Rick Stuchberry's Top Picks: Aug. 29, 2019

Rick Stuchberry, portfolio manager, Wellington-Altus Private Wealth

Focus: Canadian large caps and international ADRs

MARKET OUTLOOK

After everything we have been through in the last year and a half, the market is still holding close to 18-month highs. Multiples are not that high, and we don’t expect to see large earnings declines. We do see some risks in companies reducing their guidance amid the uncertainty of China-U.S. trade relations. But while some companies could see a significant impact from the trade war, that won’t be enough to harm either economy in a meaningful way. Bilateral trade between the U.S. and China represents three per cent of U.S. GDP and five per cent of Chinese GDP. What we think this means is that this trade war isn’t going anywhere soon, but it also isn’t significant enough to meaningfully damage either party.

The markets and economy are not as closely linked as some would believe. Investor sentiment is very bearish — in fact, cash on the sidelines is very high, and cash generally flows into only three asset classes: stocks, bonds and real estate. Bonds are not really buyable, while stocks remain the easier and cheaper asset class to invest in — and stocks will go up over time as There Is No Alternative (TINA). If the Fed stimulates and pushes bonds even lower, we think the stock market will go higher.

TOP PICKS

Alibaba Group Holding (BABA:UN)
Alibaba is a Chinese technology growth stock with 42 per cent topline revenue growth in the last quarter. It continues to perform well. Over 95 per cent of revenue is earned in China. Trade fears may impact stock price over the short term but won’t impact the company over the long term.

Tencent Holdings (TCEHY:US)
Another Chinese internet giant, with social media and gaming as core pillars. It continues to have revenue growth of 20 per cent year-over-year, and is well positioned to grow both inside and outside China. Both Tencent and Alibaba have been disruptors in the payment space.

Alimentation Couche-Tard (ATD/B:CT)
This company is run excellently. It continuously grows through acquisitions, and simply pays off the debt post purchase. After a flurry of acquisitions a few years back, it has now reduced debt-to-earnings back below 2x (from 4x a year ago), and are now able to hike dividends, buy back shares, and further acquisitions for growth. A sensible consumer name spanning North America and Europe.
 

PAST PICKS: SEPT. 5, 2018

TD Bank (TD:CT)

• Then: $79.39
• Now: $71.53
• Return: -10%
• Total return: -6%

Alphabet (GOOGL:UN)

• Then: $1,199.10
• Now: $1,194.57
• Return: -0.4%
• Total return: -0.4%

Vermilion Energy (VET:CT)

• Then: $40.50
• Now: $19.28
• Return: -52%
• Total return: -48%

Total return average: -18%