Bryden Teich's Top Picks: Oct. 28, 2019

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Full episode: Market Call for Monday, October 28, 2019

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Bryden Teich, partner and portfolio manager at Avenue Investment Management

Focus: North American equities

MARKET OUTLOOK

The stock market has performed well so far in 2019 despite the volatile economic and geo-political backdrop. The shift towards accommodative central bank policy at the beginning of 2019 has been a large contributor to the rebound in Canadian and U.S. equities. The economy continues to expand modestly for the time being however manufacturing and industrial production continues to be weak.

The U.S. Federal Reserve is expected to further ease monetary policy through the balance of 2019. They have also now resumed expanding their balance sheet and providing more liquidity into the market. Despite the uncertain economic environment stocks traditionally have performed well when the Fed is easing policy and expanding their balance sheet as long as there is no recession.

The interest rate environment remains supportive of stock valuations, but not if earnings decline significantly or we enter a recession in 2020. For the balance of 2019 investors should expect volatility to continue. Now is a good time to re-evaluate your asset allocation as well as take profits on some of your well performing assets.

TOP PICKS

Bryden Teich's Top Picks

Bryden Teich of Avenue Investment shares his top picks: Cargojet, Humana and Mullen convertible bonds.

CARGOJET (CJT/A:CT)

Cargojet is the leading provider of overnight cargo services in Canada. The company recently announced an official strategic partnership with Amazon which will provide a strong opportunity for future growth. With this new agreement, Amazon will become an equity holder in Cargojet and is also set to deliver substantial volume growth over the next several years. Cargojet has spent the last few years optimizing its fleet which we expect will provide further operating leverage and new avenues of revenue growth. Cargojet is a great way to play the continued growth in e-commerce sales in Canada.

HUMANA (HUM:UN)

Humana is a managed-care health insurance company based in the U.S. and we think there’s a great opportunity among the U.S. health insurers. There has been a lot of political pressure on the drug and health insurance companies over recent months as we head into the 2020 election cycle and that has negatively impacted the sector. Humana has a strong tailwind as a Medicare Advantage provider with over 85 per cent of their revenue coming from the retail Medicare insurance segment. Medicare Advantage will continue to grow as the demographics are hugely in their favor, with 10,000 Americans turning 65 every day for the next 10 years. The majority of Americans on Medicare also buy supplemental insurance on Medicare Advantage.

MULLEN GROUP (MTL:CT)

Mullen is a freight and transportation company that operates in trucking and logistics as well as oil field services that is based in Western Canada. The company offers transportation, logistics, warehousing and intermodal services to customers across North America. The company has a long track record of successfully integrating acquisitions into their business and the company has a very strong balance sheet. We are investors in Mullen through their 2026 5.75 per cent convertible debt which trades on the TSX. The company owns substantial amounts of real estate as so as debt holders we are confident in the creditworthiness of the company.