Full episode: Market Call for Thursday, January 10, 2019
Hap Sneddon, chief portfolio manager at Castlemoore Inc.
Focus: Technical analysis
Our technical forecast shows the strongest parts of the markets for the foreseeable future are base metals, technology, energy and industrials, a definite pro-cyclical bent. While the U.S. market, as a global leader, is expected to perform decently under such a forecast, relative strength favours markets with a greater concentration of companies in these sectors, such as the TSX, Brazil, Chile or Mexico, markets than benefit from a weakening U.S. dollar (debt issuance) and markets that would respond exceptionally from a reduction in trade friction between the U.S. and China, such as most emerging economies.
In the very near term, markets have reached an overbought level following an exceptionally bearish December and would be expected to pause or retrace some of the recent moves. The upcoming earnings season may add to the froth in the short run. But then, mid to late January shows a period of seasonal strength in energy, base metals and commodities in general, airlines, rails and chemicals. This setup along with further improvement in U.S.-China talks ahead of additional rounds of tariffs kicking in in March would move along the pro-cyclical theme and sustain the moves seen since late December.
Most recent purchase: Feb, 14, 2018 at $3.26.
Bombardier’s recent share price decline was excessive as it traded below pre-turnaround values time (2015), it has $3 billion in cash and is on track for its 2020 free cash flow target of between $750 million to $1 billion. Wednesday’s New Jersey Transit deal announcement for $670 million is a tailwind to the already positive technical profile.
TECK RESOURCES (TECK.TO)
Most recent purchase: May 8, 2018 at $32.94.
Of course an investment in Teck is about global growth and a resolution to trade friction, but it’s more than just that. Teck continues to trade at a discounted 4.5 times enterprise value to 2019 excess cash flow despite its strong free cash flow generation (over $1.9 billion), stable financial outlook and improved growth outlook in the copper business. With copper and hard coking coal prices holding in well and stable forecasts, the upside initial target off of a one-year and 10-year base is exceptional.
CGI GROUP INC (GIBa.TO)
Most recent purchase: Dec. 20, 2017 at $69.87.
As Canada’s largest technology stock, the company presents investors a valuation, defensive and growth story all in one stock. This IT and outsourcing solutions company is improving its margins, increasing its recurring revenue stream and paying down debt. The technical forecast gets even brighter as it embarks on setting new highs.
PAST PICKS: FEB. 16, 2018
ISHARES S&P/TSX GLOBAL BASE METALS INDEX ETF (XBM.TO)
- Then: $14.85
- Now: $11.60
- Return: -25%
- Total return: -23%
- Then: $172.60
- Now: $195.73
- Return: 13%
- Total return: 13%
JPMORGAN CHASE (JPM.N)
- Then: $114.68
- Now: $99.64
- Return: -13%
- Total return: -11%
Total return average: -7%
Seasonal Advantage Portfolio
Performance as of: Oct. 31, 2018
- 1 month: -3.11% index, -4.58% fund
- 3 month: -2.40% index, -4.26% fund
- 6 month: 2.92% index, -0.39% fund
INDEX: Equal Weight of the S&P 500 Index, TSX Composite, and 10-Year US Treasury Note.
TOP 5 HOLDINGS AS OF OCT. 31
- BMO Dow Jones Industrial Average Hedged to CAD ETF (ZDJ): 30%
- VanEck Vectors Agribusiness ETF (MOO): 10%
- iShares NASDAQ 100 ETF Hedged to CAD (XQQ): 10%
- Cash: 8.5%
- iShares US Insurance ETF (IAK: 8%