Christine Poole's Top Picks: July 10, 2018

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

_______________________________________________________________

MARKET OUTLOOK

Trade tensions are weighing on stock prices and represent a headwind for sustainable price gains. Nonetheless, both hard and soft data suggest continued strength in the U.S. economy. The housing market is improving with housing starts, home prices and household formation rising. The employment situation is healthy, with June’s report showing broad-based job gains across most industries, rising labour force participation and contained wage gains. 

U.S. corporations are optimistic with NFIB Small Business Optimism index at near historical highs.  Manufacturing and services survey data indicate continued strengthening economic activity, consistent with a solid rebound in Q2/18 GDP growth.

Second-quarter corporate earnings reports start this week, with revenues and earnings expected to grow 8 per cent and 20 per cent respectively from a year ago for the S&P 500 companies. Management commentary regarding the impact of trade tariffs on their respective businesses and overall sentiment will be closely monitored.  

For now, our constructive view on equities remains unchanged. But we will be vigilant for any signs the tariffs are derailing economic growth.

TOP PICKS

ENBRIDGE (ENB.TO)

Enbridge is a major North American oil and gas pipeline, gas processing and natural gas distribution company. Enbridge accounts for 28 per cent of crude oil transported and 20 per cent of natural gas transported in North America. With 96 per cent of its cash flow underpinned by long-term commercial agreements, Enbridge’s operations are stable and predictable. Positive recent developments include regulatory approval of its Line 3 project along its preferred route, announcements to streamline its corporate structure and sale of non-core natural gas gathering and processing assets at an attractive price. Enbridge has reaffirmed its 10 per cent annual dividend growth guidance through 2020, while maintaining a payout ratio of 65 per cent of available funds from operation. Enbridge offers an attractive yield of 5.8 per cent. Recent purchase price at the $42.25 level in June 2018.

MANULIFE FINANCIAL (MFC.TO)

Manulife is a global provider of financial protection and wealth management products and services. The company operates in Canada, the U.S. and Asia, with each region accounting for about one third of its earnings. Manulife trades at a very attractive valuation, which doesn’t reflect its strong Asian and wealth management businesses. Manulife provides a dividend yield of 3.7 per cent to investors. Recent purchase price of $24.15 in June 2018.

JOHNSON & JOHNSON (JNJ.N)

Johnson & Johnson is a global diversified healthcare company, manufacturing a broad range of products within three segments: Pharmaceuticals (47 per cent of sales), medical devices (35 per cent) and consumer (18 per cent). Approximately 70 per cent of sales are derived from products that have a no. 1 or no. 2 global share. The company offers consistent stable earnings and dividend growth. One of a handful of triple-A rated companies left in North America, Johnson & Johnson has increased its dividend for 56 consecutive years and offers investors a dividend yield of 2.9 per cent. Recent purchase price at the $122.75 range in June 2018.

PAST PICKS: JULY 12, 2017

CHARTWELL RETIREMENT RESIDENCES (CSH_u.TO)

• Then: $15.21
• Now: $15.38
• Return: 1%
• Total return: 5%

CGI GROUP (GIBa.TO)

• Then: $66.62
• Now: $84.86
• Return: 27%
• Total return: 27%

MONDELEZ (MDLZ.O)

• Then: $43.24
• Now: $42.20
• Return: -2%
• Total returns: -0.3%

Total return average: 11%

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