Rob Lauzon, deputy chief investment officer at Middlefield Capital Corporation
Focus: North American equities

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MARKET OUTLOOK

Despite multiple headwinds weighing on stocks such as peak economic and per share earnings growth, trade wars, increasing interest rates and excessive fiscal stimulus in the U.S., we’re encouraging investors to buy quality dividend-paying equities on weakness. Due to strong earnings and a pullback in stock prices, valuations have dropped since their January peak from a forward multiple of 18.6 times on the S&P 500 to 16.3 times currently. This is in line with the 20-year average forward price-to-earnings (P/E) of the market. Given limited recessionary risks in our forecast, earnings should continue to rise into record-high territory next year and beyond. Although concerns on competition within consumer staples and increased regulation of the technology sector deserve close attention, we believe these worries have been priced into the sectors and investors are underestimating the market’s potential upside.

TOP PICKS

TRANSALTA (TA.TO)
Bought in early April at $6.92.

TransAlta’s current price represents an attractive entry point as the market is giving almost no value to its assets held outside of its TransAlta Renewables stake. The market is ignoring the strengthening fundamental outlook for its Alberta generating assets and significantly stronger balance sheet. Over the next 18 months the equity should benefit from improving power prices in Alberta, clarity regarding the province’s shift to a capacity market and carbon credits for its renewables.

ZENDESK (ZEN.N)
Bought in April at approximately $47.50.

Zendesk is an emerging leader in the customer service software space and is expected to continue to grow at more than 30 per cent over the next two years. The company is displacing legacy technology in enterprises and gaining organic growth opportunities within smaller businesses. Zendesk should continue to benefit from the trend of changing customer expectations with enterprises investing in new technology to provide a better customer experience.

DIPLOMAT PHARMACY (DPLO.N)
Bought in early Nov. 17 at $20.20.

Diplomat is the largest specialty pharmacy in the U.S. that isn’t owned by one of the large pharmacy benefit managers or retail pharmacy chains. In our opinion, this makes the company an attractive acquisition for a new entrant in the pharmacy business such as Amazon. We believe specialty pharmacies are an attractive way to play the growth and pipeline opportunities around specialty and biotech drugs with more limited exposure to product-specific or binary event risk.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TA N N Y
ZEN N N Y
DPLO N N Y

 

PAST PICKS: FEB. 8, 2017

BRISTOL-MYERS SQUIBB (BMY.N)

  • Then: $52.00
  • Now: $50.35
  • Return: -2%
  • Total return: -1%

FREEHOLD ROYALTIES (FRU.TO)

  • Then: $12.56
  • Now: $12.89
  • Return: 3%
  • Total return: 8%

BROOKFIELD PROPERTY PARTNERS (BPY_u.TO)

  • Then: $30.19
  • Now: $25.05
  • Return: -17%
  • Total return: -11%

Total return average: -1%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
BMY N N Y
FRU N N Y
BPY_u N N Y

 

FUND PROFILE

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

  • 1 Month: -1.5% fund, -2.3% index
  • 1 Year: 8.8% fund, 9.9% index
  • 3 Year: 7.8% fund, 7.1% index

* Index: MSCI World Total Return Index.
* Based on reinvested dividends.

TOP 5 HOLDINGS AND WEIGHTINGS

  1. Bank of America
  2. Apple
  3. Vonovia SE
  4. UnitedHealth Group
  5. Microsoft

WEBSITE: www.middlefield.com