Mar 13, 2020

Christine Poole's Top Picks: March 13, 2020

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Christine Poole's Market Outlook

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

MARKET OUTLOOK

Two major shocks have hit global economic growth: The COVID-19 outbreak and crude oil price war.

The coronavirus contagion across the globe will disrupt supply chains and dampen consumer spending via cancelled air travel, trips/conventions and social gatherings. It is difficult to forecast when the infection rate of COVID-19 cases will peak, but based on past health crises and the experiences in China and South Korea, the outbreak should eventually dissipate, aided by containment policies.

The crude oil price war between Saudi Arabia and Russia is an unexpected and very destabilizing development. Although the duration of the price war remains uncertain, both countries rely on crude oil exports and will require a higher price than current levels in the long-term. The severe price correction not only negatively impacts energy producers but also effects industries that provide products and services to them. A caveat to bear in mind is that low gasoline prices are ultimately beneficial for consumers and industries whose input costs are oil based.

Monetary and fiscal policy responses will help to buffer the adverse impact of these two shocks. Economic growth will slow significantly in the first half of the year with a potential for a back half recovery assuming the coronavirus is a transitory issue.

Nonetheless, until there is more clarity on their evolution, uncertainty will prevail. This will elevate stock market volatility that is only exacerbated by algorithmic driven trading activity. The speed and magnitude of the sell-off as well as the wide price gyrations in the broad market indices has significantly dampened investor sentiment and increased investor angst.

Attractive investment opportunities in both income and growth stocks are surfacing for long term investors.

TOP PICKS

BROOKFIELD ASSET MANAGEMENT (BAM/A TSX)

Brookfield Asset Management is a global alternative asset manager with approximately $540 billion in assets under management. The company owns and operates assets on behalf of shareholders and clients with a focus on property, renewables, infrastructure and private equity. BAM seeks to invest in long-life; physical assets that typically benefit from some form of barrier to entry, regulatory regime or competitive advantages that provide for relatively stable cash flow streams. The stock offers a modest dividend yield of 1.5 per cent.

FORTIS (FTS TSX)

Fortis is a diversified North American electric and gas utility company, generating its cash flow primarily from regulated assets. Following its acquisition of ITC Holdings Corporation, a fully-regulated U.S. electric transmission utility company, over half its revenues are from the U.S. Fortis is a stable cash flow generator, posting 46 consecutive years of annual dividend increases. Supported by a backlog of low risk, regulated projects, Fortis has targeted average annual dividend growth of 6 per cent through 2024. Fortis offers a yield of 4.0 per cent.

MICROSOFT (MSFT NASD)

Microsoft is global technology company providing software products, support, services and devices. Its business segments include Productivity & Business Tools, Intelligent Cloud and More Personal Computing. Microsoft is well positioned to participate in the corporate adoption and utilization of cloud technology. Its growing recurring revenue stream and strong balance are also appealing investment attributes. Microsoft’s dividend yield is 1.4 per cent.