Bryden Teich, portfolio manager at Avenue Investment Management
Focus: North American equities

MARKET OUTLOOK

The market has been strong so far in 2019 and equities have been supported because interest rates have come down very significantly. The view that the Federal Reserve is going to start lowering rates to support the economy has been a significant contributor to the market’s performance so far this year. The question is, 1) how weak is the economy going to get over the next six to 12 months? And, 2) what are central banks going to do to respond to this? The answers to these questions will determine how stocks finish 2019.

Although unemployment in the U.S. hovers at 50-year lows below 4 per cent, the industrial production and manufacturing data has been very weak lately. These sectors of the economy have been hurt by the ongoing trade war between the U.S and China, which is an issue that I don’t think will get resolved anytime soon.Retail sales and consumer confidence remain decent, but not great. The U.S. economy is susceptible to a recession if the consumer pulls back their buying intentions or if global growth remains weak.

The Fed has signaled they’re willing to cut rates to ensure the expansion continues and the central bank is desperate to increase inflation expectations. Although I believe this is a mistake, the market will act according to what decisions the Fed will to make. We will have to wait and see what happens in their July and September meetings. If the Fed cuts interest rates and economic growth recovers, then I think risk assets across the board are going to move higher. But the environment remains very late cycle and rates are going to stay low. Hence we believe that investors should remain invested, but in a defensive stance. Focus on dividend-paying stocks like REITs and utilities, own some gold and other areas of the market where there’s earnings growth, like healthcare and technology.

TOP PICKS

CIGNA (CI.N)
Bought in June at $157.

Cigna is a U.S. health insurance company. I think there’s a great opportunity among the American health insurer, as political pressure on drug pricing during the recent months has negatively impacted the sector. The concern that was priced into the market was that the U.S. was moving towards a nationalized healthcare program. It’s my strong belief that this will not happen.

Cigna acquired Express Scripts in the past year, which adds a pharmacy benefits manager to their mix. The shares trade at 10 times next year’s earnings.

BARRICK GOLD (ABX.TO)
Bought in March at $17.

We added a position in Barrick this year because we think that there’s a good opportunity for gold stocks right now. We think that with the Fed expected to start cutting rates and other possible monetary easing from the European Central Bank, money will continue to flow into the space. Barrick is a high-quality large producer that has an excellent management team, which moved over from Rangold. They have great assets in Nevada and their new joint venture with Newmont will yield big benefits.

NFI GROUP (NFI.TO)
Bought in May at $32.

NFI Group is North America's largest bus manufacturer, specializing in transit buses and zero-emission electric buses. We think the company has a big opportunity with the continued trend of urbanization and more people needing to be moved on public transit routes throughout North American cities. Also, the zero-emission electric bus space will continue to grow for years to come as cities look to move people around in a more environmentally friendly way. The shares have been under pressure for the last year because of lower guidance and orders. We think this presents a great opportunity for long-term shareholders. The shares currently yield over 5 per cent and the company has a free cash flow yield of about 10 per cent.

PAST PICKS: JULY 27, 2018

ALIMENTATION COUCHE-TARD (ATDb.TO)

• Then: $60.20
• Now: $79.99
• Return: 33%
• Total return: 34%

WPT INDUSTRIAL REIT (WIRu.TO)

• Then: $13.90
• Now: $13.76
• Return: -1%
• Total return: 5%

AIR CANADA (AC.TO)

• Then: $23.41
• Now: $44.29
• Return: 89%
• Total return: 89%

Total return average: 43%

WEBSITE: avenueinvestment.com