Full episode: Market Call Tonight for Friday, June 7, 2019
Hap Sneddon, chief portfolio manager and founder at Castlemoore
Focus: Technical analysis
The negative shift in market sentiment since mid-April through to the beginning of May has been driven by a mix of back-and-forths between the U.S. and China as they work through their trade issues and some slowing economic data. Industrial and material production and shipping volumes are falling, and the once-hot U.S. manufacturing sector has cooled. On the other hand, consumption is strong, with the U.S. printing 2.9 per cent above average and Canada a whopping 7.7 per cent, a 20-year record.
With this mixed picture, talk of Fed rate cuts has put a floor under markets across the board and invigorated sectors that benefit from a weaker U.S. dollar, such as U.S. consumer staples (global companies). The recent plunge in bond yields has also been accompanied by a negative divergence in indicators that suggest another leg lower in yields right now is less likely, thereby benefitting stocks.
Net-net, stock are seeing a broad-based rally ensue off of a higher low coming off the December 2018 lows and should be bought. In the coming months, expect some volatility from trade talks, a dovish Fed later this month, and a possible reversion in the economic weakness due to temporary factors that fully broadens out the move to a clearly pro-cyclical one, including sectors such as energy and mining.
The risk/reward on gold producers is excellent from current levels. With pressure building to the downside on the U.S. dollar from the resumption of a longer-term trend, and with the recent yield “blown down” accompanied by indicator divergence in bonds, the potential for a strong bullish move in the sector is higher than normal. Top individual name ideas include Franco Nevada, Iamgold and Kirkland Lake.
ISHARES NASDAQ BIOTECHNOLOGY ETF (IBB.OQ)
Healthcare has been a hot potato at times over the last five years and again most recently as the U.S. presidential race heats ups and candidates discuss universal coverage and drug pricing regulation. While such discussions are important and necessary, biotech is at the leading edge of the sector, with innovation that is truly secular. Biotech is a really big deal, even more so than the advent of industrial production, rails or the computer; the potential future impacts to humanity will not go away regardless of the politics or pricing. Many companies are exceptionally undervalued, presenting a good risk-to-reward scenario just ahead of its period of strong seasonality which starts in mid-to-late June.
PREMIUM BRANDS (PBH.TO)
Premium Brands is a Canada-based specialty food manufacturer and distributor. Recent earnings showed record revenue of $776.6 million, a 33-per-cent increase and adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $60.3 million, a 40-per-cent increase. Adjusted earnings per share decreased to $0.52 from $0.64 per share in part due to seasonality in some of the many new businesses acquired in 2018 and from the adoption of the new IFRS-16 accounting standards. Consensus earnings estimates for 2019 are 24 per cent and 48 per cent from the 2018 mark. The recent investment announcement into the company from the Canada Pension Plan Investment Board was the catalyst that put the stock in a positive technical profile.
PAST PICKS: MARCH 22, 2019
TECK RESOURCES (TECKb.TO)
- Then: $30.25
- Now: $28.38
- Return: -6%
- Total return: -6%
BMO EQUAL WEIGHT REIT ETF (ZRE.TO)
- Then: $23.59
- Now: $23.74
- Return: 1%
- Total return: 2%
- Then: $49.71
- Now: $51.87
- Return: 4%
- Total return: 5%
Total return average: 0.3%
CastleMoore Canadian Equity
Performance as of: March 31, 2019
- 3 months: 11.07% fund, 12.42% index
- 7 years: 6.19% fund, 5.25% index
- Average drawdown: -5.73% fund, -8.57% index
- Average recovery: 6.9 months fund, 12.40 months index
Index: TSX Composite. Net of fees.
TOP 5 HOLDINGS AND WEIGHTINGS
- Shopify: 9.4%
- Open Text: 8.7%
- Sun Life Financial: 6.0%
- Teck Resources: 5.4%
- Canadian Pacific: 4.9%