Feb 1, 2019

Chris Stuchberry's Top Picks: Feb. 1, 2019

BNN Bloomberg

Chris Stuchberry , BNN Bloomberg

Chris Stuchberry, portfolio manager at Wellington-Altus Private Wealth
Focus: North American large caps and ADRs

MARKET OUTLOOK

Despite headlines, earnings season has come in pretty good so far. The companies that have suffered have had their own different reasons for suffering, but the economic backdrop remains strong.

With a positive backdrop like the one we have, it’s nearly impossible to be bearish. But the market is very much so due to current uncertainty. In order for the stock market to grow, we need uncertainty to be sorted out. While some of its causes are easy to solve, some of them are truly a challenge and could take an immeasurable amount of time. The issue that will take the longest to sort out is the U.S.-China conflict, which is truly a fight for control of the 21st century. For 30 years, we have witnessed the meteoric rise of China. The U.S. has now taken issue China’s growing strength and America’s recent actions have categorically shown that they will do everything in their power not to lose this “war.” While this political environment is an uncomfortable place to be, it could become a new normal for us and we may need to get used to it. Like the Cold War with Russia, this new Cold War with China could last for some time.

Through history, we’ve seen that the market reacts badly to uncertainties. While most of the other uncertainties are coming from the White House, we think we’ll go back to the old sentiment in time. We always like to say that political uncertainties are a buying opportunity. One thing to be thankful for is the fact that the U.S. constitution doesn’t allow for a permanent president and change is inevitable — in this case, for the better.

We felt our approach to hold significant cash balances and strong balance sheet companies was the right thing to do, but we still didn’t get the results we wanted. The positive is that the companies we hold are strong and while the market dragged them along for the ride, we believe they continue to be good investments in the long run. In the future, we intend to keep significant cash balance as markets show vulnerability and to take advantage of weaker markets to make investments in companies we believe in.

UPDATE

We sold some Twilio as it surpassed $100 per share — regular profit-taking.

TOP PICKS

WSP GLOBAL (WSP.TO)

A global consulting firm, WSP released its global strategic plan on Jan. 30 to grow the firm from having close to $6 billion in revenue to $8 to $9 billion through acquisitions and organic growth. The same management team said they would grow to $6 billion several years ago. We are sticking with them.

TD BANK (TD.TO)

We’ve had the tailwinds of interest rate hikes in both the U.S. and Canada, so we expect to see TD continue to grow earnings on both sides of the border. A strategic acquisition or two could also help bolster earnings. TD has a solid dividend and it’s an easy way to get exposure to the U.S. financial market without any foreign exchange cost.

BOX (BOX.N)

Box is a leading cloud content management company catering to Fortune 500 customers. Their platform as a service is open relative to Microsoft’s or others, allowing the best competitor software to integrate with the platform. It has a solid balance sheet and a good growth outlook.