Full episode: Market Call for Thursday, June 15, 2017
Christine Poole, CEO and managing director at GlobeInvest Capital Management
Focus: North American large caps
Global economic growth is improving, providing the catalyst for equity markets to grind higher notwithstanding political turmoil in the U.S. and euro zone. The OECD composite leading indicators, designed to anticipate turning points in economic activity relative to trend six to nine months ahead, continue to point to stable growth momentum. The American consumer is in good shape as evidenced by a healthy job market, improving household net worth and high levels of consumer confidence/sentiment. Small-business optimism is near cyclical highs, despite delays in implementing tax reforms in the U.S. The ISM Manufacturing and Services indices have moderated slightly from their post-election spikes, but both of them remain firmly in expansionary territory and above the levels that prevailed in 2016. Recent commentary from the Bank of Canada indicates the Canadian economic recovery is broadening and gathering momentum.
Following better than expected earnings growth in Q1/17 (up 14.5 per cent from a year ago), corporate profits for the S&P 500 companies are forecast to be up seven per cent in Q2/17 and 11.4 per cent for the year, the first year of double-digit growth since 2011. For the TSX Composite, 2017 consensus earnings are forecast to be up 22.5 per cent, reflecting the recovery in crude oil prices from the low in February 2016.
Sustained corporate profit growth, economic data, indicators and surveys as well as the U.S. Treasury Yield Curve support our constructive view on equities.
ENBRIDGE (ENB.TO) – Recent purchase price $51.10 level in June 2017
Enbridge is a leading North American oil and gas pipeline, gas processing and natural gas distribution company. Enbridge accounts for 28 per cent of crude oil transported, 20 per cent of natural gas transported and 12 per cent of natural gas processed in North America. Liquids pipelines account for 50 per cent of earnings, gas transmission and midstream 35 per cent, gas utilities 13 per cent and renewable power two per cent. With 96 per cent of its cash flow underpinned by long-term commercial agreements, Enbridge’s operations are stable and predictable. Integration of the Spectra acquisition is advancing well and synergy capture is on track. At its recent Investor Day, Enbridge reaffirmed its 10-12 per cent annual dividend growth target through 2024 while maintaining a payout ratio of 50-60 per cent of available funds from operation. Enbridge offers an attractive yield of 4.9 per cent.
WALT DISNEY (DIS.N) – Recent purchase price $107 level in June 2017
Disney is a media conglomerate and premier content provider, comprised of cable networks and broadcasting (48 per cent of operating income), parks and resorts (22 per cent), studio entertainment (17 per cent) and consumer products (13 per cent). Its strong global brand portfolio, which includes Disney, ESPN, Pixar, Marvel, and Lucas Film, supports a multi-platform strategy to exploit content and intellectual property across Disney’s business segments. Disney provides a dividend yield of 1.5 per cent.
XYLEM (XYL.N) – Recent purchase price $53.80 level in June 2017
Xylem is a leading provider of water equipment and services, operating in two segments: Water Infrastructure (transportation, treatment and testing of water) and Applied Water (usage in various industries). The company benefits from the global water industry growth drivers of water quality, scarcity and safety. Its end markets consist of: industrial 42 per cent, public utility 36 per cent, commercial 14 per cent, residential six per cent and agricultural two per cent. Xylem is geographically diversified with the U.S representing 41 per cent of revenues, Europe 32 per cent, Asia Pacific 13 per cent and the rest of world 14 per cent. Within emerging markets (21 per cent of its revenues), many regions are still building out their basic water infrastructure systems, while in developed markets, maintenance and replacement of an aging system is the demand driver. Xylem provides a dividend yield of 1.3 per cent.
PAST PICKS: JUNE 14, 2016
ROYAL BANK OF CANADA (RY.TO)
- Then: $77.11
- Now: $93.38
- Return: 21.12%
- TR: 25.78%
- Then: $174.86
- Now: $196.00
- Return: 12.08%
- TR: 14.72%
CVS HEALTH (CVS.N)
- Then: $96.39
- Now: $80.09
- Return: -16.91%
- TR: -15.08%
TOTAL RETURN AVERAGE: 8.47%