Bruce Campbell, chairman and portfolio manager at Campbell, Lee & Ross
Focus: Canadian large caps
MARKET OUTLOOK
There’s no sugarcoating the fact that the fourth quarter of 2018 wasn’t pretty. October was weak, November was flat and December was the fourth weakest December in the past 120 years. January is off to a strong start, but that doesn’t negate Q4/18. The disappointing fact is that the weakness in the fourth quarter was largely self-inflicted. The two biggest culprits were the U.S.-China tariff tensions and the aggressive interest rate hiking by the Federal Reserve. The latter issue sorted itself out on Wednesday when the Fed released a dovish statement, which was received positively by the market. From here, the Fed is implying they will be patient and data-dependent. The U.S. political situation has resolved itself in the near term, but another shutdown is not out of the realm of possibility, which could be a short-term negative. If we keep seeing reasonably strong data out of the U.S. and an accommodative Fed, we will remain optimistic on the 2019 outlook.
TOP PICKS
CN RAIL (CNR.TO)
Recent purchase price: $108.34.
CN Rail just reported better-than-expected Q4 results and bumped its dividend by 18 per cent. It has an industry-leading operating ratio with double-digit earnings per share (EPS) growth. This stock has been a long-term holding for us.
TD BANK (TD.TO)
Nervousness about the Canadian consumer is justified, but banks are still trading below 10 times forward earnings. TD is now about 55 per cent Canadian retail as its U.S. operations expand and diversify away from an overleveraged Canadian consumer. It has a yield at around 4 per cent, with 5 to 7 per cent earnings growth.
DISNEY (DIS.N)
Becoming the content king after the Fox acquisition (expected to close in Q2), Disney will have one of the most impressive libraries of content. Disney shares have been hit largely due to cord-cutting pressure on ESPN. Once they launch their streaming service, they will be one of the largest benefactors of cord-cutting. Other catalysts are the opening of Star Wars theme park in Orlando and an impressive 2019 film slate on the horizon (Lion King, Aladdin, Toy Story 4 and Frozen 2).
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CNR | Y | Y | Y |
| TD | Y | Y | Y |
| DIS | Y | Y | Y |
PAST PICKS: JAN. 22, 2018
NEWELL BRANDS (NWL.N)
We sold Newell in Q3/18 due to Trump’s China tariffs and the poor execution on the large Jarden acquisition. The company is now selling off assets and trying to refocus. It will be in the penalty box for several more quarters.
- Then: $31.54
- Now: $21.28
- Return: -33%
- Total return: -30%
ENBRIDGE (ENB.TO)
We still own Enbridge. Having one of the best risk-return profiles on the TSX for 2019, the company has de-levered and its corporate debt was upgraded with a positive outlook. Has a 6 per cent yield and balance sheet flexibility on the horizon.
- Then: $49.29
- Now: $48.39
- Return: -2%
- Total return: 4%
HSBC HOLDINGS (HSBC.N)
We still own it. Headquartered in the U.K., HSBC is under pressure due to Brexit and low Eurozone rates. It has a large exposure to Asian growth, a very solid balance sheet, a 5 per cent dividend yield and it’s inexpensive by historical standards.
- Then: $55.47
- Now: $41.71
- Return: -25%
- Total return: -21%
Total return average: -16%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| NWL | N | N | N |
| ENB | Y | Y | Y |
| HSBC | Y | Y | Y |
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