Full episode: Market Call Tonight for Tuesday, November 12, 2019
Michael Decter, CEO and chief investment officer at LDIC
Focus: Canadian large caps
As expected, he U.S. Federal Reserve cut trates in October for the third consecutive time. They also indicated there would be no further cuts in December. The U.S.-China trade deal has progressed and we now expect a phase 1 deal before year-end. And Brexit will become clearer after elections are held in the U.K. on Dec.12. Closer to home, the Liberals won a minority government. We do not expect any significant investment implications from the Liberals losing their majority.
We are in the ninth inning on earnings as over 90 per cent of S&P 500 companies have reported. More than 50 per cent have beaten expectations. A lower federal fund rate and strong earnings were positive for most global equities. In October, the S&P 500 and EAFE were up over 2 per cent and emerging markets rose over 4 per cent.
The 10-year Treasury yield moved up from 1.5 per cent hit on October 4t to 1.9 per cent currently. This makes sense. The economy should improve given the three rates cuts from the Federal Reserve. As we hit new interest rate highs, it is no surprise that the “bond proxy sectors” underperformed in October. The top-performing sectors were all cyclical. This begs the question, is there a rotation occurring in the equity markets? Have the interest sensitive sectors seen there best days? Should we be reducing the defensive sectors like Utilities, Telcos, REITS and Staples in favour of more cyclical names? We are watching this very closely, but we think it is still too early to make a call.
Volatility has been low and we expect this trend to continue into the fourth quarter. We remain positive on equity markets heading into 2020.
Sold Corus Entertainment at $4.84, bought at $5.79. We exited our position given the ongoing structural headwinds in the space and felt there were better opportunities given the macro backdrop.
STORAGEVAULT CANADA (SVI:CV)
- Storage Vault owns, develops, and leases self-storage units across Canada. The company focuses on building and acquiring storage business, as well as providing site management services.
- Along with its accretive acquisition strategy for growth, the company has more than one million square feet of organic expansion opportunities within its existing locations.
- The company has quickly become the dominant player in Canada and has a strong growth profile compared to even its U.S. peers.
- The real estate segment has done well given the low interest rate environment and StorageVault management has capitalized on this trend.
- The storage industry is in a long-term secular growth trend, has high barriers to entry and remains highly fragmented in Canada.
- We believe StorageVault is well positioned to benefit from these trends and conditions.
WASTE CONNECTIONS (WCN:CT)
- Provides solid waste collection services to more than six million commercial and residential clients across 40 U.S. states and six Canadian provinces.
- The company has delivered consistent and reliable quarterly earnings, has a seasoned management team and operates in a market with high and sustainable barriers to entry.
- Its strong balance sheet provides flexibility to acquire low-cost disposal capacity and collection networks within this largely fragmented industry.
- Akumin is a consolidator in the U.S. healthcare space focusing on outpatient diagnostic imaging centers.
- It’s currently the number 2 independent operator in the U.S.
- Management has a very good track record of successfully completing acquisitions.
- Lots of runway to grow scale given fragmented industry with the ability for organic growth.
PAST PICKS: APRIL 15, 2019
CORUS ENTERTAINMENT (CJR/B:CT)
- Then: $7.41
- Now: $5.52
- Return: -26%
- Total return: -24%
- Then: $199.23
- Now: $261.96
- Return: 31%
- Total return: 33%
BOYD GROUP INCOME FUND (BYD-U:CT)
- Then: $148.93
- Now: $193.64
- Return: 30%
- Total return: 30%
Total return average: 13%