Full episode: Market Call for Tuesday, November 6, 2018
Rick Stuchberry, portfolio manager at Wellington-Altus Private Wealth
Focus: Canadian large caps and international ADRs
When the bond market sold off in January from a 2.4 to a 3 per cent yield, the stock market sold off 10 per cent. In September, when the bottom broke on the bond market, the stock market began an accelerated selloff. We believe this selloff is over.
The market is down nearly 7 per cent in October. We’re buyers, yet we remain conservative with a structural cash position in portfolios. The bond market is important because at a certain yield, level funds will begin to flow back into bonds instead of equities.
We believe the market will rally regardless of the outcome of the U.S. election because it simply wants certainty, not certain outcomes. Once this is achieved Wednesday, the market will move on and attention will go back to valuing companies for building and growing their businesses.
We continue to focus equity investments in strong balance sheet companies that will take remain agnostic of rising rates. Those companies are overwhelmingly in the tech sector and often have disruptive growth models that shake up the status quo.
UPDATE: We purchased Teck Resources and Box Inc on market weakness.
TECK RESOURCES (TECKb.TO)
We’ve been out of the commodities for a long while and think it’s a reasonable time to re-enter Teck Resources. They’ve significantly reduced the risk on their balance sheet and in a year or so we predict they will be debt-free. Add to that the additional cashflow from the incoming Fort Hills oil and reduced capital spending and we see a lot of potential upside. They could easily increase the dividend. We see a very low-risk entry into the commodity space.
BANK OF AMERICA (BAC.N)
As interest rates continue to climb, bank earnings will reflect these increases over time through higher earnings and growing dividends. Bank of America had the best earnings in years and watched the stock sell off in October. We expect continued growth in the future.
HOME DEPOT (HD.N)
Home Depot is a great play on the strong U.S. consumer. It has seen EPS growth of approximately 25 per cent year-over-year due to the tax plan south of the border. They have a policy to have a 55 per cent dividend payout ratio, so we see at least a 20 per cent increase in the dividend next year.
PAST PICKS: APRIL 23, 2018
ROYAL BANK (RY.TO)
- Then: $97.98
- Now: $95.14
- Return: -3%
- Total return: 0%
TENCENT (TCEHY OTC)
- Then: $50.43
- Now: $37.83
- Return: -25%
- Total return: -25%
ALIMENTATION COUCHE-TARD (ATDb.TO)
- Then: $54.05
- Now: $64.49
- Return: 19%
- Total return: 20%
Total return average: -2%
Custom Managed Account Composites
Performance as of: Oct. 30, 2018
|S&P TSX TOTAL RETURN||-5.7%||-4.1%||6.4%|
Returns are net of fees.