Hap Sneddon, President & Chief Portfolio Manager, Castlemoore
Focus: Technical analysis
Top picks: iShares MSCI Emerging Markets Index Fund ETF, Pembina Pipeline, Arista Networks
MARKET OUTLOOK:
Sentiment right now is negative whether it’s put and call options, market breadth, or stock and bond relationships, to name just a few. Gauges and U.S. & Canadian employment data is either delayed (U.S. shutdown), volatile (Oh, Canada, really?!) or mushy and showing some signs of slowing.
However, as contra-indicators, these suggest when combined with a finally cooperative Fed (playing ball with other central bankers) and the seasonally strongest parts of the year afoot, markets go higher from here.
Investors might not like it, or it might not “feel” right, but bubbles, the latest underpinned by the AI “circular” sales theme (aka vendor financing) do not break when we expect it. You also can’t time or know a black swan.
The strongest sectors are technology, energy, small caps, and biotech; and the strongest indices, Europe (ex-France & Germany) and emerging/developing markets such as South Korea, Vietnam, Hong Kong, and Brazil.
The U.S. still needs to be part of the big picture, it’s just that more investment opportunities are showing up outside her borders than in previous years, and that’s good for everyone.
We still may yet get another inflation build in 2026.
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TOP PICKS:
iShares MSCI Emerging Markets Index Fund ETF (EEM NYSEARCA)
Emerging (and “developing”) markets have not been the place to be over the last 10 years, but the comparative tides are turning. While you cannot abandon the U.S. and other first-rate markets, emerging markets are offering attractive valuations and some of the better economic forecasts. With the Fed expected to continue its rate cutting ways, a weaker U.S. dollar always helps up and coming economies by lowering the cost of their U.S.-denominated debt and support for commodity exporters.
Pembina Pipeline (PPL TSX)
Pembina owns a network of strategically located assets, including hydrocarbon liquids and natural gas pipelines, gas gathering and processing facilities, oil and natural gas liquids infrastructure, and export terminals.
Decent earnings, increased contributions from re-contracting some agreements, a nice 5.20 per cent divvy, and a now seemingly pragmatic Canadian federal government on pipelines, make the company an easy entry into an improving energy sector.
Arista Networks (ANET NYSE)
Arista is a provider of data-driven, client-to-cloud networking for large artificial intelligence, data centre, campus, and routing environments. The company has gained a top market share position in high-speed switching. It has margins and earns strong profits, reflecting its stellar value proposition and wide economic moat, and it books decent free cash flow, which it can then use for organic investment and shareholder returns. It’s main product, Extensible Operating System (EOS) and CloudVision software stack, connects high speed devices with little lag, and offers versatility across different networking environments.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| EEM NYSEARCA | Y | Y | Y |
| PPL TSX | Y | Y | Y |
| ANET NYSE | N | N | Y |
PAST PICKS: MAY 29, 2024
Schneider Electric SE (SBGSY OTC)
Then: US$49.06
Now: US$54.25
Return: 11%
Total Return: 12%
Costco (COST NASD)
Then: US$806.52
Now: US$885.72
Return: 10%
Total Return: 11%
Chemtrade Logistics (CHE.UN TSX)
Then: $9.16
Now: $14.05
Return: 53%
Total Return: 65%
Total Return Average: 29%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| SBGSY OTC | N | N | N |
| COST NASD | Y | Y | Y |
| CHE.UN TSX | Y | Y | Y |
