Aug 22, 2018

Chris Stuchberry's Top Picks: Aug. 22, 2018

BNN Bloomberg

Chris Stuchberry , BNN Bloomberg

Chris Stuchberry, portfolio manager at Wellington-Altus Private Wealth
Focus: North American equities

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MARKET OUTLOOK

We believe the summer doldrums are in full force and investors shouldn't read too deeply into these quiet summer markets. Many stocks are having an incredibly tough summer, but there are a few managing to shine. Year-to-date, breadth has been increasing although the summer feels very challenging. Sentiment is weaker globally, yet the leading markets are close to all-time highs. The NASDAQ continues to lead global markets higher and although it doesn’t feel like it to Canadians, the S&P 500, the broader U.S. index, is within a hair of breaking out to its all-time highs. We think the U.S. will lead global markets higher.

Money has been leaving the S&P 500 as it holds close to its all time highs.

Portfolios are seeing virtually all of their year-to-date gains in the U.S. as their currency and market have held up better than global peers and gains are expanding outside of the FANG stocks into some of the broader U.S. market. While this is happening, global stocks have been falling. Our approach has been to remain balanced globally and we have taken profits in winning U.S. stocks to buy some losing global stocks.

The bond market continues to concern us. Globally, bond yields remain far too low for 10 years into an economic recovery. We now have one more meaningful country increase rates as the Bank of England hiked interest rates to get themselves to the level they were in back in 2009. The two-year U.S. government bond is nearly 2.65 per cent and a 10-year bond is approximately 2.88 per cent. There's just so little incentive to buy a longer-term bond and what we don’t want to see is incentive to sell longer term to buy shorter term. We think it's likely the yield curve will completely flatten and invert in the U.S. and are holding a larger percentage of structural cash in order to safely navigate this period.

UPDATES: We took an additional profit in Twilio (sold another 20 per cent of our shares). We bought it at approximately $25-$30. When the stock hit $76 on positive earnings, we took a bit of cash profit. We still own a large position in the name and are very positive on the company. Internally, we thought would be our next Shopify (incidentally, we owned 2 per cent Shopify, but had approximately a 4 per cent Twilio weighting).

TOP PICKS

FACEBOOK (FB.O)

The earnings call heard around the world did historic damage to Facebook's market cap, causing the largest value drop ever in stock markets. It since fell by the value of a TD or a Royal Bank, the largest Canadian companies. We think the damage is done and that it must normalize with the new reality. In that reality, we still see Facebook generating over $20 billion per year. How many companies have a perfect balance sheet and that cash flow globally?

ALIBABA (BABA.N)

One of the largest Chinese technology companies, internally we call it the Amazon of China. Alibababa has a great balance sheet and has been growing consistently for years in the right sector of the market. We think this is a good time to add a position on weakness to Alibaba as a longer-term investment.

ING GROEP (INGA EPA)

We think European banks are trading at the prices American banks were trading at five years ago. ING is consistently earning over 1 billion euros net per quarter, has led many financials in the transition to digital firms, and has a 5 per cent dividend. When European interest rates move higher, it should do very well.