Jamie Murray, head of research at the Murray Wealth Group
Focus: North American equities
MARKET OUTLOOK
An eleventh hour NAFTA deal marked a major victory for the Trudeau government, with minimal concessions and disruptions expected to the auto and dairy sectors while still maintaining the Chapter 19 dispute resolution system and 16 years of certainty before the trade deal may expire. It removes a key overhang to Canadian manufacturers as well as a major policy item for the Trump administration, which will likely shift its focus increasingly to China. Canada will need to grapple with its landlocked oil, but the sector saw some short-term wins with a positive investment decision by LNG Canada for a massive liquefaction facility on the coast of British Columbia and additional consolidation in the oil sands market.
Our market outlook remains unchanged and we continue to prefer U.S. equities over Canada and Europe. We believe we’re in an elongated cycle supported by low interest rates and inflation, digital productivity, and pro-market policies. Additional catalysts to follow include more tax cuts, strong corporate earnings and resolution of trade disputes.
TOP PICKS
MICROSOFT (MSFT.O)
Microsoft is transforming into a cloud-based service provide, with both its Office365 and other cloud applications gaining acceptance with customers. Its Azure cloud services division has massively built out datacentre capacity in anticipation of a large amount of workloads moving from on premise mainframes competing with Amazon’s AWS division. We believe Microsoft can continue to close the market share gap given its advantages in reputation, enterprise services experience and global datacentre footprint. We believe Microsoft’s revenue growth and margins aren’t fully appreciated by investors and have a US$145 target price on the company.
CONSTELLATION BRANDS (STZ.N)
Constellation Brands is a growing alcoholic beverages provider. In the realm of consumer staples, beverages have the best growth and margin profile, yet have been lumped in with food and household product categories within the staples sector. We believe Constellation’s Mexican beer portfolio is very strong and its recent partial acquisition of Canopy Growth (WEED.TO) provides a free call option on the cannabis sector. Since the announced date, Constellation shares are down 4 per cent, but unrealized gains on its most recent Canopy investment amount to $2 billion, with the marijuana company at C$60 per share. We have a target price of US$240 per share.
STELCO HOLDINGS (STLC.TO)
Stelco is a Canadian Steel products supplier with two sites in Ontario. The company has emerged from its recent restricting very strong financially and has benefitted from high global steel prices due to tariffs and lower Chinese exports, creating strong cash flow. The Street is forecasting lower steel prices in 2019 and beyond, though we note prices through 2018 have been stronger than the market anticipated. Shares are currently weak after a secondary share offering from majority owner, but longer term an increase to the company’s float (the number of shares widely held by investors) should be viewed positively. The company is also targeting all production to be sold domestically by 2019, avoiding the direct impacts of tariffs. Our target price of $30 doesn’t include potential special dividends the company may pay as well.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MSFT | Y | N | Y |
| STZ | Y | N | Y |
| STLC | Y | N | Y |
PAST PICKS: MAY 4, 2018
TELEFLEX (TFX.N)
- Then: $271.09
- Now: $264.70
- Return: -2%
- Total return: -2%
ROYAL CARIBBEAN CRUISES (RCL.N)
We sold a small part of our position at US$115.03 on Aug. 10 after acquiring shares in the US$104 range earlier in the summer. The stock had appreciated and the position within the portfolio was too large for our risk parameters.
- Then: $107.36
- Now: $128.40
- Return: 20%
- Total return: 21%
BROADCOM (AVGO.O)
- Then: $230.52
- Now: $248.10
- Return: 8%
- Total return: 9%
Total return average: 9%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TFX | Y | N | Y |
| RCL | Y | N | Y |
| AVGO | Y | N | Y |
FUND PROFILE
The MWG Global Equity Growth Fund
Performance as of: Sep. 30, 2018
- 1 Month: -0.08% fund, -0.89% index
- 1 Year: 18.07% fund, 5.99% index
- 3 Years: 14.69% fund, 11.69% index
Index: TSX.
Returns provided are net of fees.
TOP 5 HOLDINGS AND WEIGHTINGS
- Alphabet Inc: 5.72%
- Toronto-Dominion Bank: 4.44%
- Celgene Corp: 4.26%
- Microsoft: 4.07%
- Facebook Inc: 4.07%
WEBSITE: www.tmwg.ca
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