A 11-Nov-15 Outstanding -5.53% Switch: BAM.PR.M to BAM.PF.G 11-Nov-15 Outstanding -3.74% ETFS Buy: XMI 9-Sep-15 Outstanding 6.12% Buy: VYM (US$) 30-Sep-15 Outstanding 7.15% Buy: XLY 14-Oct-15 Outstanding 2.61% Buy: CBO 28-Oct-15 Outstanding -0.42% 14

15 Important Disclosures The author(s) of the report own(s) securities of the following companies. TransCanada Corporation, The supervisors of the Portfolio Advisory Group own securities of the following companies. Bank of Nova Scotia, Scotia Capital Inc. is what is referred to as an integrated investment firm since we provide a broad range of corporate finance, investment banking, institutional trading and retail client services and products. As a result we recognize that we there are inherent conflicts of interest in our business since we often represent both sides to a transaction, namely the buyer and the seller. While we have policies and procedures in place to manage these conflicts, we also disclose certain conflicts to you so that you are aware of them. The following list provides conflict disclosure of certain relationships that we have, or have had within a specified period of time, with the companies that are discussed in this report. Scotia Capital Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund Scotia Capital (USA) Inc. or its affiliates has managed or co-managed a public offering in the past 12 months. Bank of Montreal, Bank of Nova Scotia, Brookfield Asset Management, Enbridge Inc., H&R REIT, National Bank of Canada, Rogers Communications Inc., Sun Life Financial Inc., TD Bank Financial Group, TransCanada Corporation Scotia Capital (USA) Inc. or its affiliates has received compensation for investment banking services in the past 12 months. Bank of Montreal, Bank of Nova Scotia, Brookfield Asset Management, Enbridge Inc., H&R REIT, National Bank of Canada, Power Corporation of Canada, Sun Life Financial Inc., TD Bank Financial Group, TransCanada Corporation Scotia Capital (USA) Inc. had an investment banking services client relationship during the past 12 months. Bank of Nova Scotia, National Bank of Canada Scotia Capital Inc. and its affiliates collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities of the following issuer(s): Bank of Montreal, Brookfield Asset Management, Enbridge Inc., National Bank of Canada, Power Corporation of Canada, Rogers Communications Inc., Shaw Communications Inc., Sun Life Financial Inc., TD Bank Financial Group, TransCanada Corporation The Bank of Nova Scotia is the parent company and a related issuer of Scotia Capital Inc. and ultimate parent company and related issuer of Scotia Capital (USA) Inc. Bank of Nova Scotia Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or debt securities of, or have provided advice for a fee with respect to, the following issuer(s): Bank of Montreal, Bank of Nova Scotia, Brookfield Asset Management, Enbridge Inc., H&R REIT, National Bank of Canada, Rogers Communications Inc., Sun Life Financial Inc., TD Bank Financial Group, TransCanada Corporation This issuer owns 5% or more of the total issued share capital of The Bank of Nova Scotia. TD Bank Financial Group Alimentation Couche-Tard Inc engaged Scotiabank as a financial advisor in the acquisition of Statoil Fuel & Retail ASA. Alimentation Couche- Tard Inc. General Disclosures The ScotiaMcLeod Portfolio Advisory Group prepares this report by aggregating information obtained from various sources as a resource for ScotiaMcLeod Wealth Advisors and their clients. Information may be obtained from the Equity Research and Fixed Income Research departments of the Global Banking and Markets division of Scotiabank. Information may be also obtained from the Foreign Exchange Research and Scotia Economics departments within Scotiabank. In addition to information obtained from members of the Scotiabank group, information may be obtained from the following third party sources: Standard & Poor s, Valueline, Morningstar CPMS and Bloomberg. The information and opinions contained in this report have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. While the information provided is believed to be accurate and reliable, neither Scotia Capital Inc., which includes the ScotiaMcLeod Portfolio Advisory Group, nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of such information. Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. December 17,

16 Weekly Investment Ideas This report is provided to you for informational purposes only. This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation or particular needs of any specific person. Investors should seek advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Nothing contained in this report is or should be relied upon as a promise or representation as to the future. The pro forma and estimated financial information contained in this report, if any, is based on certain assumptions and management s analysis of information available at the time that this information was prepared, which assumptions and analysis may or may not be correct. There is no representation, warranty or other assurance that any projections contained in this report will be realized. Opinions, estimates and projections contained in this report are our own as of the date hereof and are subject to change without notice. Copyright 2012 Scotia Capital Inc. All rights reserved Additional Disclosures ScotiaMcLeod is committed to offering its valued clients a disciplined approach to investing. A hallmark of this approach is access to comprehensive research reports, including fundamental, technical, and quantitative analysis that investors can use to assist them in bringing informed judgment to their own financial situation and investment decisions. In addition to the reports prepared by ScotiaMcLeod through its Portfolio Advisory Group, we also offer our clients access on request to insights in the form of research from other leading firms such as Standard and Poor s, which offers independent research of relevance to our investment process. Further to your request, please find attached a research report of Standard and Poor s (or one of its research affiliates), a member of the National Association of Securities Dealers (or similar securities regulatory authority). As Standard & Poor s is not subject to Canadian regulation, this research report does not conform to Canadian disclosure requirements. ScotiaMcLeod is a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any loss arising from any use of this document or its contents, including for any errors or omissions in the data or information included in the document or the context from which it is drawn. The content may have been based at least in part, on material provided by Standard & Poor's (S&P), our correspondent research service. S&P has given ScotiaMcLeod general permission to use its research reports as source materials, but has not reviewed or approved this report, nor has it been informed of its publication. S&P s Stock Appreciation Ranking System is used by S&P analysts to rate stocks within their coverage universe assigning one to five STARS five STARS five STARS indicating a buy and one STAR a sell. S&P s analysts also provide earnings estimates for these covered issues. S&P s Stock Appreciation Ranking System is a rank of the potential for future performance over a six to 12-month period. The STARS selection process relies on a disciplined investment approach that combines fundamental and technical analysis, sector weightings, reasonable turnover, performance-based bonus system, and a top-down overlay with influence from the S&P's Investment Policy Committee. The overarching investment methodology is growth at a reasonable price. Unlike equity valuations from other financial firms, STARS is a forecast of a company's future capital appreciation potential versus the expected performance of the S&P 500 before dividends. Registered trademark of The Bank of Nova Scotia, used by ScotiaMcLeod under license. ScotiaMcLeod is a division of Scotia Capital Inc. Scotia Capital Inc. is a member of Canadian Investor Protection Fund. 16

17 Definition of Scotiabank GBM Equity Research Ratings & Risk Rankings We have a three-tiered system, with ratings of 1-Sector Outperform, 2-Sector Perform, and 3-Sector Underperform. Each analyst assigns a rating that is relative to his or her coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Our risk ranking system provides transparency as to the underlying financial and operational risk of each stock covered. Historical financial results, share price volatility, liquidity of the shares, credit ratings, and analyst forecasts are evaluated in this process. The final ranking also incorporates judgmental, as well as statistical, criteria. Consistency and predictability of earnings, EPS growth, dividends, cash flow from operations, and strength of balance sheet are key factors considered. Scotiabank GBM has a committee responsible for assigning risk rankings for each stock covered. The rating assigned to each security covered in this report is based on the Scotiabank GBM research analyst s 12-month view on the security. Analysts may sometimes express to traders, salespeople and certain clients their shorter-term views on these securities that differ from their 12-month view due to several factors, including but not limited to the inherent volatility of the marketplace. Ratings Risk Rankings Sector Outperform The stock is expected to outperform the average total return of the analyst's coverage universe by sector over the next 12 months. Sector Perform The stock is expected to perform approximately in line with the average total return of the analyst's coverage universe by sector over the next 12 months. Sector Underperform The stock is expected to underperform the average total return of the analyst's coverage universe by sector over the next 12 months. Other Ratings Tender - Investors are guided to tender to the terms of the takeover offer. Under Review - The rating has been temporarily placed under review, until sufficient information has been received and assessed by the analyst. Low Low financial and operational risk, high predictability of financial results, low stock volatility. Medium Moderate financial and operational risk, moderate predictability of financial results, moderate stock volatility. High High financial and/or operational risk, low predictability of financial results, high stock volatility. Caution Warranted Exceptionally high financial and/or operational risk, exceptionally low predictability of financial results, exceptionally high stock volatility. For risk tolerant investors only. Venture Risk and return consistent with Venture Capital. For risk-tolerant investors only. December 17,