Full episode: Market Call for Tuesday, August 13, 2019
Christine Poole, CEO and managing director at GlobeInvest Capital Management
Focus: North American large caps
The direction of equity markets continues to be dictated by central bank policy and developments surrounding the U.S.-China trade relationship. Unfortunately, trade tensions appear to be escalating instead of abating. Peripherally, the ongoing Brexit saga remains an overhang for the eurozone economies.
The slowdown in the global economy has prompted all central banks to adopt an accommodative monetary policy. In the U.S., the catalysts behind the recent rate cut was ongoing trade policy uncertainty that made companies more cautious about their capital spending, declining manufacturing output and weakening global growth, particularly in the euro area and China.
U.S. economic growth is largely being driven by domestic consumption, supported by rising income and high household confidence. The recent announcement of 10-per-cent tariffs (effective Sept. 1) on an additional US$300 billion worth of goods coming from China is worrisome, as this new round impacts finished goods like toys, clothing and consumer electronics. The offset to potentially higher consumer goods prices is lower energy prices and interest rates, softening the impact on household wallets.
Encouragingly, U.S. corporate profit growth in the second quarter remains positive with S&P 500 companies reporting better-than-expected results, posting year-over-year growth of 4 per cent in revenues and 2 per cent in earnings per share. Corporate earnings growth will continue to be the primary driver for higher stock prices.
While trade worries persist, the current economic data signals a slowing of growth, not negative growth. Forecasting unpredictability is difficult, so events are monitored as they unfold and a rational assessment is made of any implications on future economic growth.
Royal Bank (RY.TO) – Recent purchase price $100.75 range in August 2019
Royal Bank’s diversified business mix consists of personal and commercial lending (49 per cent of earnings), capital markets (22 per cent), wealth management and insurance (24 per cent) and investor and treasury services (5 per cent). Geographically, Canada accounts for 62 per cent of revenues, the U.S. 23 per cent, and international 15 per cent. Royal Bank’s dividends are expected to grow at a similar pace to earnings growth. The stock provides investors with a current dividend yield of 4.1 per cent.
Walt Disney (DIS.N) – Recent purchase price $135.25 range in August 2019
Disney is a media conglomerate and premier content provider, comprised of Media Networks (41 per cent of revenues), Parks and Resorts (34 per cent), Studio Entertainment (17 per cent) and Consumer Products (8 per cent). Its strong global brand portfolio, which includes Disney, ESPN, Pixar, Marvel and Lucas Film, supports a multi-platform strategy to exploit content and intellectual property across Disney’s business segments. The acquisition of 21st Century Fox significantly enhances Disney’s content offering and distribution capabilities (closed March 20, 2019). The November 2019 launch of Disney+, its direct-to-consumer streaming service, marks a new growth path for the company. Disney provides a dividend yield of 1.3 per cent.
Mondelez International (MDLZ.O) – Recent purchase price $53.20 range in August 2019
Mondelez is the snacking leader with the No. 1 global share in biscuits, chocolate and candy as well as the No. 2 position in gum. By category, biscuits represent 43 per cent of sales, chocolate 32 per cent, gum and candy 13 per cent, cheese and grocery 7 per cent, and beverages 5 per cent. Its portfolio of leading global brands includes Oreo, beVita, Cadbury, Toblerone, Trident, Dentyne and Halls. With close to 40 per cent of its revenues from emerging markets, Mondelez is well positioned to benefit from the growing middle-class population in these regions. Per-capita consumption of confectionary and biscuits in developing countries is significantly below that of developed countries, but is expected to increase as personal income levels rise. Mondelez provides investors with a dividend yield of 2.1 per cent.
PAST PICKS: AUG. 8, 2019
- Then: $46.55
- Now: $45.28
- Return: -3%
- Total Return: +3%
United Technologies (UTX.N)
- Then: $134.71
- Now: $130.09
- Return: -3%
- Total Return: -1%
Yum! Brands (YUM.N)
- Then: $81.92
- Now: $116.13
- Return: +42%
- Total Return: +44%
Total Return Average: +15%