Rob Lauzon, deputy chief investor officer at Middlefield Capital Corporation
Focus: Global equities


MARKET OUTLOOK

2018 ended on a very negative note, marked by extreme volatility and a 9.2 per cent decline in the S&P 500 over the month. In fact, the index’s monthly performance was the worst since 1931. Equities have since rebounded off dovish comments from the Federal Reserve in addition to a positive start to Q4 earnings season. 

The rebound in the S&P 500 so far this year will give a boost to the index of leading economic indicator, which should help alleviate near-term recession worries. The market bounce will also help consumer sentiment over the next month assuming that there isn’t another government shutdown in the offing. We also expect that an amicable resolution in the U.S.-China trade talks will boost stock prices and consumer confidence. 

Also helping to boost sentiment is yesterday’s decision by the FOMC to pause rate hikes. Yesterday’s statement signaled a more cautious and patient approach going forward in addition to more flexibility paring the Fed’s balance sheet. If rates stay on pause while earnings meet expectations for the year, we think the S&P 500 can attempt a rally towards 3,000 by year-end.

Despite trade war headlines and uncertainty surrounding Brexit, we don’t foresee a global recession in 2019. As for oil, prices have recently stabilized after selling off precipitously through the final months of the year.

Not all stocks are cheap, but we’re finding pockets of value in North America and elsewhere. In terms of themes, we remain focused on innovation across sectors such as technology, healthcare and real estate.

TOP PICKS

Rob Lauzon's Top Picks

Rob Lauzon, deputy chief investment officer at Middlefield Capital, shares his top picks: WPT Industrial REIT, Enbridge and Microsoft.

WPT INDUSTRIAL REIT (WIR_u.TO)
Bought on January 2019 at $13.50.

WPT owns and operates an institutional quality portfolio of industrial properties located in the U.S. We see good visibility on increasing rents, lease terms and occupancy providing earnings and dividend growth for WPT investors. Demand for advanced warehousing, logistics to meet e-commerce secular growth is still in early days. The REIT trades on the TSX in U.S. dollars and yields over 5 per cent yearly.

ENBRIDGE (ENB.TO)
Last purchased October 2018 at $40.50.

We think 2019 should be a good year for Enbridge. Management has executed on its strategic plan over the last 12 months, including the approval of Line 3, the rollup of subsidiaries, the sale of non-core assets to improve the balance sheet and subsequent elimination of the DRIP program. You should see better institutional ownership of the stock now that the organizational structure has been simplified. The outlook for dividend growth remains good, with management committing to 10 per cent dividend growth through 2020.

MICROSOFT (MSFT.O)
Last purchased November 2018 at $103.

Microsoft has a solid legacy business complemented by multi-year growth engine of O365 and Azure that continue to show revenue growth and margin expansion. This coupled with controlled operating expenses and share repurchases should enable the company to deliver double-digit earnings growth for the foreseable future. Microsoft is not under the regulatory spotlight like other tech names. The pullback off last night’s earnings report provides an attractive entry point.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
WIR-U N N Y
ENB N N Y
MSFT N N Y

 

PAST PICKS: JAN. 10, 2018

Rob Lauzon's Past Picks

Rob Lauzon, deputy chief investment officer at Middlefield Capital, reviews his past picks: Pfizer, BNP Paribas and Freehold Royalties.

PFIZER (PFE.N)

  • Then: $36.47
  • Now: $42.15
  • Return: 16%
  • Total return: 21%

BNP PARIBAS (BNPQY.PK)

  • Then: $39.65
  • Now: $23.61
  • Return: -40%
  • Total return: -37%

FREEHOLD ROYALTIES (FRU.TO)

  • Then: $14.00
  • Now: $9.16
  • Return: -35%
  • Total return: -30%

Total return average: -15%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
PFE N N Y
BNPQY N N Y
FRU N N Y

 

FUND PROFILE

Global Dividend Growers Income Fund (GDG_u.TO) 
Performance as of: Dec. 31, 2018

  • 1 month: -6.6% fund, -5.3% index
  • 1 year: -1.6% fund, -0.1% index
  • 3 years: 3.7% fund, 6.4% index

INDEX: MSCI World Total Return.
Returns are net of fees, reinvested dividends and annualized.

TOP 5 HOLDINGS

  1. Vonovia SE
  2. Microsoft
  3. Merlin Properties Socimi
  4. UnitedHealth Group
  5. Bank of America

WEBSITE: www.middlefield.com