Richard Croft, chairman and chief investment officer at R.N. Croft Financial Group
Focus: Options and ETFs

MARKET OUTLOOK

Positives:

• No recession is on the horizon — at least not until after the U.S. election.
• U.S. manufacturing is slowing partly as a result of the trade wars, but the U.S. Federal Reserve is being accommodative, reducing some of the risk that a manufacturing slowdown will morph into the rest of the economy.
• Interest rates are expected to remain low for the foreseeable future.
• The U.S. consumer is in good shape propped up by rising wages, the wealth effect of higher stock prices and a solid real estate market.
• Financial engineering should buoy stock values into 2020.

Neutral:

• Sentiment is mildly positive although there are concerns about a market that may be ripe for a mild correction. Tax-loss selling in January would be one concern.

Negatives:

• Stock market valuations are stretched by historical price to earnings and dividend metrics.

TOP PICKS

GLOBAL X INFRASTRUCTURE DEVELOPMENT ETF (PAVE:UW)

This fund seeks to provide investment results that correspond generally to the price and yield performance before fees and expenses of the Indxx U.S. Infrastructure Development Index. The Index is designed to measure the performance of U.S.-listed companies that provide exposure to domestic infrastructure development. During a period of discourse between the various branches of the U.S. government, infrastructure spending is the only thing that all sides seem to agree on.

LULULEMON ATHLETICA (LULU:UW)

Lululemon’s stock has been on a tear, up more than 100 per cent during 2019. They continue to generate double-digit same-store sales, especially in China where they only have 40 stores. Expectations for 2020 are a rapid increase in the number of outlets in China,which should provide a long runway through 2020.

Covered Call – BOEING (BA:UN)

• Buy Boeing: US$333.
• Sell BA Decenber (2020) 340 calls: US$(34.50)
• Net per share out of pocket cost: US$298.50

Potential outcomes in one-year holding premium

• BA rises: Call exercised stock sold at $340. 13.90 per cent return.
• BA unchanged: Call expires, investor retains stock. 11.56 per cent return.
• BA declines: Downside protected $338. -10.36%

Boeing continues to be plagued by the 737 Max airplane. They recently replaced their CEO which by itself will not speed up the process for re-certification. This company will continue to be challenged throughout 2020, but I think much of the concerns are already priced into the stock. Not sure about any great upside, but the option premiums seem to compensate for the current risk metrics. If the stock remains the same, this strategy provides a double-digit return and some downside protection.

PAST PICKS

Covered call — CANOPY GROWTH (WEED:CT) $46.32 underlying prince at expiry