Chris Blumas, vice-president and portfolio manager at GlobeInvest Capital Management
Focus: North American large caps

MARKET OUTLOOK

2019 has been a strong year for North American equity markets, with S&P/TSX Composite Index up around 15 per cent and the S&P 500 up around 20 per cent. When you break things down and look at individual company valuations, there is a real dichotomy in the market between companies with strong growth prospects and companies that are struggling to grow. As global GDP growth has slowed and bond yields have continued to decline, investors have aggressively bid up the prices for companies with above-average growth prospects.

Looking forward, we think that investors should remain cautious as equity market valuations have become more stretched and there are a number of short-term triggers that could cause an increase in volatility. Rising global trade tensions between the U.S. and China and the disruption caused by a no-deal Brexit are two of our biggest worries. Overall, we think that investors should remain disciplined and wait patiently for market dislocations and/or company-specific volatility to present itself and avoid the temptation to chase returns at this stage in the economic cycle.

TOP PICKS

H&R REIT (HR-U:CT)
Last purchased on Sep. 16 at $22.31.

This is one of my top income ideas. H&R is a diversified REIT with fully internalized management and a lower risk business model. Over the last few years, the REIT has focused on streamlining its portfolio and recycling capital towards higher value-added opportunities. The trust currently trades at around 12.5 times current year funds from operations and provides investors with an attractive dividend yield in excess of 6 per cent.

NUTRIEN (NTR:CT)
Last purchased on Sep. 16, 2019 at $68.35.

This is a more growth-oriented idea, but Nutrien also pays a healthy dividend. The company was created in 2018 with the merger of Agrium and PotashCorp. It generates about 60 per cent of its profits from the production of crop nutrients and 40 per cent from retail distribution to farmers. Currently, the company isn’t firing on all cylinders as wet weather in the U.S. has created a softer demand environment and forced it to idle some production capacity. However, higher efficiencies from a more integrated mining footprint should continue to lower costs and provide an added buffer against weak commodity pricing. The stock is currently trading at less than 10 times current year cash flows and provides investors with the potential for earnings growth and multiple expansion over the medium term.

CVS HEALTH (CVS:UN)
Last purchased on Sep. 16, 2019 at $63.44.

CVS is an integrated health care company. The company has a unique business model that includes a network of retail pharmacies, a pharmacy benefit manager and a health insurer. CVS recently completed the acquisition of Aetna and is very well positioned to meet the evolving needs of its customers. While there is some uncertainty around health care reform, the company has a strong competitive position and the ability to deliver significant value to its customers over the long-term. The stock is currently trading at around nine times current year earnings and provides investors with the potential for earnings growth and multiple expansion over the medium term.

PAST PICKS: JULY 25, 2019

ENBRIDGE (ENB:CT)

• Then: $44.17
• Now: $46.62
• Return: 6%
• Total return: 7%

SCOTIBANK (BNS:CT)

• Then: $70.73
• Now: $74.67
• Return: 6%
• Total return: 6%

UNITED TECHNOLOGIES (UTX:US)

• Then: $136.36
• Now: $137.35
• Return: 1%
• Total return: 1%

Total return average: 5%

WEBSITE: globe-invest.com