Sep 10, 2019

Mike Newton's Top Picks: Sept. 10, 2019

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Full episode: Market Call Tonight for Tuesday, September 10, 2019

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Mike Newton, director of wealth management and portfolio manager at Scotia Wealth Management
Focus: North American large caps and ETFs

MARKET OUTLOOK

All that's going on in the world right now is leaving investors unsettled. Now is probably a great time to tune down the noise levels a bit, press pause on short-term urgencies and spend some time thinking about the medium-to-longer term. It’s easy to say, “I don’t know what to believe anymore.” Herein lies the opportunity. Take advantage of the negative noise and believe in owning high-quality, growing businesses. Then protect those positions with stop losses. As Mark Twain said, “whenever you find yourself on the side of the majority, it is time to pause and reflect.”

It's always going to be hard trying to predict what happens next with trade policy and market direction. The trade war is accelerating, but it has largely kept investors on the sidelines over many months. Very few are betting on an improved growth outlook, which might make us somewhat contrarian. Investor positions are extremely bearish, which I believe is contrarian buy signal for risk assets. We will continue to be positioned positively, but will be driving with our foot hovering over the brake pedal.

TOP PICKS

Mike Newton's Top Picks

Mike Newton of Scotia Wealth shares his top picks: NICE, the MGV and FedEx.

NICE LTD (NICE:UW)
Recent purchase at $154.49 on Sep. 9.

NICE is a provider of technology-based solutions intended to enable businesses to operate more efficiently, better engage with customers, curb financial crime and comply with regulations. Over the last decade, it has utilized its R&D budget, along with over $6 billion in acquisitions, to keep pace with advances in data analytics and surveillance as the proliferation of financial crimes and regulatory requirements has generated growing demand for solutions. As a result, NICE has seen its adjusted earnings per share (EPS) grow by an average of 13.8 per cent over the past five years.

RBC Capital Markets expects the recent NICE’s acquisition of Brand Embassy is likely to enhance the company’s customer engagement offers. NICE has strategic alliances with Accenture, BT, Deloitte, IBM, Infosys, IPC, Motorola, PWC, RingCentral, Salesforce, Tata Consulting, Microsoft, and Verizon.

VANGUARD MEGA CAP VALUE ETF (MGV:UN)
Recent Purchase at $80.79 on Sep. 10.

Since 2006, value has clearly lagged. This is an unusually long period of underperformance for an approach that has historically been sound. Although a clear catalyst for when dominance switches from growth to value is unknowable, we have started adding to this space. This ETF invests in value stocks of mega-cap companies. Once securities are assigned to a size-based market cap index, they are made eligible for assignment to a value or growth index. Financials are currently weighted at 23 per cent, healthcare at 20 per cent and energy at 8 per cent.

The ETF has $2.7 billion in assets under management and the expense ratio is 0.07 per cent. The largest 10 holdings make up 27 per cent of the ETF led by Berkshire Hathaway, Exxon, JPMorgan and Unitedhealth.

FEDEX (FDX:UN)
Recent purchase at $169.99 on Sep. 10.

At nearly 30 per cent off its highs, we re-entered FedEx recently. Although 70 per cent of their business isn’t e-commerce, FedEx continues to pivot to that growth area and is successfully navigating through the shifting logistics landscape. Outside of the big players, it must be remembered that there are 32 million small businesses in the U.S. that rely on FedEx.

Shares may be down of late with news that the company has moved away from Amazon, but Walmart still uses FedEx for 50 to 60 per cent of its deliveries. FedEx is in the process of rolling out FedEx Office locations within 500 Walmarts. To capture smaller business, they introduced the Extra Hours service where they send a courier to a local store from 5 p.m. to midnight and then get the package to consumer the next day. Today, FedEx has an incredible e-commerce portfolio built on 45 years of expertise, has the most comprehensive intercontinental network in the world and still is the fastest ground network in the U.S.