Oct 14, 2020

Christine Poole's Top Picks: Oct. 14, 2020

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Christine Poole's Top Picks

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

MARKET OUTLOOK

The major stock market indexes continue to grind higher, underpinned by a stronger-than-expected economic rebound and policy support. Consumer spending surged as lockdown restrictions were eased and pent-up demand took hold. Fiscal stimulus has sustained household incomes despite a markedly lower employment situation. Numerous countries have extended government support programs as many industries are still unable to operate anywhere near capacity due to social distancing restrictions. The notable exception is the U.S., where bipartisan differences prevail.

The V-shaped bounce off economic lows is moderating and growth will inevitably slow in the quarters ahead. A second wave of coronavirus infections has resulted in tougher containment measures and targeted lockdowns which may further slow the recovery. The longevity of the ongoing health crisis is leading to businesses adjusting their staffing needs as well.

Third quarter corporate earnings reporting season is now underway. With the second quarter marking the trough, consensus expectations are for profit growth to be down 22 per cent year-over-year and improving sequentially thereafter.

The adoption of an average inflation targeting framework by the U.S. central bank reinforces a “lower-for-longer” interest rate path. Signs are emerging that a prolonged period of near-zero interest rates in conjunction with the accommodative programs already announced to provide liquidity in the financial system are prompting investors to take more risk.

Over the near-term, COVID-19 will share the headlines with the U.S. presidential election. The potential for a contested ballot on Nov. 3 means heightened market volatility in the weeks ahead.

TOP PICKS

Christine Poole's Top Picks

Christine Poole, CEO and managing director at GlobeInvest Capital Management discusses her top picks: Royal Bank, Fortis and Alphabet.

Alphabet (GOOGL NASD)
Recent purchase at $1,460 range in October 2020

Alphabet is a global technology company, providing the world’s leading search engine, Google, and dominance in both global desktop and mobile search engine queries. The company is a beneficiary of the shift to online advertising, offering various digital advertising tools. Other revenue streams include Google Cloud, YouTube and Google Play.

Fortis (FTS TSX)
Recent purchase at $54.50 range in October 2020

Fortis is a North American electric and gas utility company generating its cash flow primarily from regulated assets, with over half its revenues from the U.S. Fortis is a stable cash flow generator, posting 47 consecutive years of annual dividend increases. Supported by a backlog of low-risk, regulated projects and cleaner energy initiatives, Fortis has affirmed an average annual dividend growth of 6 per cent through 2025. Fortis offers a yield of 3.7 per cent.

Royal Bank (RY TSX)
Recent purchase at $97 range in October 2020

Royal Bank’s diversified business mix consists of personal and commercial lending (46 per cent of earnings), capital markets (22 per cent), wealth management and insurance (28 per cent) and investor and treasury services (4 per cent). Geographically, Canada accounts for about 60 per cent of revenues, the U.S. 24 per cent and international 16 per cent. The stock provides investors with a current dividend yield of 4.5 per cent.