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

MARKET OUTLOOK

The drivers behind the recovery in equity markets to new highs in 2019 were the dovish pivot by central banks and the apparent de-escalation in trade tensions late in the year. Corporate profit growth will have to resume this year to support higher stock prices.

The slowdown in manufacturing activity has not abated, with the U.S. ISM Manufacturing Index contracting in December, signalling that activity shrank in each of the last five months of the year. Boeing’s decision to suspend the production of the 737 MAX in mid-January will also reverberate negatively across the sector.

The service sectors, which accounts for 70 per cent of U.S. GDP, is holding in and continues to expand. Sustainable job creation, low interest rates and rising home prices/equity are collectively working to underpin consumer confidence. The latest December reading remains elevated and supportive of consumer spending.

Trade relations between the U.S. and China will continue to sway investor sentiment. The phase 1 deal should promote higher trade activity between the two countries. A resumption of growth in industrial activity would be an encouraging sign for an extension of the current economic cycle, also supplementing service sector growth.

The volatile geopolitical situation in the Middle East will be disruptive to markets. Developments will be rationally assessed to ascertain the fallout impact on the global economy.

The indicators and metrics we follow suggest that economic growth is continuing into 2020, albeit at a slow pace. We adhere to our investment discipline to be long-term focused and patient to deploy capital at attractive price points.

TOP PICKS

DOLLAR TREE (DLTR NASD)
Recently purchased around $90 in January 2020.

Dollar Tree is an operator of discount variety retail stores under two banners: Dollar Tree and Family Dollar. Dollar Tree stores offer merchandise at a fixed price point of $1 ($1.25 in Canada) while Family Dollar stores cater to low to lower-middle-income consumers selling merchandise with price points ranging from $1 to $10. Elevated costs in its most recent quarter have temporarily depressed margins, creating an attractive point for the stock.

LOBLAW (L TSX)
Recently purchased around $67 in January 2020.

Loblaw is Canada’s largest grocery retailer, offering consumers multiple banners including Shoppers Drug Mart, the leading national drugstore operator. Digital retail initiatives include its PC Express “click and collect” and home delivery through Instacart. Its scale, locations, extensive private label offering and PC Optimum loyalty program are advantaged assets within a highly competitive industry. Loblaw provides a current yield of 1.9 per cent.

ROYAL BANK (RY TSX)
Recently purchased around $103 in January 2020.

Royal Bank’s diversified business mix consists of personal and commercial lending (49 per cent of earnings), capital markets (21 per cent), wealth management and insurance (26 per cent) and investor and treasury services (4 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 of 4 per cent.

PAST PICKS: JAN. 10, 2019

TD BANK (TD TSX)

• Then: $68.80
• Now: $73.09
• Return: 6%
• Total return: 11%

ABBOTT LABS (ABT NYSE)

• Then: $69.08
• Now: $84.63
• Return: 23%
• Total return: 25%

VISA (V NYSE)

• Then: $138.67
• Now: $195.89
• Return: 41%
• Total return: 42%

Total return average: 26%

TWITTER: @christine_poole
WEBSITE: globe-invest.com