Dec 23, 2019

Hap Sneddon's Top Picks: Dec. 23, 2019

BNN Bloomberg

Full episode: Market Call for Monday, December 23, 2019

VIDEO SIGN OUT

Hap Sneddon, founder and chief portfolio manager at Castlemoore
Focus: Technical analysis

MARKET OUTLOOK

By many metrics, current stock markets are extended to the upside in the short term. For example, insider selling is high and put/call ratio data shows complacency. The VIX is scrapping the bottom of a yearly range and many indicators are showing overbought. But how things work off such conditions is always a mix of both price and time. There’s no set blend, and certainly no set justice.

Beyond a correction resolution, what matters most to a sustainable pro-cyclical stock market move is a continuation of decent corporate earnings and some rising inflation. The move, which finally has seem some live breathed into commodities commiserate with a U.S.-China trade resolution, will have its best tells in the U.S. dollar and the U.S. 10-year Treasury bond yield, with the former needing to keep falling and the latter to keep rising. In this regard, the longer-term trends for both based on today’s analysis are pretty looking good.

A continuation of the current market structure will place a premium on resource markets such as Canada’s. We’ve seen it already too in other similar markets such as Brazil.

The first test of 2 per cent will let us know if there’s legs to things. The ultimate upside is bounded by the 3-per-cent level at which point we’ll have some debt challenges.

TOP PICKS

SUN LIFE FINANCIAL (SLF:CT)
Last purchased on July 16, 2019 for $55.27.

While the group side of things was a drag on recent earnings (elevated claims), its Asia segment was quite decent. The company’s balance sheet is stellar, with cash position rising from $2.2 billion to $2.8 billion. Expect acquisition activity from such a strong capital position. Seasonality is positive through the end of February and the stock is looking to improve relative to the S&P after several months of lagging it. Too, a CastleMoore¬ favoured indicator has just gone “buy.”

PEMBINA PIPELINE INC (PPL:CT)
Last purchased on Dec. 10, 2019 for $47.04.

Pembina, which has four business segments, oil sands pipelines, conventional pipelines, gas services and mid-stream, closed its acquisition of Kinder Morgan Canada and the Cochin pipeline in the US. Too, it will be increasing its propane capacity at the Prince Rupert Terminal to 40,000 bpd. For all the train-wrecks in the energy sector the stock has performed quite well over the last three years. We anticipate the share price accelerating on a break above $51 and continuing improvement of its distribution, currently standing at 5.5%.

XILINX INC (XLNX:UW)
Last purchased on March 15, 2019 for $124.95.

Xilinx pioneered “field programmable gate array,” or chips that could be tailored to customer needs post-production. It has seen its stock hammered since its April high near $142. While the sector has been humming along of late, investors in the spring were not enthused about the company’s gross margin prospects going-forward. Xilinx had been delivering and in fact was exceeding all earnings expectations – it was a sort of “sell the news” investor pile on. At present, a negative outlook is overblown as Xilinx will continue to benefit from secular growth of data centres and communications, improvements in the industrial and automotive sectors and increased uptake in cloud applications and 5G base stations. Today, this is about an excellent risk/reward in technology, with a short-term improvement in the technical profile laying the groundwork. Re-evaluate in later winter.