Full episode: Market Call for Wednesday, November 6, 2019
Rick Stuchberry, portfolio manager at Wellington-Altus Private Wealth
Focus: Canadian large caps and ADRs
The summer continued its up-and-down action and we’re now approaching two years of sideways markets. This mimics the early 1990s’ sideways action before the bull market resumed its upward trajectory. The Federal Reserve has cut interest rates three times and we have transitioned to a rate cut environment.
Despite all this, most financials are recovering from the negative sentiment. We watched sentiment decline on the IPO class of 2019, with almost all initial public offerings being flops. This isn’t positive, but it isn’t that negative: Facebook’s IPO was down 60 per cent in the first year, and it has since grown to be a company generating $10 billion per quarter.
We don’t believe our current portfolio should undergo a massive change. Interestingly, there remain more strong results than weak and Nike had expansion in all geographic areas. Remember the consumer represents 70 per cent of the U.S. economy. Consumer stocks remain resilient and appear to be growing faster.
We continued to hold close to our record highs in this sideways market, but continue to question when we will break out or break down. We continue to think we will break out to new highs after this consolidation; we don’t think we will break down to push to the lows. The consumer is healthy and we exist in a time of full employment, wage growth, low Inflation, low U.S. debt and low interest rates. If we go into recession with these ingredients, we don’t think it would be that painful.
ALIMENTATION COUCHE-TARD (ATD/B:CT)
Couche-Tard is a solid entry point into a very well-run business. The company has reduced leverage drastically over the last several years, and has completed the re-brand to Circle K, reducing the future capex. We think it is highly likely to see additional deleveraging, growing dividends and share buybacks.
The recent quarter was viewed as negative by the markets, with Amazon being sold down hard on earnings. Longer term, we view the investments in logistics positively and expect to see continued sales growth. AWS continues to have a significant lead over competition and will provide stability going forward.
TD BANK (TD:CT)
Investors feared weak bank earnings as central banks began cutting interest rates globally, but they have remained resilient. We believe TD will weather the storm comfortably. Its U.S. exposure gives solid growth potential. We expect to see growing dividends in the banks as they release their annual results next month.
PAST PICKS: NOV. 6, 2018
TECK RESOURCES (TECK/B:CT)
- Then: $27.61
- Now: $22.33
- Return: -19%
- Total return: -18%
BANK OF AMERICA (BAC:UN)
- Then: $28.21
- Now: $32.98
- Return: 17%
- Total return: 20%
HOME DEPOT (HD:UN)
- Then: $182.01
- Now: $232.93
- Return: 28%
- Total return: 31%
Total return average: 11%