Christine Poole’s Top Picks for August 20, 2024

Christine Poole, CEO and Managing Director, GlobeInvest Capital Management

FOCUS: North American large caps

Top Picks: Home Depot, Visa, Canadian Apartment Properties REIT

MARKET OUTLOOK:

The number of central banks moving to cut interest rates is growing in response to a steady slowdown in inflation as well as slowing economic growth and a weakening labour market. The U.S. Federal Reserve’s dual mandate to achieve maximum employment and price stability reinforces the likelihood the Fed will make its initial cut in September. Against a weaker economic backdrop, the Bank of Canada having already cut rates twice albeit at a gradual pace, is expected to remain on its easing path.

The recent acceleration in the U.S. unemployment rate to 4.3 per cent gained attention, triggering the so-called Sahm rule (a 0.5 per cent increase in the three-month average from its low of the last 12 months) that historically only happens during U.S. recessions. Numerous reasons have been cited why it is different this time, however, it was a wake-up call to financial markets exacerbated by broader concerns of high AI-themed stock valuations and leveraged positions, resulting in a sharp retracement in equity markets and bond yields. Markets have since calmed as evidenced by the CBOE Volatility Index (VIX) returning to pre-selloff levels, but the sharp price movements highlighted their elevated sensitivity to data that may impact policy decisions.

Corporate profits are the primary driver of equity prices and encouragingly, profit growth for the S&P 500 Index companies is expected to remain positive, growing 10 per cent this year and accelerating to 15 per cent next year. With valuations above historical averages, profit expectations will have to be met or exceeded to support future price appreciation.

Macroeconomic forecasting is difficult and often inaccurate. Whilst always aware of the cycle, our investment philosophy focuses on investing in financially sound companies at reasonable prices to build wealth for our clients over the long term.

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TOP PICKS:

Home Depot (HD NYSE)

Home Depot is the leading home improvement specialty retailer with over 2,300 retail stores in the United States, Canada, and Mexico. Its products include building materials, home improvement products, lawn and garden products and decor products. It offers home improvement installation services and tool and equipment rental.

Home Depot’s supply chain investments to improve distribution efficiency and e-commerce capabilities support its industry leading position. Home Depot provides a dividend yield of 2.5 per cent.

Visa (V NYSE)

Visa is a global payments technology company, operating the world’s largest retail electronic payments network and providing financial institutions with a broad range of platforms for consumer credit, debit, and prepaid payments. Visa benefits from the secular shift from cash/cheque to card-based and electronic digital payments. Visa is also a natural beneficiary in the growth of e-commerce/online retail spend. Visa offers a dividend yield of 0.8 per cent.

Canadian Apartment Properties REIT (CAR.UN TSX)

The company owns and manages multi-unit residential rental properties, including apartments and townhomes, principally located in and near urban centers across Canada. The fundamentals in the Canadian apartment rental market remain positive, supported by the strong influx of immigration. CAR.UN offers an income yield of three per cent.

PAST PICKS: AUGUST 25, 2023

Fortis (FTS TSX)

• Then: $53.43
• Now: $59.47
• Return:11%
• Total Return: 16%

Royal Bank of Canada (RY TSX)

• Then: $121.02
• Now: $153.19
• Return:26%
• Total Return: 32%

WSP Global (WSP TSX)

• Then: $186.53
• Now: $222.15
• Return:19.5%
• Total Return: 20%

Total Return Average: 23%