Darren Sissons, vice president and partner at Campbell, Lee & Ross
FOCUS: Global equities and technology
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MARKET OUTLOOK

The markets are now in the midst of the annual institutional investor evaluation process, when the investment community is either aiming to boost the size of their annual bonuses or avoid having difficult conversations with the boss. This evaluation process can and does distort market valuations temporarily through tax loss selling, short seller actions and/or sizable buying of stocks that have run up throughout the year. The clock resets again on January 1, 2018, so investors should now be mindful of opportunities to crystalize some gains and to deploy capital at attractive valuations.

Looking across the markets, the semiconductor market is being dominated by China’s intention to build a semiconductor industry through the investment of US$100 billion. This is a dangerous development as it is skewing natural cycles of that industry. Should China’s prior attempts to control/dominate a market (think commodities: aluminium, coal, copper, iron, milk powder, etc.) be used as a proxy, then a semiconductor pricing collapse is an eventuality in the not too distant future. Equally so, all is not healthy in the broader technology sector as a narrow group of high growth and Internet-related stocks are the major driver of technology indexes and many ETFs.

Asia, which is largely powered by exports, is a net beneficiary of a recovering China, Europe and the U.S. Anecdotally, a wave of Asian companies have recently begun to report their first earnings and dividend growth in four years. A sustained global recovery will benefit the region. Valuations are generally attractive across the region with South Korea (for obvious reasons) offering some great value in some sectors.  

Europe is seeing pockets of growth particularly in some of the higher quality industrials and financials. The sin stocks have generally performed well since the global financial crisis and look well-positioned moving forward. Brexit remains both a challenge and an opportunity. Valuations are attractive but there are pockets of exuberance that should be avoided. 

The U.S. continues to be mired in politics. The reform of Obamacare or not, new taxation policy or not, new NAFTA or not, and the gradually changing role of the U.S. in the new world order are all impacting U.S. equities. Investors wise enough to ignore the noise in 2017 have been well rewarded, especially by health care and technology investments. While the U.S. remains expensive for Canadian investors, pockets of value remain.

TOP PICKS

BRITISH AMERICAN TOBACCO (BTI.N) - Held in the U.S. and international portfolios only. Last purchase at US$65.48.

1. 3.45 per cent dividend yield
2. Track record of excellent financial performance: average annualized dividend growth and total return of 9.8 per cent, and 11.9 per cent, respectively over 15 years
3. It purchased the remaining portion of Reynolds America that it did not already own in October 2016 through a debt and equity financing. Recent selloff of staples and a modestly higher acquisition-related debt burden have provided an attractive entry level
4. Next level of growth driven by new generation products, i.e. vapour heat, not burn, products
5. Likely the long-term owner of a major cannabis brand in multiple countries.

CHINA MOBILE (CHL.N) - Last purchase at US$50.58.

1. 3.65 per cent dividend yield
2. Very strong balance sheet with more cash than debt
3. Sold off its Tower business and then paid a substantial special dividend in October 2017
4. China Mobile is typically a net fund flow recipient when global portfolio managers allocate capital to China. However, recently the opening of the China A-share market via the Hong Exchange Connect program has drawn capital away from the company
5. Leveraged, like all telcos, to the growing wealth of its customers
6. Attractive valuation, as it's now cheaper than during the global financial crisis

ENBRIDGE (ENB.TO) - Last puchase at $36.97.

1. The dividend currently yields 5.30 per cent and has grown at an average annualized rate of 12.8 per cent for 15 years
2. The company has guided annual dividend growth of 10 to 12 per cent through 2024 based on new projects coming online
3. Attractively priced, as post the Spectra acquisition earlier this year the company has sold off

PAST PICKS: MAY 5, 2017

BANK OF AMERICA (BAC.N)
Continue to buy core names at current prices.

• Then: $23.74
• Now: $26.66
• Return: 12.29%
• Total return: 13.24%

WALT DISNEY CO. (DIS.N)
Disney is currently attempting to buy pieces of 21st Century Fox. Disney is also launching its own content streaming offering. 

• Then: $111.99
• Now: $102.74
• Return: -8.25%
• Total return: -7.56%

HALLIBURTON (HAL.N)
Halliburton had good results last quarter. Standout performance were the international division and the U.S. division vis-à-vis Schlumberger. The company will benefit from the gradual increase in exploration budgets. 

• Then: $45.58
• Now: $41.43
• Return: -9.10%
• Total return: -8.32%

TOTAL RETURN AVERAGE: -0.88%