Teal Linde, manager of Linde Equity Fund
Focus: North American large and mid-cap stocks


With the recent worst downturn in nearly three years many investors have felt shell shocked seeing their portfolios fall as much as 10 per cent in a matter of weeks. Yet from a historical perspective the recent downturn is not out of the ordinary and, in fact, 2018 has been quite a tame year. 

Consider the following statistics for the S&P 500 since 1950:

Last month the S&P 500 entered its 31st correction of a 10-per-cent-plus decline in 68 years. Corrections happen almost once every two years and despite experiencing 31 corrections, the S&P 500 is up over 17,000 per cent.

Since 1950 the average peak of the S&P 500 has been 15 per cent each year and the average trough is eight per cent. This results in an average spread of 23 per cent between peak and trough on average each year. In 2018 the range has only been 13 per cent, barely half the 68 year average. Investors can be excused for feeling disturbed because the annual spread of the market for the last five years in a row has been below the 23 per cent average. Consequently, investors have been lulled into a false sense of security thinking that markets are normally calm. But investors need not despair. Even though the average peak to trough spread has been 23 per cent since 1950, the S&P 500 has climbed an average of over eight per cent per year.

Now, to counter some of the negatives. In respect to worrying about recessions, they are becoming less of a concern as the decades go by. From 1870 to 1900, the U.S. economy was in recession about half of the time. From 1900 to 1950, the economy was in recession 34 per cent of the time. From 1950 until now, the U.S. economy has been in recession only 13 per cent of the time, 87 per cent in expansion and only 13 per cent in contraction. That is an attractive trade off. The risks of recessions are essentially being outsourced overseas to regions, where shorter cycle manufacturing based economies have become more recession prone. This leaves service-based economies a lot less exposed.

In respect to rising interest rates, a jump in the U.S. 10-year bond yield triggered the sharp market selloff in October and February earlier this year. Stock markets hate the prospect of rising rates, however, the reality of further rising rates is nowhere near a sure thing. The implied average inflation rate for the next five years has fallen over the last several months. Economic growth is slowing worldwide.

The economy is an increasingly complex system that even economists have a difficult time predicting. Investors would be better off ensuring they own companies offering the most attractive risk-adjusted return potential through an economic cycle. This would be the combination of long-term growth companies to offer capital appreciation upside, and dividend stalwarts to provide stability, which can be turned to cash to acquire more attractive beaten down stocks during the next bear market.


Teal Linde's Top Picks

Teal Linde, manager at Linde Equity Fund, shares his top picks: Inter Pipeline, TD Bank and Air Lease.

Last purchased on Nov. 27 at $21.65.

Inter Pipeline owns and operates crude oil and condensate pipeline systems, as well as natural gas liquids processing facilities in Western Canada. The company also owns petroleum and petrochemical storage businesses in Europe. The company is embarking on the development of a $3.5 billion Heartland Petrochemical Complex northeast of Edmonton to convert locally sourced, low-cost propane into 525,000 tonnes of polypropylene per year. This is a high value, easy to transport recyclable plastic used in the manufacturing of a wide range of finished products. Canada imports $1 billion worth of polypropylene each year and does not produce any of it domestically. Inter Pipeline plans to introduce a domestic alternative with operations commencing in the late 2021, and to export significant quantities to the U.S. market where polypropylene prices are among the highest globally.

Last purchased on Nov. 13 at $73.33.

By branches, TD is the sixth largest bank in North America and serves more than 25 million customers. Approximately 60 per cent of its revenue is from Canadian operations while 35 per cent is derived from the U.S. 

Over the past five years, the company has experienced peer-leading earnings per share (EPS) compound annual growth rate of about 8.5 per cent. Given its significant exposure to retail banking on both sides of the border, it is well positioned to continue this growth with rising interest rates as a tailwind. Despite its unique positioning and continued strength the company is currently trading at a mere 10 times the 2019 estimated EPS of $6.96. The shares haven’t traded this low since 2016. At the same time, it is yielding 3.8 per cent and its 39 per cent dividend payout ratio happens to be the lowest among the big banks. Encompassing low relative valuation, strong earnings growth and the lowest payout ratio among its domestic peers, TD is poised to continue outpacing its rivals.

Last purchased on Oct. 31, 2018 at $38.32.

Air Lease engages in the purchasing of commercial aircrafts for lease to global airline customers. As one of the largest plane buyers from Boeing and Airbus, the company enjoys front-of-line and volume discounts, which makes it cheaper for most airlines to lease new aircraft than to buy direct. Air Lease has over $17 billion in assets and over 700 aircraft owned, managed and on order. The company is expected to benefit from the $153 billion of new aircraft financing needs which are anticipated in 2019 and Boeing expects this to grow at a 7-per-cent-plus compound annual growth rate (CAGR) from 2019-2022. 

The company recently highlighted that current macroeconomic and geopolitical factors haven’t discernibly impacted global passenger traffic growth nor the demand for aircraft to-date, as "cheap" air fares and a growing middle class have more than offset the aforementioned market volatilities. Continued portfolio expansion on aircraft deliveries are expected to support continued strong revenue expansion and robust 20-per-cent-plus EPS growth ahead. The company has experienced a return on equity (ROE) in the high-teens, which is above its peers. Its leverage of about 2.5 times debt-to-equity is also below its peers. Air Lease trades at 6.6 times 2019 expected EPS of $5.70. With macro fears and interest rate trends largely priced in, we don’t expect them to get much cheaper than this.





Teal Linde's Past Picks

Teal Linde, manager at Linde Equity Fund, reviews his past picks: Royal Bank of Canada, Tidewater Midstream and Infrastructure, and AMC Entertainment.


  • Then: $91.06
  • Now: $94.08
  • Return: 3%
  • Total return: 8%


  • Then: $1.37
  • Now: $1.32
  • Return: -4%
  • Total return: -1%


  • Then: $14.10
  • Now: $13.99
  • Return: -1%
  • Total return: 14%

Total return average: 7%




WEBSITE: www.lindeequity.com