Full episode: Market Call for Wednesday, May 13, 2020
Christine Poole, CEO and managing director at GlobeInvest Capital Management
Focus: North American large caps
The massive liquidity injections led by the Federal Reserve have stabilized both equity and credit markets. Both non-investment and investment-grade corporations have tapped the debt market to bolster liquidity reserves. Fiscal policy support is helping to bridge the significant adverse financial impact of this government-induced global recession until lockdown measures can be lifted.
The containment and shelter-at-home measures have been successful, with the outcomes of an earlier flattening of the curve, a lower peak of hospital usage and lower mortality levels than predicted by consensus models. As most countries are in the early stages of re-opening their economies, economic activity should start to improve going forward. Concerns regarding a second wave of virus outbreaks are valid, but if that were to occur a swift policy response is expected. In addition, a more complete tool kit is now in place to combat the virus.
Corporations have largely pulled earnings guidance for this year and reinforced that second-quarter profits will be lower than the first, likely marking the trough. The pace of improvement in the back half of the year will be dependent on the successful removal of lockdown measures and our ability to live with the virus.
The counterbalance to the significant drop in corporate earnings this year is an unprecedented liquidity boom coupled with a significant reduction in the discount rate suggesting a positive repricing of equities. Nonetheless, the path back to economic and social normalcy will be slow and uneven, which suggests continued choppiness in equity markets.
ALGONQUIN POWER (AQN TSX)
Recently purchased around $19 in May.
Algonquin is a North American utility company and provider of diversified clean power generation. The power generated from its wind, hydro and solar facilities is sold under long-term contracts. The utilities business services customers across 13 states in the U.S., providing electricity, natural gas and water transmission and distribution. Based on its development pipeline, Algonquin has targeted 10 per cent annual dividend growth until 2021. Algonquin provides a dividend yield of 4.5 per cent.
MONDELEZ INTERNATIONAL (MDLZ NYSE)
Recently purchased around $50 in May.
Mondelez is a global snacking company with top category market shares in biscuits, chocolate and candy. Biscuits represent 43 per cent of sales, chocolate 32 per cent, gum and candy 13 per cent, cheese and grocery 7 per cent and beverages 5 per cent. Its portfolio of leading global brands include Oreo, beVita, Cadbury, Toblerone, Trident, Dentyne and Halls. With close to 40 per cent of its revenues from emerging markets, Mondelez is well-positioned to benefit from these regions’ growing middle class population. Per capita consumption of confectionary and biscuits in developing countries are significantly below that of developed countries. It is expected to increase as personal income levels rise. Mondelez provides investors with a dividend yield of 2.2 per cent
OTIS WORLDWIDE (OTIS NYSE)
Recently purchased around $44.60 in April.
Otis is the world’s largest elevator and escalator manufacturing, installation and service company. It is the market leader with a 17 per cent share of the fundamentally attractive global elevator market, operating in over 200 countries with international operations representing 73 per cent of sales. New equipment and service contribute 43 and 57 per cent of sales respectively and 20 and 80 per cent of operating profits. Otis provides a dividend yield of 1.6 per cent.
PAST PICKS: MAY 14, 2019
PEMBINA PIPELINE (PPL TSX)
- Then: $47.73
- Now: $32.56
- Total return: -28%
ABBOTT LABS (ABT NYSE)
- Then: $76.03
- Now: $93.69
- Return: 23%
- Total return: 25%
MICROSOFT (MSFT NASD)
- Then: $124.73
- Now: $182.71
- Return: 46%
- Total return: 48%
Total return average: 15%