Rob Lauzon, deputy chief investment officer at Middlefield Capital Corporation
Focus: North American equities
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MARKET OUTLOOK
The stock market continues to ebb and flow as investors grapple with President Donald Trump’s bullish and bearish policy stances. On one hand, his deregulation and tax cuts have stimulated the U.S. economy and boosted stock prices. On the other, his protectionist stance has unsettled the global economy and depressed stock prices. Regardless of the outcome of the tariff tantrum, we’ve entered the late-cycle phase in the market.
Investors need to begin to position their equity portfolios accordingly. During the second half of the year, we think it’s prudent to rotate a portion of the gains accrued in financials, industrials, consumer discretionary and technology into the underperforming and more defensive sectors such as staples, utilities, pipelines, REITs and healthcare. A more defensive and balanced approach across the equity spectrum is warranted.
TOP PICKS
ENBRIDGE (ENB.TO)
Purchased recently at $42.00.
Headwinds facing this energy infrastructure company over the last few years are turning into tailwinds. Concerns over funding of aggressive growth rates, energy sector malaise, the Spectra Energy integration, rising interest rates and a complex corporate structure are being addressed. During the Q1 conference call, management reiterated its 10 per cent dividend growth target and that it’s selling non-core assets to fund growth and reduce debt and the company has announced plans to roll up its subsidiaries, simplifying its structure. At current levels the shares represent good value trading at 18 times price-to-earnings (P/E) versus its 10-year average of 23 times P/E.
KEYSIGHT TECHNOLOGIES (KEYS.N)
Purchased in Q1/18 at $51.50
Keysight provides electronic design and test solutions to communications and electronics industries globally. The company is benefitting from trends in 5G investments, aerospace and defense and their services revenue growth is accelerating. Given we’re in the early in the 5G ramp, we expect the positive momentum to continue. The company reported a “beat and raise” during their Q2 earnings call. The company will have no net debt in 2019 and trades at a below-market multiple.
ARC RESOURCES (ARX.TO)
Purchased recently in June at $13.10.
The negative sentiment on Canadian natural gas prices is starting to shift. ARC is one of our favorite dividend-paying energy stocks currently as it now trades at six times debt-adjusted cash flow, which is in line with peers despite its depth of inventory, strength of management and track record of delivering growth. ARC stands to benefit from a positive investment decision for LNG Canada later this year by Shell and its partners.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ENB | N | N | Y |
| KEYS | N | N | Y |
| ARX | N | N | Y |
PAST PICKS: AUG. 10, 2017
CARDINAL ENERGY (CJ.TO)
- Then: $3.91
- Now: $5.35
- Return: 37%
- Total return: 47%
BRISTOL-MYERS SQUIBB (BMY.N)
- Then: $56.59
- Now: $54.97
- Return: -3%
- Total return: -1%
BLACKSTONE GROUP (BX.N)
- Then: $32.30
- Now: $32.13
- Return: -1%
- Total return: 5%
Total return average: 17%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CJ | N | N | Y |
| BMY | N | Y | Y |
| BX | N | N | Y |
FUND PROFILE
American Core Sectors Dividend Fund (ACZ.UN.TO)
Performance as of: May 31, 2018
- 1 Month: 4.8% fund, 2.4% index
- 1 Year: 13.2% fund, 14.4% index
- 3 Year: 10.5% fund, 10.9% index
* Index: S&P 500
** Returns provided are net of fees and reinvestments
TOP 5 HOLDINGS
- Zendesk
- Keysight Technologies
- Bank of America
- Constellation Brands
- Discover Financial
WEBSITE: www.middlefield.com
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