Rick Stuchberry, portfolio manager at Richardson GMP

Focus: Canadian large caps and international ADRs
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UPDATES

• We raised cash in the portfolios as a defensive measure from below five per cent during the Trump election to approximately 20 per cent.
• Shopify: Exited the stock, took a profit of over 200 per cent. 
• Facebook: Small profit take of over $170, profit over 100 per cent.
• Alibaba: Small profit take of $153, profit over 100 per cent.
• Western Digital: Sold position at $79, profit over 40 per cent.

MARKET OUTLOOK
Ultimately, we continue to believe we are in the midst of a secular bull market, but a cyclical correction of some calibre would not surprise us. The Dow, S&P 500, and Nasdaq are all up nearly 20 per cent from the Trump election until now, and it is prudent to begin taking profits to manage risk. The Nasdaq and the tech stocks continue to lead global markets, and although the companies are excellent, we worry they will struggle to justify so much multiple expansion.

We believe the market will need new leadership to give us another leg higher, and our view is that financials will give that next leg of leadership. Fundamentally, we are in an investment period with strong demographics, technological innovation/deflation, and global middle-class growth, providing a strong economic backdrop for rising interest rates. As interest rates increase, financials will have a tailwind to their earnings.

TOP PICKS

DEUTSCHE BANK (DB.N) – Paid $17-$18
A deep value investment for our team and an investment based on low interest rates. We have holdings in global banks in many jurisdictions, and this one is currently our most unique opportunity. We bought Bank of America at approximately 60-70 per cent book value years ago, and have done very well. Deutsche Bank gave us the opportunity to purchase at half book value. They raised $8 billion euros in equity in April and wrote off many bad loans in 2016; we expect most of the pain to be behind them. Going forward, we see net interest margins increasing in Europe and believe we purchased close to a bottom.

TWILIO (TWLO.N) – Paid $29
Similar to Shopify, as they have a platform/software-as-a-service model and are a technological interrupter. They have nearly $300 million in cash without a meaningful cash burn. Twilio uses software to make communications easier and cheaper for companies, they are growing their customers and revenue, and in our view at a certain point these software-as-a-service companies can operate on a virtually flat cost, meaning all revenue can go directly to margin expansion. Despite their recent loss of Uber, their largest customer, they grew revenue at over 50 per cent in the second quarter of 2017. 

HOME DEPOT (HD.N) – Paid $129
Great demographics as millennials form households. Most U.S. homes need work due to age, so there is a positive backdrop in the repair market. The company is very consistent and although Amazon is moving into appliances with Sears’ Kenmore brand, we see Home Depot’s online strategy working despite the ever-present fear in retail. Consistent earnings growth and the dividend is 55 per cent of earnings.
 

PAST PICKS: APRIL 15, 2016

WHITECAP RESOURCES (WCP.TO) – Paid $7.09

• Then: $8.87
• Now: $8.92
• Return: 0.56%
• Total return: 4.31%

LOBLAW (L.TO) – Paid $66.00

• Then: $70.72
• Now: $67.86
• Return: -4.04%
• Total return: -2.26%

GENERAL ELECTRIC (GE.N) – Paid $24.00

• Then: $31.03
• Now: $24.34
• Return: -21.55%
• Total return: -18.44%

TOTAL RETURN AVERAGE: -5.46%