Christine Poole, CEO and managing director at GlobeInvest Capital Management

Focus: North American large caps
_______________________________________________________________

MARKET OUTLOOK
The strength in global equities since the U.S. election reflects investor optimism on Trump’s economic plan to stimulate growth through lower taxes (corporate, individual and repatriation), increased infrastructure investment and decreased regulation. The reduction in the corporate tax rate on repatriated earnings from 35 per cent to 10 per cent could potentially bring substantial cash back to the U.S. and fuel further stock buybacks and dividend payouts. 

Aside from the repatriation of offshore cash, the reduction of corporate taxes from 35 per cent to 15 per cent could provide a significant boost to earnings per share (EPS) on the S&P 500 Index. Presently, consensus EPS are forecast to rise one per cent in 2016 and 12 per cent in 2017 to $133, excluding any beneficial impact of lower corporate taxes. Each percentage point decrease in the effective corporate tax rate is estimated to add $1.82 to 2017E EPS. Therefore, a five percentage point cut would add $9.10 or seven per cent to 2017E EPS, resulting in a year-over-year EPS growth rate of 20 per cent.

Investors, however, should be cognizant of the risks associated with Trump’s platform including: potential discord in global trade relations, his anti-free-trade view, lower immigration/mass deportations, and a strengthening currency which would dampen U.S. multinational profits.         

U.S. economic reports indicate an expanding economy with continued steady gains in employment and wage growth. Notwithstanding the controversy surrounding Trump’s presidential win, consumer confidence improved markedly in November and is back to levels that existed prior to the Great Recession.

As expected, the Canadian economy bounced back in Q3/16, with GDP growing at an annualized pace of 3.5 per cent, largely due to resumption of oil exports as Alberta oil production came back online. While this growth rate is not sustainable, sources for continued economic improvement include rising exports to a relatively stronger U.S. economy, which accounts for close to 75 per cent of Canadian exports, and domestic fiscal stimulus through increased infrastructure investment. 

With no signs of a recession on the horizon, equities remain the preferred asset class for long-term investors.

TOP PICKS

ROYAL BANK (RY.TO)
Royal Bank’s diversified business consists of personal and commercial lending (50 per cent of earnings), capital markets (22 per cent), wealth management and insurance (22 per cent) and investor and treasury services (six per cent). Geographically, Canada accounts for 62 per cent of revenues, the U.S. 22 per cent and international 16 per cent. The acquisition of City National enhances its U.S. presence and accelerated growth in two attractive client segments: high net worth and commercial banking. City National’s core markets include New York, Los Angeles, San Francisco and San Diego, where the highest number of high net worth households are located. Royal Bank’s dividends are expected to grow at a similar pace to earnings growth. The stock provides investors with a current dividend yield of 3.6 per cent. Recent purchase price $87.80 range in November 2016.

JOHNSON & JOHNSON (JNJ.N)
JNJ is a global diversified healthcare company, manufacturing a broad range of products within three segments: pharmaceuticals (45 per cent of sales), medical devices and diagnostics (36 per cent) and consumer (19 per cent). Approximately 70 per cent of sales are derived from products that have a #1 or #2 global share. JNJ offers consistent stable earnings and dividend growth. One of a handful of triple-A-rated companies left in North America, JNJ has increased its dividend for 55 consecutive years and offers investors a dividend yield of 2.8 per cent. Recent purchase price $112 range in December 2016.

ALPHABET (GOOGL.O)
Alphabet is a global technology company, providing the world’s leading search engine, Google, and dominates in both global desktop and mobile search engine queries. Google benefits from the secular shift to online/internet advertising, which garners about 35 per cent of global advertising budgets and offers significant secular growth ahead. Alphabet boasts a strong balance sheet, with net cash of $79 billion (60 per cent is overseas) or over $110 per share. Recent purchase price $804 range in December 2016.
 

PAST PICKS: JANUARY 12, 2016

CGI GROUP (GIBa.TO)

• Then: $54.95
• Now: $64.82
• Return: +17.96%
• TR: +17.96%

HOME DEPOT (HD.N)

• Then: $127.49
• Now: $136.31
• Return: +6.91%
• TR: +9.19%

VISA (V.N)

• Then: $74.76
• Now: $79.50
• Return: +6.34%
• TR: +7.14%

TOTAL RETURN AVERAGE: +11.43%