Christine Poole, CEO and managing director at GlobeInvest Capital Management

Focus: North American large caps
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MARKET OUTLOOK
The strength and resilience of equity markets are being supported by Trump’s pro-growth policies and stronger global economic conditions. Within all developed countries, manufacturing activity has strengthened and is expanding compared to a year ago when some countries were in a contraction phase. China’s economy is also gaining momentum, with its PMI in March rising to 51.8 versus 50.2 a year ago. The soft economic data that is based on surveys of consumers, purchasing managers, and small business owners in the U.S., is remarkably strong and has yet to fully flow through to the hard data, specifically auto sales and commercial loan volume. Job growth and labour compensation gains, however, are hard data points that substantiate a strengthening economy.

Stronger economies imply rising demand for goods and services, resulting in higher corporate profits. For the S&P 500 companies, Q1/17 consensus earnings per share (EPS) estimates are expected to be up 9.2 per cent, led by a recovery in energy. Management commentary will be an important input to gauge the pace of economic and profit growth for the balance of the year. Consensus estimates forecast 2017 EPS to be up 10.9 per cent (excludes any positive impact from tax reform), the first year of double-digit growth since 2011.   

With stock market indices valuations above historical averages, events that may potentially dampen sentiment and growth expectations are catalysts for a pullback. Timing a correction is always difficult. The longer-term view for equities remains constructive. Inevitable pullbacks represent investment opportunities. 

TOP PICKS

FORTIS (FTS.TO) – Recent purchase $42.70 range in March 2017
Fortis is a North American electric and gas utility company with 96 per cent of its assets regulated and the remaining under long-term contracted power generation operations. Its recent acquisition of ITC Holdings Corporation, a fully- regulated U.S. electric transmission utility company, significantly increases its footprint in the U.S. Fortis is a stable cash flow generator, posting 43 consecutive years of annual dividend increases. Supported by a backlog of projects, Fortis has targeted average annual dividend growth of six per cent through 2021. Fortis offers a yield of 3.6 per cent.

TD BANK (TD.TO) – Recent purchase $65.40 range in March 2017
TD is a leading North American bank that derives 61 per cent of its net income from Canadian retail operations, 26 per cent from U.S. retail, nine per cent from wholesale/capital markets and four per cent from TD Ameritrade. TD is well-positioned to benefit from relatively better economic growth in the U.S as well as an improving domestic economy. The bank has increased its dividend at a 12 per cent CAGR over the last 20 years. Its dividend payout ratio is about 46 per cent, near the mid-point of its 40-per-cent to 50-per-cent target. TD’s current dividend yield is 3.6 per cent.

ALPHABET (GOOGL.O) – Recent purchase price $820 range in January 2017
Alphabet is a global technology company that provides the world’s leading search engine, Google, and dominates in both global desktop and mobile search engine queries. Google benefits from the secular shift to online advertising, which garners about 35 per cent of global advertising budgets and offers significant secular growth ahead. Alphabet boasts a strong balance sheet, with net cash of $79 billion (60 per cent is overseas) or over $110 per share.
 

PAST PICKS: MARCH 10, 2016

ROYAL BANK OF CANADA (RY.TO)

• Then: $73.24
• Now: $96.29
• Return: +31.47%
• TR: +36.73%

CVS HEALTH (CVS.N)

• Then: $99.34
• Now: $77.98
• Return: -21.50%
• TR: -19.95%

WELLS FARGO (WFC.N)

• Then: $48.51
• Now: $53.36
• Return: +9.99%
• TR: +13.44%

TOTAL RETURN AVERAGE: +10.07%
 

TWITTER: @christine_globe
WEBSITE: www.globe-invest.com