Full episode: Market Call for Wednesday, August 21, 2019
Rob Lauzon, managing director and deputy chief investment officer at Middlefield Capital Corporation
Focus: Global equities
Although the U.S. Federal Reserve decided to cut short-term rates by 25 basis points at the end of July, a move largely dictated by market forces, investors quickly became unsettled for two reasons: the FOMC’s guidance was not dovish enough for investors and President Donald Trump made a surprise announcement that the U.S. will impose 10 per cent tariffs on the remaining US$300 billion of Chinese imported products beginning in September. Although they have since deferred these new duties on goods such as cellphones, laptops and video game consoles to Dec. 15, this move has helped drive volatility levels significantly higher. In addition, market anxiety has since been exacerbated by increased worries of a recession, especially in light of the recent flattening/inversion of the U.S. yield curve and slowing global economic growth.
While sentiment has worsened, we view the recent bout of weakness as a healthy pullback and remain bullish on equities for several reasons. First, global central banks remain highly accommodative. Second, the U.S. and China will probably make a trade deal because it is in both of their interests to do so. Third, the U.S. consumer remains healthy.
Escalating trade tensions might continue to weigh on the markets in the near-term. Even so, we believe that investors should remain focused on earnings, the key driver of returns over the long term.
WESTSHORE TERMINALS (WTE:CT)
Bought on August 2019 at $21.15.
Westshore operates a key infrastructure asset in Delta, B.C. moving over 30 million tonnes of coal per year. Recently it was announced Cloud Peak Energy, a key customer, was purchased out of bankruptcy. We believe the market was ascribing little value to this contract prior to this news. As the new buyer meets it contractual obligations, we should see this reflected in the shares. Valuation looks attractive for an infrastructure asset at seven times enterprise value to earnings before interest, tax, depreciation and amortization (EV/EBITDA). We believe there could be room for a dividend increase given its growing free cash flow.
Bought on August 2019 at $1,850.
One of the world’s largest internet retailers and cloud computing vendors, Amazon has significant and growing market shares in both the U.S and internationally and remains a massive opportunity through greater Prime adoption. Its ad business is also gaining momentum. Less regulatory risk than Alphabet and Facebook.
WPT INDUSTRIAL REIT (WIR/U:CT)
Bought on November 2018 at US$12.50.
WPT gives investors exposure to the industrial REIT sector that currently is experiencing fundamental tailwinds to the business. It recently reported solid results underpinned by strong organic growth and $100 million of accretive acquisitions through a joint venture with the CPP and AIMCo pension plans. Units provide a 5.5 per cent annual yield for income investors.
PAST PICKS: JUNE 25, 2018
- Then: $41.58
- Now: $44.89
- Return: 8%
- Total return: 17%
KEYSIGHT TECHNOLOGIES (KEY:UN)
- Then: $58.74
- Now: $88.62
- Return: 51%
- Total return: 51%
ARC RESOURCES (ARX:CT)
- Then: $13.30
- Now: $6.17
- Return: -54%
- Total return: -50%
Total return average: 6%
Middlefield American Core Dividend ETF
- 1 month: 2.2% fund, 1.9% index
- 1 year: 5.2% fund, 9.1% index
- 3 years: 12.7% fund, 13.6% index
Index: S&P 500.
Fund’s returns are based on reinvested dividends.