John Kim, portfolio manager at Aventine Asset Management
Focus: North American equities

MARKET OUTLOOK

There’s still signs the U.S. and global economies are slowing down, with the possibility of a recession growing. The trade war between U.S. and China increase chances of recession and now we have what looks like a possible currency war starting.

The U.S. Federal Reserve cut interest rate by 25 basis points, with Jerome Powell calling it a mid-cycle adjustment. Many saw it as capitulation to the markets and insurance against a recession

I still believe we are in the late stages of this bull market. Even after the recent market plunge, valuations are at the high end of historic range.

TOP PICKS

CVS HEALTH (CVS.N)

CVS’s quarterly revenue and earnings were better than expected and it also raised 2019 guidance. Its merger with Aetna should be finalized after a U.S. judge signed off on it this month. CVS on track with its debt reduction, it’s got an extremely low valuation at less than eight times 2020 earnings estimates and it has a nice dividend yield of 3.7 per cent. Most recent purchase was on May 16, 2019 at $52.49

FEDEX (FDX.N)

FedEx’s valuation is compelling. It’s trading at near its lowest price-to-earnings in 10 years at 11-times 2020 estimates. Enterprise value to earnings before interest, taxes, depreciation, and amortization is at a 10-year average.

There’s also near-term anxiety over the end of their relationship with Amazon, tough Amazon was less than 2 per cent of revenues in 2019.

As more retailers focus on e-commerce and fast delivery, FedEx is poised to win more than its fair share. The company was built on as the leader in next-day delivery and it’s moving to 7-day a week delivery to better serve their e-commerce customers. Most recent purchase was on Aug. 7, 2019 at $157.85.

COMINAR REIT (CUF_u.TO)

Cominar has several strategic initiatives to create value, including a new asset management program to find new sources of revenue, the continuation of a comprehensive portfolio realignment through a selective disposition of assets, the repositioning of its retail portfolio, its debt reduction target of 50 per cent by end of 2021 from the current 54 per cent and its streamlining of operations to reduce operating costs.

The same property NOI growth rate is increasing over past number of quarters, the occupancy rate is now over 93 per cent and the adjusted funds from operation payout ratio is of 90 per cent. Cominar still trades below net asset value, using a cap rate over 7 per cent. Cap rate should come down as they continue to execute and this will provide even more upside to share price. It’s got an attractive yield of 5.8 per cent. Most recent purchase was on May 8, 2019 at $11.45.

PAST PICKS: JUNE 21, 2019

NORTHLAND POWER (NPI.TO)

• Then: $25.34
• Now: $25.68
• Return: 1%
• Total return: 2%

AT&T (T.N)

• Then: $32.45
• Now: $34.40
• Return: 6%
• Total return: 8%

CVS HEALTH (CVS.N)

• Then: $53.65
• Now: $58.66
• Return: 9%
• Total return: 10%

Total return average: 7%

WEBSITE: Aventine.ca
TWITTER: @Aventine_mgmt