Full episode: Market Call Tonight for Friday, June 8, 2018
Christine Poole, CEO and managing director at GlobeInvest Capital Management
Focus: North American large caps
The current U.S. economic expansion is the third-longest in U.S. history (dating back to 1854) now in its 108th month. Only the expansions in the ‘90s and ‘60s were longer. The unusually severe recession in 2008-2009 and the sluggish pace of the recovery are reasons cited for its lengthy duration. The tax reform package passed last year may also be a catalyst for the extending of this recovery in the form of lower corporate taxes and accelerated depreciation. The latter should encourage capital spending and drive economic activity.
The employment situation is robust in the U.S., with the unemployment rate at 3.8 per cent in May, near cyclical lows. The U.S. consumer feels good, as measured by consumer confidence and sentiment indexes, which are remaining at historically high levels. Personal consumption represents about 70 per cent of U.S. GDP and is the key driver of the American economy. In Canada, the unemployment rate was 5.8 per cent in April, the lowest level since 1976 for the fourth consecutive month.
With wage inflation remaining inexplicitly relatively contained, the path to higher interest rates should be measured and gradual. Notwithstanding a less accommodative stance by central banks globally, policy decisions will remain somewhat data dependent.
While we’re attuned to the potentially negative influence of trade protectionism and geopolitical instability on the global economy, the base case of ongoing economic growth driving corporate profit growth prevails for now. Equities remain our preferred asset class.
Recent purchase at the $40.45 range in June 2018.
Fortis is a North American electric and gas utility company with 96 per cent of its assets regulated and the remaining under long-term contracted power generation operations. Its acquisition of ITC Holdings Corporation, a fully regulated U.S. electric transmission utility company, significantly increases its footprint in the U.S. Fortis is a stable cash flow generator, posting 44 consecutive years of annual dividend increases. Supported by a backlog of projects, Fortis has targeted average annual dividend growth of 6 per cent through 2022. Fortis offers a yield of 4.2 per cent.
ROYAL BANK (RY.TO)
Recent purchase at the $99.30 range in June 2018.
Royal Bank’s diversified business mix consists of personal and commercial lending (48 per cent of earnings), capital markets (22 per cent), wealth management and insurance (24 per cent), and investor and treasury services (6 per cent). Geographically, Canada accounts for 60 per cent of revenues, the U.S. 23 per cent and international 17 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 is 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 3.8 per cent.
Recent purchase at the $109.40 range in February 2018.
JPMorgan is a leading financial services company with operating segments in consumer and business banking (45 per cent of revenues), corporate and investment bank (35 per cent), asset and wealth management (12 per cent) and commercial banking (7 per cent). With 77 per cent if its sales coming from North America, JPMorgan is well positioned to expand its businesses amidst a growing U.S. economy. It provides a dividend yield of 2 per cent.
PAST PICKS: JUNE 15, 2017
- Then: $50.31
- Now: $40.55
- Return: 19%
- Total return: 15%
- Then: $105.98
- Now: $103.98
- Return: -2%
- Total return: -0.4%
- Then: $53.96
- Now: $73.27
- Return: 36%
- Total return: 37%
Total return average: 7%