Rob Lauzon, managing director and chief deputy investment officer at Middlefield Capital Corporation
Focus: Global stocks

MARKET OUTLOOK

As the corporate sector and political leaders attempt to control the spread of COVID-19 by imposing various preventative measures, the market is undergoing a de-rating in price-to-earnings multiples and investors have been lowering their earnings estimates in anticipation of softer demand in the first half of 2020.

The pullback in equities has been accompanied by a corresponding decrease in interest rates and the U.S. 10-year Treasury yield is now at all-time lows. Both the Federal Reserve and Bank of Canada have recently reduced interest rates by 50 basis points, with more cuts likely in the coming weeks. Investor anxiety was further exacerbated by the price war being waged in the world oil market between Saudi Arabia and Russia, which led to WTI prices dipping into the low US$30 range.

On the political front, we are pleased to see Joe Biden re-emerge as the favorite for the U.S. Democratic nomination versus more socialist candidates following an impressive showing on Super Tuesday. Although Trump is still the odds-on favourite to win the general election in November, we acknowledge that continued economic and equity market weakness could hinder his re-election chances.

We continue to monitor all of the foregoing factors closely and although we expect headline-driven volatility to continue in the near term, we believe investors should remain calm and focused on more defensive market sectors and high-quality, dividend-paying companies. While our cash positions are currently higher than normal, we will be selective and prudent in redeploying capital as further clarity on COVID-19 and economic activity emerges.

TOP PICKS

MICROSOFT (MSFT NASD)
Bought at $140 on July 2019. 

Microsoft is well positioned to capitalize on the continued shift to the cloud (Azure is the clear no. 2 after AWS). Office is still a staple for business, Skype, LinkedIn and Team are widely used and this should all increase as more companies shift to working from home. Microsoft has a clean balance sheet and the company is a dividend grower.

GILEAD SCIENCES (GILD NASD)
Bought in March at $74.

Gilead has a clean balance sheet, a 3.7 per cent dividend yield and it will be an early beneficiary of flows returning to the healthcare sector. Remdesivir moved into phase 3 trials in February and we should know in late April its efficacy treating the coronavirus. Gilead’s core HIV franchise is solid and returning to growth. Its management team is respected and comes from Roche.

NEXTERA ENERGY (NEE NYSE)
Bought at $235 on December 2019.

A core holding in the sustainable infrastructure space, NextEra has a long history of operational excellence, solid earnings and dividend growth. It produces 20 per cent of renewable power in the U.S., one of the world’s largest renewable backlogs.

PAST PICKS: MAY 23, 2019

ALPHABET (GOOGL NASD) 

• Then: $1,145.34
• Now: $1,245.97
• Return: +9%
• Total return: +9%

AT&T (T NYSE)

• Then: $32.14
• Now: $34.90
• Return: +9%
• Total return: +13%

ARC ENERGY (ARX TSX)

• Then: $7.96
• Now: $3.95
• Return: -50%
• Total return: -47%

Total return average: -8%

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WEBSITE: www.middlefield.com