Jul 12, 2016

Christine Poole's Top Picks: July 12, 2016

BNN Bloomberg

Christine Poole , BNN

Christine Poole, CEO & managing director, GlobeInvest Capital Management

FOCUS: North American Large Caps

_______________________________________________________________

MARKET OUTLOOK:

The knee-jerk negative reaction to the unexpected outcome of the London referendum was exacerbated by the complacency going into the vote. While North American equity markets have recovered from the sharp decline, geopolitical events will continue to overhang markets. At the juncture, the economic impact of Brexit on the U.K., the rest of the Eurozone and global economy is difficult to quantify. Nonetheless, the bias for looser monetary policy and lower interest rates for longer prevails around the world.

The strong U.S. June employment report allayed concerns following May’s anemic payroll number and highlights the resilience of the U.S. economy. Manufacturing and non-manufacturing activities are expanding, with both the ISM Manufacturing Index and the ISM Non-Manufacturing Index surpassing expectations in June at 53.2 and 56.5, respectively. Uneven global economic growth and uncertainty surrounding political events will keep a dovish tone to FOMC policy. Corporate profit growth is expected to turn positive in the back half of the year and will be a catalyst for higher stock prices.

Elevated volatility and heightened sensitivity to news/events are expected to persist. Stock market pullbacks are opportunities to selectively invest in financially sound companies.

Top Picks:

Whirlpool (WHR.N)

Recent purchase price $172.50 range in July 2016.

Whirlpool is the global leading major appliance manufacturer, with manufacturing plants in 14 countries and markets products in nearly every country. Its major brands include KitchenAid, Jenn-Air, Maytag, Whirlpool, Hotpoint and Amana. North America accounts for 51 per cent of sales, Europe/Middle East/Asia 26 per cent, Latin America 16 per cent and Asia 7 per cent. Recent acquisitions have expanded Whirlpool’s presence and competitiveness in Europe and China. International markets, specifically in emerging markets, are characterized by low levels of appliance penetration. In contrast with a more developed economy like the U.S. (79 per cent penetration), emerging markets in Latin America (42 per cent), China (36 per cent) and India (16 per cent) represent potential for higher levels of appliance penetration over the long-term. Whirlpool provides a dividend yield of 2.3 per cent.

Alphabet (GOOGL.O)

Recent purchase price $716 range in July 2016.

Alphabet is a global technology company, providing the world’s leading search engine, Google, and dominating in both global desktop and mobile search engine queries. Google benefits from the secular shift to online/internet advertising given its 70+ per cent share in global search ad revenue. With internet advertising accounting for about 35 per cent of global advertising budgets, significant secular growth for this media channel remains over the foreseeable future.

Loblaw (L.TO)

Recent purchase price $69.70 level in July 2016.

Loblaw is Canada’s largest grocery retailer offering consumers multiple formats and through Shoppers Drug Mart, the leading national drugstore operator. Operational efficiencies from its store renovation program and IT/supply chain investments as well as synergies arising from the Shoppers’ acquisition will drive margin improvement and cash flow growth. Having met its debt reduction targets from the Shopper’s acquisition, the company will deploy free cash flow for share repurchase and dividend increases. Loblaw provides a current yield of 1.5 per cent.