Full episode: Market Call Tonight for Monday, January 27, 2020
Hap Sneddon, chief portfolio manager and founder at Castlemoore
Focus: Technical analyst
As we wrote and presented here a few weeks ago, 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 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.
Looking beyond the correction resolution, what matters most to a sustainable pro-cyclical stock market move is a continuation of decent corporate earnings and some rising inflation. Surely earnings releases will add to current market volatility as they will be over-read. Investor reaction rarely reduces volatility, even though in the current environment the prints are good.
At this point, technical reads of key economic tells such as copper, oil, bond yields and the U.S. dollar as well as the indexes such as the TSX or S&P 500 continue to support further gains ahead for the year.
COSTCO (COST NASD)
Last purchased on Aug. 29, 2019 at $293.35.
Costco’s membership format builds strong customer loyalty and pricing power amidst a weak sector backdrop and a move towards digitization. Though the company does not offer a broad array of products, its concentration is taken up well by customers and leads to better leverage with suppliers. There’s also lots of room for international expansion. On the technical side of things, there’s a strong base of support near US$300, many rising indicators, seasonal tailwinds and a nascent move higher against the S&P 500.
BROOKFIELD INFRASTRUCTURE (BIP-U TSX)
Last purchased on Jan. 2, 2020 at $65.43.
A wholly-owned subsidiary of Brookfield Asset Management, Brookfield Infrastructure tends to $26 billion of global assets concentrated in energy, transports, utilities and data infrastructure. With an excellent track record of growth, 95 per cent of its cash flows regulated and a global vision guided by a good management team, it’s no wonder its price chart is an “up-and-to-the-right” chart. This company makes for a solid holding for investors, with positive surprises ahead.
OPEN TEXT (OTEX TSX)
Last purchased on April 2, 2019 at $51.29.
This Waterloo-based software company tends to be a standout stock during periods of market froth as investors gravitate towards its recurring revenue stream and oft-cited takeover talk. The company has lots of potential to monetize its existing customer base as well as close the investor gap in understanding just how shrewd the Carbonite purchase was for its organic possibilities too. Technically, the stock is outpacing the S&P 500, has many indicators still in bullish mode and is close to new highs yet again.
PAST PICKS: SEP. 12, 2019
TECK RESOURCES (TECK/B TSX)
- Then: $25.07
- Now: $17.58
- Return: -30%
- Total return: -30%
ILLUMINA (ILMN NASD)
- Then: $297.52
- Now: $313.92
- Return: 6%
- Total return: 6%
FAIRFAX FINANCIAL (FFH TSX)
- Then: $594.81
- Now: $591.46
- Return: -1%
- Total return: 2%
Total return average: -7%