Jun 14, 2016

Christine Poole's Top Picks: June 14, 2016

Michael Chu, BNN Bloomberg

Christine Poole , BNN

Christine Poole, CEO & managing director, GlobeInvest Capital Management

FOCUS: North American Large Caps

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MARKET OUTLOOK:

Equity markets have rebounded strongly off the January/February lows earlier this year. The Canadian stock market has led the rally due to the recovery in the crude oil price and a weaker U.S. dollar, providing positive price support to gold and base metal prices. The risk of a Canadian recession has diminished with interest rates expected to remain low and an expansionary fiscal policy to stimulate economic growth. The negative economic impact of the Fort McMurray fires will largely be recouped by the rebuilding process later in the year.

The U.S. economic recovery remains on track. The employment situation is in good shape, manufacturing activity is improving and the non-manufacturing sectors are healthy. The pace of interest rates hikes by the U.S. Fed, the inflection point when corporate profit growth turns positive and global political events will be key drivers for equity markets going forward.

Given the recent strength of North American equity markets, a consolidation would not be unexpected, providing an opportunity to invest in high quality, dividend paying companies.

Top Picks:

Royal Bank (RY.TO)

Royal Bank’s diversified business mix consists of personal and commercial lending (52 per cent of earnings), capital markets (23 per cent), wealth management and insurance (20 per cent) and investor and treasury services (5 per cent). Geographically, Canada accounts for 62 per cent of revenues, the U.S. 21 per cent and International 17 per cent. The acquisition of City National expands its U.S. presence and enhances RY’s presence in two attractive client segments: high net worth and commercial banking. 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.

Recent purchase price $78.30 range in June 2016

Whirlpool (WHR.N)

Whirlpool is the global leading major appliance manufacturer, with manufacturing plants in 14 countries and markets products in nearly every country. Its major brands include KitchenAid, Jenn-Air, Maytag, Whirlpool, Hotpoint and Amana. North America accounts for 51 per cent of sales, Europe/Middle East/Asia 26 per cent, Latin America 16 per cent and Asia 7 per cent. Recent acquisitions have expanded Whirlpool’s presence and competitiveness in Europe and China. International markets, specifically in emerging markets, are characterized by low levels of appliance penetration. In contrast with a more developed economy like the U.S. (79 per cent penetration), emerging markets in Latin America (42 per cent), China (36 per cent) and India (16 per cent) represent potential for higher levels of appliance penetration over the long-term. Whirlpool provides a dividend yield of 2.3 per cent.

Recent purchase price $178.50 range in June 2016

CVS Health (CVS.N)

CVS is a leading retail pharmacy chain (67 per cent of operating profits) and pharmacy benefits manager (33 per cent of operating profits) in the United States. The retail pharmacy division consists of more than 8,000 retail drugstores. Caremark, the company’s PBM, provides drug benefit services to employers, governments and insurance companies. The acquisitions of Target’s pharmacies and Omnicare, a provider of pharmacy services to long term care facilities will expand its presence in the industry. CVS offers a dividend yield of 1.8 per cent. Recent purchase price $96.50 range in June 2016