Full episode: Market Call Tonight for Monday, August 13, 2018
Hap Sneddon, chief portfolio manager and founder at Castlemoore Inc.
Focus: Technical analysis and macro portfolio strategy
Earnings growth rate for Q2 is expected to come in at 21.3 per cent, representing the second-highest rate since Q3/10 when the economy was just starting to recover from the great recession. Forward earnings per share are also positively sloped, providing a foundation for the future. This being said, a profit-taking pullback is a possibility here. Short-term support needs to hold at 16,050 on the TSX and 2,780 on the S&P500. Strength in the U.S. dollar and the knock-on effect on commodities and emerging market debt is a tell. A reversal in the U.S. and pick up in 10-year Treasury yields would abate the seeming impact rough trade situations are having on the global market and even the U.S. one now. Said in another way, some sunshine on the trade front would reverse some of the negative trends now appearing. With U.S. mid-terms ahead, it’s hard to handicap the effect political trade talk will have and how far the U.S. administration is willing to go to win right now instead of over a longer term. Price, as always, is the final arbiter.
Bought at $9.43 on Nov. 7, 2017.
The company recently reported total revenue — long term care, retirement living, home health and consulting — on a three and six months basis that beat. Net operating income was up 13.0 per cent and 11.9 per cent, and EBITBA was up 9.8 per cent and 8.6 per cent. The recent announcement of the CEO’s pending departure coincided with a technical bottoming process and a good risk-to-reward proposition. First upside target is $8.70 while paying a 6.12 per cent annual monthly pay dividend.
OPEN TEXT (OTEX.TO)
Bought at $45.38 on April 24, 2018.
Open Text is a fundamentally undervalued name with an accelerating technical profile – the best of both. It has solid recurring revenue (and growing), a good organic growth profile and an adaptable balance sheet. Canada’s largest enterprise software company is breaking to new highs, making technical targets challenging to nail down now that it’s crossed and stayed above $48. We expect resistance near $60.
UNITEDHEALTH GROUP (UNH.N)
Bought at $220.47 on March 29, 2018.
UnitedHealth, which operates through four segments (UnitedHealthcare, OptumHealth, OptumInsight and OptumRx) is in a secular bull market like the entire global healthcare space. 2Q/18 EPS were up 27.8 per cent year-over-year and $0.10 above consensus. Margin improvements and an additional $500 million of a now total share buyback announcement for the year of $3.5 billion are also positive. Technically, the stock is very strong on a short, mid and long term basis with a target price of US$300.
PAST PICKS: SEP. 21, 2017
TD BANK (TD.TO)
Canadian financials have offered a range of performance. We swapped TD for BMO for better upside ahead.
- Then: $69.01
- Now: $77.51
- Return: 12%
- Total return: 16%
ISHARES NASDAQ BIOTECHNOLOGY ETF (IBB.O) – stock split Dec. 1, 2017
Seasonally strong right now, but also the sector is in a secular bull market. So, I’m bullish short and long term.
- Then: $331.27
- Now: $116.56
- Return: 6%
- Total return: 6%
ISHARES S&P/TSX GLOBAL BASE METALS INDEX ETF (XBM.TO)
We continue to hold it, but are concerned that the trade friction can break the trend. Moving below $13 brings in a leg down and a larger correction
- Then: $12.64
- Now: $13.11
- Return: 4%
- Total return: 6%
Total return average: 9%
CastleMoore CDN Equity Portfolio
Performance as of: June 30, 2018
- 1 year: 11.53% fund, 7.22% index*
- 3 year: 6.10% fund, 3.80% index
- Average drawdown: -3.99% fund, -7.50% index
- Average recovery (months): 6.5 fund, 13.3 index
* Index: TSX.
* Net of fees.
TOP 5 HOLDINGS AND WEIGHTINGS
- Kirkland Lake Gold Ltd: 7.5%
- Bombardier Inc: 7.4%
- Open Text Corp: 7.0%
- Shopify Ind: 5.8%
- Sun Life Financial Inc: 5.4%