Rob Lauzon, managing director and deputy chief investment officer at Middlefield Capital
Paul Sagawa, co-founder and head of technology research at Sector & Sovereign Research

Focus: North American technology stocks

MARKET OUTLOOK

While we acknowledge that sentiment has worsened, there’s still hope for positive developments from the meeting of G20 finance ministers on June 8 and G20 world leaders on the same month. In addition, there are also reports that congressional Republicans are weighing their options to block Donald Trump’s desire to tariff Mexican imports.

Lastly, monetary policy remains accommodative and should help to offset trade headlines. The market is now pricing in multiple rate cuts in the U.S. by January 2020 and messaging from Federal Reserve officials supports this possibility.

We continue to believe that equities will move higher into year-end. That being said, we recognize that the current situation is tenuous and that equities may trade sideways in the short run. As a result, we believe that 2,900 might serve as a temporary ceiling for the S&P 500 while 2,750 may provide valuation support. Economic relations are front and centre; however, earnings growth should re-emerge as the main driver of stock prices later this year. We think 3,000 is a reasonable year-end target.

TOP PICKS

NETFLIX (NFLX.O)
Bought on January 2019 at $335.

Netflix is one of the largest global entertainment subscription businesses with a still largely untapped global addressable market as more digital consumers emerge through connected devices.  We believe the current valuation does not reflect the level of sustainable scale, growth and profitability ahead. We don’t see regulatory headwinds for this FAANG stock and customer satisfaction levels continue to trend positively. There’s strong content coming later this year within their original films, such as The Irishman, directed by Martin Scorsese and featuring Robert De Niro and Al Pacino.

ZENDESK (ZEN.N)
Bought on April 2018 at $48.

Zendesk is well positioned to continue benefitting from the automation of customer support. The stock has done extremely well despite screening as expensive by conventional metrics. Zen’s earnings growth has proven more sustainable than the street expected, resulting in eight consecutive beats. We continue to be comfortable with a durable high-growth, organic trajectory over the next few years.

PROOFPOINT (PFPT.O)

Proofpoint continues to gain market share in email security products as the legacy competitors have under-invested. The increasing adoption of Office 365 is creating new opportunities for selling a cloud-based email security solution. It has as strong visibility on earnings, with international expansion being a tailwind for growth.

FUND PROFILE

Global Dividend Growers Income Fund
Performance as of: May 31 2019

• 1 month: -2.6% index, -5.7% fund
• 1 year: 5.2% index, 0.3% fund
• 3 years: 9.8% index, 9.6% fund

Index: MSCI World Index - Total Return.

WEBSITE: www.middlefield.com