Christine Poole, CEO and managing director at GlobeInvest Capital Management
Focus: North American large caps

MARKET OUTLOOK

The Wuhan coronavirus outbreak in China, a country that accounts for 20 per cent of the world’s GDP, will have a material impact on global economic growth. The extent of the disruption depends on the epidemic curve, China’s ability to contain the virus and when a vaccine is developed.

The Chinese economy will be hardest hit, followed by neighbouring countries in the region with close travel and supply chain links to that country. In addition, commodity-producing countries may see softer growth due to weak China demand and lower prices. Within consumer-oriented developed countries, falling oil prices will boost household purchasing power.

While the progress on trade negotiations is supportive of industrial activity, the coronavirus outbreak has dampened visibility in economic forecasting, thereby also dampening commitment to major investments for long-term projects. The U.S. ISM Manufacturing Index for January looked encouraging, but the survey was taken at the very initial stages of the outbreak.

Stock markets have largely shrugged off the health crisis, buoyed by generally better than expected fourth-quarter corporate earnings, a robust employment situation and stimulative central bank policies.

TOP PICKS

CGI (GIB/A TSX)
Recently purchased around $102.50 in February 2020.

CGI is a global technology services firm deriving 55 per cent of its revenues from outsourcing and 45 per cent from systems integration and consulting. Approximately 53 per cent of its revenue comes from Europe, 28 per cent from the U.S., 14 per cent from Canada and 5 per cent from the Asia Pacific region. CGI benefits from the need for enterprises to develop a digital platform, to explore digital technologies such as artificial intelligence, to formulate cybersecurity solutions and to seek continuous productivity improvements. Management remains focused on creating shareholder value through profitable organic growth, accretive acquisitions at reasonable prices within a consolidating IT services market and share repurchases.

DISNEY (DIS NYSE)
Recently purchased around $141.70 in January 2020.

Disney is a media conglomerate and premier content provider. The company’s business segments consist of media networks, parks and products, studio entertainment, consumer products and direct-to-consumer. Its strong global brand portfolio includes Disney, ESPN, Pixar, Marvel and Lucas Film and supports a multi-platform strategy to exploit content and intellectual property. The acquisition of 21st Century Fox last year significantly enhanced Disney’s content offerings and distribution capabilities. The successful launch of Disney+, its direct-to-consumer streaming service, marks a new growth. Disney provides a dividend yield of 1.2 per cent.

UNITED TECHNOLOGIES (UTX NYSE)
Recently purchased around $145 in December 2019.

United Technologies provides products and services to build systems and aerospace industries around the world. Its four business segments are Carrier, Pratt & Whitney, Aerospace Systems and Otis. The U.S. represents 38 per cent of sales, Europe, 29 per cent, Asia, 21 per cent, and the rest of the world, 12 per cent. The split between aftermarket and original equipment sales is 47/53 per cent, with the former providing a higher margin and recurring cash flow stream. The announced plans to spin-off Otis and Carrier is expected to be completed by the second quarter of 2020, followed by the acquisition of Ratheon. A steady dividend grower, the stock provides a yield of 1.9 per cent.