Full episode: Market Call Tonight for Monday, September 16, 2019
Bruce Murray, portfolio manager and CEO and CIO of The Murray Wealth Group
Focus: North American growth stocks
Trade concerns escalated in early August as the Trump administration raised the stakes with a new round of tariffs on Chinese goods as well as an escalation of existing tariffs. To date, the tariffs have had a limited effect on U.S. consumers, with the American government focusing them on products that are easily substitutable and with multiple origin points. However, these new tariffs impact consumer-related goods such as apparel and electronics. Fear swept through the markets as these trade concerns combined with the yield curve inversion and talks of a recession.
In early September, U.S. pushback against the implementation of the new tariffs, concessionary hints from China and softer talk from the Fed were behind the nice market bounce. I believe the late summer to early autumn correction is over and Q3 earnings will propel markets higher through year-end. Publicly trades stocks are cheaper than a lot of alternatives, especially bonds and quality real estate. We now are seeing leveraged buyout firms buying listed companies as they are often cheaper than private ones, for example ONEX buying Westjet and Blackstone buying Dream Global REIT.
Aritzia is a women’s fashion provider with stores in Canada and the U.S. The company resonates strongly with women across demographics and sells at a premium price point. The company has a history of growing same-store sales and is ahead of the curve from an IT infrastructure perspective, which it can leverage to provide better service and increase efficiency. With 26 stores in the U.S. and growing consumer recognition, Aritzia has a long runway of new store growth (for a blue sky comparison, Lululemon has a similar store count in Canada but operates almost 300 stores in the U.S.). The company will release a new five-year growth plan in early 2020, which should be a catalyst to drive the share price higher.
Tapestry is the holding company of Coach, Kate Spade and Stuart Weitzman. The shares sold off hard after a poor Q2 showing amid continued challenges with its Kate Spade brand. However, the company’s largest brand, Coach, continues to grow moderately following a period of store count rightsizing and provides a steady free cash flow stream for dividends (current yield is 5.2 per cent). The company just installed a new CEO, Jide Zeitlin, who has a strong understanding of the company’ s issues and sees the opportunity for a higher share price if they can be fixed. In the short term, the shares could approach $30 if progress is made on Kate Spade, with additional gains possible if it proves to be sustainable.
Pfizer is a drugmaker with a diverse lineup of pharmaceutical products. The company recently entered into an arrangement to merge its Upjohn division with Mylan, which will be spun out of Pfizer shares in mid-2020. Mylan shares have suffered from operational setbacks and governance concerns in 2019, leading to the company trading at significant multiple discount. There is upside if Upjohn management, which will manage the company, can improve culture and governance prior to the spinout (Pfizer shareholders will receive shares in the new enterprise). The remaining assets in Pfizer represent its higher-growth drug assets and thus should command a premium valuation. At US$36, we believe the risk/reward proposition skews favourable.
PAST PICKS: SEPTEMBER 18, 2018
AIRBUS (EADSY OTC)
- Then: $30.64
- Now: $33.33
- Return: 9%
- Total return: 10%
BOSTON SCIENTIFIC (BSX:UN)
- Then: $37.62
- Now: $41.94
- Return: 11%
- Total return: 11%
- Then: $60.29
- Now: $44.54
- Return: -26%
- Total return: -25%
Total return average: -1%
THE MWG GLOBAL EQUITY GROWTH FUND
PERFORMANCE AS OF: AUG. 31, 2019
- 1 month: -2.09% fund, 0.43% index
- 1 year: 1.72% fund, 4.31% index
- 3 years: 4.21% fund, 7.71% index
INDEX: TSX Total Return.
Returns are based on reinvested dividends, net of fees and annualized.
- Alphabet: 5.95%
- Facebook: 4.74%
- Microsoft: 4.4%
- Morgan Stanley: 4.15%
- TD Bank: 3.88%