Sep 5, 2018

Rick Stuchberry's Top Picks: Sep. 5, 2018

BNN Bloomberg

Rick Stuchberry , BNN Bloomberg

Rick Stuchberry, portfolio manager at Wellington-Altus Private Wealth
Focus: Canadian large caps and international ADRs

MARKET OUTLOOK

We believe the summer doldrums are in full force and investors shouldn’t read too deeply into these quiet summer markets. Many stocks are having an incredibly tough summer, but there are a few managing to shine. Year-to-date, breadth has been increasing, although the summer feels very challenging. Sentiment is weaker globally, yet the leading markets are close to all-time highs. The NASDAQ continues to lead global markets higher and, although it doesn’t feel like it to Canadians, the S&P 500, the broader U.S. index, is within a hair of breaking out to its all-time highs. We think the U.S. markets will lead global markets higher.

Currently, portfolios are seeing virtually all of their year-to-date gains in the U.S., as their currency and market have held up better than global peers. Gains are expanding outside of the FANG stocks into some of the broader U.S. market. While this is happening, global stocks have been falling. Our approach has been to remain balanced globally. We've taken profits in winning U.S. stocks to buy some losing global stocks.

The bond market continues to be a concern. Globally, bond yields remain far too low for 10-years into an economic recovery. We now have one more meaningful country increase rates after the Bank of England hiked to get to the level they were in back in 2009. The two-year U.S. government bond is nearly 2.65 per cent and a 10-year bond is approximately 2.88 per cent. There’s just very little incentive to buy a longer-term bond and what we don’t want to see is incentive to sell longer term to buy shorter term. We think it’s likely the yield curve will completely flatten and invert in the U.S. We are holding a larger percentage of structural cash in order to safely navigate this period.

UPDATES: We took an additional profit in Twilio (sold another 20 per cent of our shares). We bought it at approximately $25-$30. When the stock hit $76 on positive earnings, we took a bit of cash profit. We still own a large position in the name and are very positive on the company. Internally, we thought would be our next Shopify (incidentally, we owned 2 per cent Shopify, but had approximately a 4 per cent Twilio weighting).

TOP PICKS

TD BANK (TD.TO)

As the Canadian bank with the most exposure to the U.S., TD is set to greatly benefit from the world’s leading economy. Its better-than-expected quarterly results are likely going to continue in the future. It has a safe, growing dividend.

ALPHABET (GOOGL.O)

Alphabet remains one of leading stocks in the U.S. Fines from the EU barely impact this Goliath and the company has one of the best balance sheets on the planet. It consistently grows revenue at 20 per cent. We consider it a safe place to park some growth capital.

VERMILION ENERGY (VET.TO)

Vermilion is one of the best-managed Canadian energy companies. It has a very solid balance sheet and its dividend is very sustainable, with potential future growth. Vermilion is one of the Canadian energy companies with a significant amount of assets offshore, so it has less exposure to pipeline politics than many other domestic energy firms.