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

MARKET OUTLOOK

Yields pressed down and defensive stocks took centre stage through August. Investors extrapolated a negative global trade picture out into the future. It was only a matter of time until things snapped back the other way. On an economic and earnings basis there is cause for optimism, with some decent prints of late. However, the rebound has favoured value over growth stocks so far, something that we haven’t seen for quite some time, while giving us only anecdotal evidence, U.S.-China trade relations can and will improve. Thus in the absence of a brighter trade picture markets are telling us that value stocks offer better risk-to-reward than growth for the time being.

TOP PICKS

TECK RESOURCES (TECK/B:CT)

In spite of weakness in coal and copper prices and a global trade malaise afoot, Teck has an excellent balance sheet, is reducing costs, returning capital to shareholders and remains well positioned to fund the development of its QB2 project (and there are not many new mines coming on stream). Though there are other names in the sector with more torque with an improvement in copper prices, Teck offers the best value and risk at current prices.

ILLUMINA INC (ILMN:UW)

Illumina, a provider of sequencing and array-based solutions for genetic analysis, recently reported earnings that disappointed investors. When combined with a subdued healthcare and global macro backdrop, the current stock price represents an attractive entry level. With commercial genetic testing about to explode, the company’s greater emphasis on “consumables” over hardware (think cost to use its machine each time versus the machine’s price) and opportunities in non-invasive prenatal testing (NIPT) and rare and undiagnosed disease research (RUGD), the company has a bright fundamental future.

FAIRFAX FINANCIAL (FFH:UW) 

Fairfax is a hybrid insurance and investment holding company that is trading at favourable levels with minimal downside and expanding upside potential. A knock on the company over the last decade has been its lower compound annual growth rate compared to earlier periods, as well as Prem Watsa’s outsized influence on investment decisions and the quality of its underwriting. Now we are seeing an improvement in growth and underwriting and a positive impact from its recent purchase of Allied World in this internationally-focused Canadian company.

PAST PICKS: MARCH 22, 2019

TECK RESOURCES (TECK/B:CT)

• Then: $30.25
• Now: $25.09
• Return: -17%
• Total return: -17%

BMO EQUAL WEIGHT REIT ETF (ZRE:CT)

• Then: $23.59
• Now: $24.22
• Return: 3%
• Total return: 5%

FORTIS (FTS:CT)

• Then: $49.71
• Now: $55.36
• Return: 11%
• Total return: 13%

Total return average: 0.3%