Rick Stuchberry, portfolio manager at Wellington-Altus Private Wealth
Focus: Canadian large caps and ADRs
This was not the correction we had envisioned. I recently was going over our last Market Call outlook published in January and it all seems like a world away.
Here is a quick synopsis of the facts: COVID-19 has been declared a pandemic. It has spread to over 200 countries, with infections growing exponentially. To reduce the potential spread, social distancing has been mandated, effectively turned the economy off for the foreseeable future. We have never seen this before.
All uncharted ground has a familiar feeling of uncertainty. Uncertainty always causes market selloffs, yet it also presents opportunities.
The year began with the market growing and continuing to climb the constant wall of worry. During January, our target companies continued to move higher. We stayed disciplined and didn’t buy anything until the selloff began. During the selloff, we bought two new positions: The first in ride-sharing company Uber and the second in Square, a thoughtful fintech company that acts as an intermediary between banks and small business.
- Took profit on some ICICI bank at $14.10. Declining global interest rates gave us an incentive to reduce some higher risk/reward financial stocks.
- Took profit on Home Depot at $198. We really like the company and it is an essential service. Medium term, it will be a challenge for it to hike the dividend in 2021 as COVID-19 hurts revenue.
SQUARE (SQ NYSE)
Square is a digital e-commerce ecosystem that’s at the forefront of the cashless society. They have solid revenue growth rates, consistent innovation and a stable balance sheet upon which to grow. Square is the kind of company that could disintermediate the banks from small business. It was recently granted a banking license in the U.S.
UBER (UBER NYSE)
This transport service company is the category leader. They are much larger than any competitors and have a solid balance sheet and consistent top line growth. The COVID-19 shock will hurt its ride-sharing business, but potentially help Uber Eats. Uber has over 100 million monthly active users and accounts for only 1 per cent of globally driven miles. We think this number will increase substantially over the next decade.
TENCENT (TCEHY OTC)
China is on the other side of the coronavirus pandemic, having handled it better than most. Tencent is only down about 1 per cent year-to-date. The company has many solid segments, including a digital payment business. We see continued growth in Chinese tech stocks as the country’s internet consumption per capita increases.
PAST PICKS: MAY 6, 2019
BOX INC (BOX NYSE)
- Then: $20.79
- Now: $15.99
- Return: -23%
- Total return: -23%
SPINMASTER (TOY TSX)
- Then: $45.78
- Now: $18.88
- Return: -59%
- Total return: -59%
ENERPLUS (ERF TSX)
- Then: $11.53
- Now: $2.90
- Return: -75%
- Total return: -75%
Total return average: -52%