Full epsiode: Market Call Tonight for Monday, January 15, 2018
Bruce Murray, CEO and chief investment officer of The Murray Wealth Group
FOCUS: North American income stocks
We are amid one of the great bull markets of our lifetime and even though we are well into it, market sentiment remains very wary and scared. While sentiment did recover post-U.S. election, the wall of worry is still high with fears of politics and rising interest rates. We remain bullish with strong GDP growth and now rising wages in the key markets of the U.S., Europe and Asia, and believe the markets will continue to move up but expect the ascent rate to lessen from that seen over the past year.
U.S. corporate tax cuts increase the value of many companies worldwide as much as 20 per cent for full tax paying domestic ones. Corporate confidence is at a high level and positive earnings guidance from management is rising. Our focus remains on the new economy and we continue to see strong appreciation potential in the FANG stocks and their supporting cast, as well as leisure providers like Royal Caribbean Cruise Lines.
Recently, industrials, especially capital goods suppliers, have done better with the higher than expected GDP growth. In fact, Boeing was the best performer of the Dow last year. Medical related stocks have been weak due to the uncertainty of where U.S. medical reimbursement rates are going and Trumps rhetoric against certain industry players like insurance companies and drug prices. But we like the long-term positioning of most health care companies which, when combined with lower valuation, makes them attractive long-term.
In summary, we believe there is nothing extremely negative for the market unless the global economy substantially slows. We are in an era of change; artificial intelligence-driven automation is freeing workers from the industrial sector like mechanization freed labour from the farms. Social media has changed our way of living from entertainment to shopping and we believe these stocks will continue to lead the market in profitability and growth and we may witness another Nifty Fifty-type environment in the next decade.
Microsoft has completely transformed itself under Satya Nadella with the company gaining share in the cloud computing space given its long term trust and expertise in the enterprise segment. The company’s aggressively building global datacenter capacity in anticipation of a massive shift from customers which should drive margins higher and a higher P/E multiple than historical levels. Its legacy products should perform well in a strong global economy. Last purchased on Aug 31, 2017 at US$74.75.
The shift to streaming services continues and since Netflix has only penetrated less than 10 per cent of its potential market (100M versus 1.5B+ households with a TV set), the growth runway is long given its low cost relative to cable, which should provide for steady price increases along the way. Netflix is expensive on any metric, but with limited competition and its original content efforts providing a unique value proposition, the company should be rewarded for continued additions to subscribers and further price increases. Last purchased on Dec 1, 2017 at US$186.75.
NEWELL BRANDS (NWL.N)
We like the merger with Jarden which should lead to strong synergies from a collection of growing brands and ongoing rationalization of its product portfolio. However, a series of missteps in the second half of 2017 led to a significant negative rerating for shares that are trading at just 11x P/E. We think Newell can navigate the tough retail environment and execute on its sales goals which should lead to a strong rebound in the stock. Last purchased on Nov 17, 2017 at US$28.21.
PAST PICKS: APRIL 19, 2017
- Then: €83.98
- Now: €89.79
- Return: 6.91%
- Total return: 11.23%
- Then: $122.92
- Now: $106.00
- Return: -13.76%
- Total return: -13.76%
- Then: $142.27
- Now: $179.37
- Return: 26.07%
- Total return: 26.07%
TOTAL RETURN AVERAGE: 7.84%
MWG Global Equity Growth Fund
Performance as of: December 31, 2017
1 Month: -1.12% fund
1 Year: 18.27% fund
2 Year: 10.58% fund
TOP HOLDINGS AND WEIGHTINGS — as of January 15, 2018
- Alphabet: 6.35%
- Facebook: 4.86%
- TD Bank: 4.26%
- Microsoft: 4.08%
- Mastercard: 4.06%