Christine Poole, CEO and managing director at GlobeInvest Capital Management

Focus: North American large caps
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MARKET OUTLOOK
Stock market pullbacks are inevitable and are caused by various reasons. With the broad market indices trading at above historical valuation levels, heightened investor sensitivity to events and headlines is to be expected. More recently, geopolitical uncertainty surrounding relations between the U.S. and North Korea has dominated global markets. Within Canada, the NAFTA trade negotiations and the health of the housing market represent incremental uncertainties.

Profit growth will be the primary driver for equities going forward. With Q2/17 earnings season largely completed for the S&P 500 companies, corporate revenue and profit growth have come in better than expected. So far, Q2/17 earnings per share (EPS) have been up 12 per cent year-over-year compared to expectations of seven per cent. For 2017, current consensus EPS growth rate is 11.5 per cent, the first double-digit EPS growth rate since 2011. Similarly, the TSX Composite is expected to post 19 per cent EPS growth this year or 10 per cent excluding energy. 

Global economic growth is generally improving. While U.S. economic growth may not be as strong as originally hoped following Trump’s election, the economy is expanding and the job situation remains healthy, which bodes well for the future. The Canadian economy is strengthening, as evidenced by the July interest rate hike by the Bank of Canada. The euro zone economic expansion is becoming more broadly based, GDP growth in Japan is better than expected and the Chinese economy is meeting targeted growth rates. Improving economic growth should flow through to corporate profit growth.

With many central banks tilting towards a less accommodative policy, the removal of monetary stimulus is expected to be gradual given benign inflation globally.

TOP PICKS

BROOKFIELD ASSET MANAGEMENT (BAMa.TO) – Recent purchase price $49.85 in July 2017
Brookfield Asset Management is a global alternative asset manager with approximately $250 billion in assets under management. The company owns and operates assets on behalf of shareholders and clients with a focus on property, renewables, infrastructure and private equity. BAM seeks to invest in life-long, physical assets that typically benefit from some form of barrier to entry, regulatory regime or competitive advantages that provide for relatively stable cash flow streams. The stock offers a modest dividend yield of 1.4 per cent.

ROYAL BANK OF CANADA (RY.TO) – Recent purchase price $93.50 range in August 2017
Royal Bank’s diversified business mix consists of personal and commercial lending (50 per cent of earnings), capital markets (21 per cent), wealth management and insurance (23 per cent) and investor and treasury services (six per cent). Geographically, Canada accounts for 61 per cent of revenues, the U.S. 23 per cent and international 16 per cent. The acquisition of City National increases its U.S. presence and provides growth in two attractive segments: high net worth and commercial banking. City National’s core markets include New York, Los Angeles, San Francisco and San Diego, where the highest number of high-net-worth households are located. 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 3.7 per cent. 

HOME DEPOT (HD.N) – Recent purchase price $149.85 range in August 2017
Home Depot is the leading home improvement specialty retailer with over 2,270 stores covering the U.S. (87 per cent of stores), Canada (eight per cent) and Mexico (five per cent). Its business benefits from the cyclical recovery in the U.S. housing market, housing turnover, improving employment, rising consumer confidence and an aging housing stock. Private fixed residential investment as a share of GDP remains below the historical average. Internal growth drivers include initiatives to increase store and supply chain productivity, support online sales and develop programs focused on the lucrative professional customer. HD has a proven track record of consistently reducing share count and raising dividends, providing investors with a yield of 2.4 per cent.
 

PAST PICKS: AUGUST 16, 2016

FORTIS (FTS.TO)

• Then: $42.43
• Now: $46.02
• Return: 8.46%
• Total Return: 12.58%

CINEPLEX (CGX.TO)

• Then: $50.71
• Now: $42.52
• Return: -16.15%
• Total Return: -13.43%

MONDELEZ INTERNATIONAL (MDLZ.O)

• Then: $42.70
• Now: $44.19
• Return: 3.48%
• Total Return: 5.28%

TOTAL RETURN AVERAGE: 1.47%