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

MARKET OUTLOOK

For two years there has been much spoken and written about late-cycle action in the markets. It could be late cycle, but the positive profiles of technology and base metals suggests maybe we‘re really just in an atypical, mushy mid-cycle world — one with fits and starts.

Sure, there are some indications that growth is slowing based on select corporate earnings and economic data over the last few months. But we don’t know just yet how much of any slowdown is organic and how much is due to trade friction. The U.S. dollar, falling at present from investor expectations of a positive resolution to China and European trade talks, is the best single indicator to watch to see where everything shakes out.

The strongest opportunities right now are in technology (chips and cloud), base metals, energy and European and Asian indexes.

TOP PICKS

TECK RESOURCES (TECKb.TO)
Last purchased on Dec. 12, 2017 at $30.13.

Shares of Teck, a company focused on steelmaking coal, copper, zinc and energy, are trading fairly cheap at 4.9 times enterprise value to 2019 estimate cash flow versus its own historical average of 7 times. Its shares are also undervalued compared with global peers who trade at 6.9 times. The company expects $1.6 billion of free cash flow in 2019. This may come down with some higher costs this year, but longer-term costs on copper, its bread and butter, are expected all to decline over the same period. Technically, the stock is at an excellent risk/reward juncture. Downside protection is at around $28 and a breakout over $32 ushers in $38 and then $51.


BMO EQUAL WEIGHT REIT ETF (ZRE.TO)
Last purchased on March 21, 2017 at $19.05.

While there are some concerns with residential real estate valuations, this ETF also contains retail, office and industrial holdings. This monthly-pay unit recently broke out of a multi-year base at $18 that extends back to 2007. Guidance by the Bank of Canada and Federal Reserve and bond market reaction to these outlooks suggests that the course of least resistance for rates is down. Risk of 5 per cent from current levels on a monthly close.

FORTIS (FTS.TO)
Last purchased on March 4, 2017 at $47.62.

Fortis is the largest publicly-owned (and rate-regulated) gas and electric distribution company in the country. It serves customers across Canada, Arizona, New York State, the U.S. Midwest and the Caribbean. The stock recently began outperforming the TSX again after a year and a half of underperformance. It’s a steady dividend payer at 3.65 per cent (recently increased by 6 per cent). The stock is trading at an all-time and has little technical resistance going forward, both very positive signs.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TECKb N Y Y
ZRE Y Y Y
FTS N N Y

 

PAST PICKS: APRIL 30, 2018

SNC-LAVALIN (SNC.TO)

  • Then: $56.29
  • Now: $34.30
  • Return: -39%
  • Total return: -38%

MERCK (MRK.N)

  • Then: $58.87
  • Now: $82.55
  • Return: 40%
  • Total return: 44%

KIRKLAND LAKE GOLD (KL.TO)

  • Then: $22.40
  • Now: $45.31
  • Return: 102%
  • Total return: 103%

Total return average: 36%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
SNC  Y Y Y
MRK N N N
KL N N N

 

FUND PROFILE

Seasonal Advantage Portfolio
Performance as of: Feb. 28, 2019

  • 1 month: 0.7% fund, 1.8% index
  • 6 months: 1.1% fund, -1.1% index
  • Since inception (May 1, 2018): 6.8% fund, 4.0% index

INDEX: Equal weight S&P 500, TSX, and 10-year U.S. Treasury Bond.
Returns are net of fees, distributions and annualized.

TOP 5 HOLDINGS AND WEIGHTINGS

  1. iShares S&P/TSX 60 Index ETF (XIU.TO): 17.3%
  2. iShares S&P/TSX capped energy index ETF (XEG.TO): 15.2%
  3. First Trust AlphaDEX Em Mkt Div ETF (CAD-Hedged) (FED.TO): 15.1%
  4. iShares S&P/TSX Capped Financials Index ETF (XFN.TO): 10.1%
  5. Horizons Silver ETF Class A (HUZ.TO): 9.3%

WEBSITE: castlemoore.com
TWITTER: @CastleMoore