Full episode: Market Call for Tuesday, January 28, 2020
Rob Lauzon, managing director and deputy CIO at Middlefield Capital Corporation
Focus: Global stocks
Volatility may rise in the near-term given the U.S. election and other risks. Even so, we remain optimistic because earnings estimates appear to have bottomed. Market multiples are still extended, but that could change quickly if prices continue to fall.
In terms of strategy, we continue to favour a barbell approach, with secular growth on one end and defensive real assets on the other. The former group consists of stocks benefitting from the shift to streaming and software as a service, while the latter includes companies with sustainable infrastructure assets.
Looking forward, we’re expecting global activity to improve as trade headwinds subside, lifting earnings and supporting stocks. As a result, we’re expecting further new highs from equities by year-end 2020.
TRANSALTA (TA TSX)
Purchased in November 2019 at $9.
We view the company’s 2020 guidance favourably and it gives us comfort that free cash flow will be used to increase the dividend, pay down debt and buy back shares. The execution of TransAlta’s strategy to transition from coal to gas power should increase investor sentiment as the firm makes progress on is environmental, social, and governance (ESG) targets.
XYLEM (XYL NYSE)
Purchased in January 2020 at $80.40
Water scarcity remains one of the key challenges faced by the world today. Xylem is a pure-play water infrastructure company providing smart water technologies and solutions to help upgrade aging utility infrastructure and treating and disinfecting water. Their portfolio of products and services address the full cycle of water, from collection, distribution and use to the return of water to the environment.
EQUINIX (EQIX NASD)
Purchased in November 2019 at $565.
Equinix is the largest datacentre by market cap in the world. I believe we’re in the early innings of a long runway for robust rent growth as companies continue to transition from on-premise servers to the cloud. Equinix dominates the interconnection market, allowing businesses to be closer to their customers. We like the pathway for strong revenue growth combined with attractive margins and a growing dividend.
PAST PICKS: JAN. 31, 2019
WPT INDUSTRIAL REIT (WIR/U TSX)
- Then: $14.23
- Now: $13.98
- Return: -2%
- Total return: 3%
ENBRIDGE (ENB TSX)
- Then: $48.01
- Now: $53.98
- Return: 12%
- Total return: 20%
MICROSOFT (MSFT NASD)
- Then: $104.43
- Now: $162.96
- Return: 58%
- Total return: 60%
Total return average: 28%
MIDDLEFIELD GLOBAL INFRASTRUCTURE FUND (SERIES F)
Performance as of Dec. 31, 2019
- 1 month: 0.74% fund, 0.89% index
- 1 year: 23.8% fund, 15.8% index
- 3 years: 9.5% fund, 6.8% index
INDEX: MSCI World Infrastructure Net Total Return Index.
Returns are based on reinvested dividends, net of fees and annualized.