Full episode: Market Call Tonight for Monday, February 24, 2020
Hap Sneddon, chief portfolio manager at Castlemoore
Focus: Technical analysis
Before Monday’s large stock markets drop, we were already in a corrective phase. The coronavirus fervour has just exploited a pre-existing condition of softening economic data, tough corporate earnings comps and seasonal weakness in February.
On Jan. 27, we wrote: “…by many metrics current stock markets are extended to the upside… insider selling is high, the put/call ratio data shows complacency … the VIX is scrapping the bottom of a yearly range and many indicators are showing overbought levels. But how things work off such conditions is always a mix of both price and time. There’s no set blend, however. We always find out later how it gets composed, and what the catalysts were.”
We’re still interested in looking past the current environment to gauge whether a pro-cyclical movement can be maintained or more importantly accelerate from current levels. The big picture tells: bond yields are testing four- and eight-year levels, the U.S. dollar index is not making new highs and oil and copper are above several different lows from the last year. Things are shaky, but we have yet to see confirmation of an intermediate trend change.
The Canadian consumer staples sector has a strong period of seasonality from mid-February to early September. The predictability of sector earnings against a backdrop of some softer economic data, growth story fatigue and concern around the coronavirus make this a timely pick. Relative improvement versus the S&P500 is underway. A basket of individual names such as Metro, Saputo and Premium Brands can be held if an investor is seeking some “alpha” over the sector.
LUNDIN MINING (LUN TSX)
Base metals have a couple of seasonal “launch” dates including an upcoming one in early March. The sector certainly has been out of favour and a selection in it now still apparently cuts against the grain, with the perception of global trade and China growth muffled. Lundin recently announced revenue, EBITDA and earnings per share well ahead of expectations. This high-quality, strong balance sheet company is an excellent defensive pick that’s just turned up against both the TSX and S&P. A break below $6.97 moves the stock to a “sell” and indicates larger-picture problems.
BOSTON SCIENTIFIC (BSX NYSE)
Boston Scientific is a global medical devices company that specializes in the areas of vascular intervention, cardiac rhythm management and structures, neuromodulation and digestive orders. It has recently lagged the broader healthcare index and the medical devices sub-index after a longer history of beating both. The slight Q4 shortfall which led to the relative decline has been replaced by more positive forecasts in spite of provisions for reduced volumes in China and supply chain disruptions. The stock has been basing around its rising 200-day moving average and a preferred signal generator has gone “buy,” making the risk/reward at current levels attractive. The stock has yet to turn up against the S&P.
PAST PICKS: NOV. 14, 2019
PEMBINA PIPELINE CORP (PPL TSX)
- Then: $47.70
- Now: $52.40
- Return: 10%
- Total return: 12%
OPEN TEXT CORP (OTEX TSX)
- Then: $57.52
- Now: $59.79
- Return: 4%
- Total return: 4%
VERTEX PHARMACEUTICALS (VRTX NASD)
- Then: $205.00
- Now: $237.01
- Return: 16%
- Total return: 16%
Total return average: 11%
CastleMoore Focus Tactical Balanced Portfolio
Performance as of Dec. 31, 2019
- 3 months: 4.7% fund, 2.97% index
- 1 year: 16.30% fund, 16.46% index
- Annual volatility: 6.73% fund, 9.85% index
- Average drawdown: -4.34% fund, index -9.18%
- Average recovery: 4.9 quarter fund, 7.2 index