Christine Poole, CEO & Managing Director, GlobeInvest Capital Management

FOCUS: North American large caps

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MARKET OUTLOOK

The recent softening in the U.S. manufacturing and services surveys combined with hawkish commentary from Fed officials have renewed investor angst on the pace of the U.S. economic recovery and interest rate hikes. With investor complacency at a historically low level, as measured by the CBOE Volatility Index (VIX), and melt up in global equity markets following Brexit made possible by accommodative monetary policies by central bankers, a pullback was not surprising.

While the most recent employment report was below consensus, job growth in the U.S. continues, with the unemployment rate below 5 per cent, supporting solid gains in consumer spending and housing. The path to interest rate normalization is inevitable and arguably necessary for a sustainable, healthy recovery in both the economy and stock market.

Recent commentary by the Bank of Canada (BOC) is encouraging. Although the Canadian economy contracted in the second quarter, exacerbated by the Alberta wildfires, the BOC still projects a substantial rebound in the second half of the year. The rebound is expected to be led by a recovery in oil production, the rebuilding in Alberta, a potential lift in consumer spending from the new Child Care Benefit program and the positive impact from the increase in federal infrastructure spending. 

Our constructive view on equities is predicated on the ongoing U.S. economic recovery, a positive inflection in year-over-year U.S. profit growth in the back half of the year and a benign global interest rate environment.

Top Picks

CGI Group (GIBa.TO)

CGI is a global technology services firm deriving about 55 per cent of its revenues from outsourcing and 45 per cent from systems integration and consulting. Geographically diversified, CGI derives about 55 per cent of its revenues from Europe, 25 per cent from the U.S., 15 per cent from Canada and 5 per cent in Asia Pacific. Management is focused on creating shareholder value through profitable organic growth, accretive acquisitions at reasonable prices within a consolidating IT services market and share repurchases. Recent purchase price: $61.85 range in September 2016.

Chartwell Retirement Residences (CSH_u.TO)

Chartwell is the largest provider of seniors housing communities in Canada. The seniors housing industry is attractive due to demographic trends of rising longevity and an aging demographic. According to Statistics Canada, the seniors’ population (65 years+) in Canada will increase from 16 per cent of the overall population in 2015 to 25 per cent by 2031. Chartwell provides an attractive income yield. Recent purchase price: $15.25 range in September 2016.

Johnson & Johnson (JNJ.N)

JNJ is a global diversified healthcare company, manufacturing a broad range of products within three segments: pharmaceuticals (45 per cent of sales), medical devices and diagnostics (36 per cent) and consumer (19 per cent). Approximately 70 per cent of sales are derived from products that have a #1 or #2 global share. JNJ offers consistent stable earnings and dividend growth. One of a handful of triple-A rated companies left in North America, JNJ has increased its dividend for 54 consecutive years and offers investors a dividend yield of 2.7 per cent. Recent purchase price: $119.95 range in September 2016.

Twitter: @christine_globe

Website: globe-invest.com