Aug 30, 2017

Mike Newton's Top Picks: August 30, 2017

BNN Bloomberg

Mike Newton , BNN

Mike Newton, director of wealth management and portfolio manager at Scotia Wealth Management

Focus: North American large caps and ETFs
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MARKET OUTLOOK
Bull markets are supposed to be more fun than bear markets. However, this slumbering bull market is not exactly inspiring confidence in individual investors, which has been a rather interesting phenomena.

This seeming lack of exuberance signals to me that the market technicals are likely healthy from a contrarian point of view.

Right now it appears that financial markets are in a short-term pause as the summer saw unusually light volume and frustrating sideways action.

As we head into the autumn, I would view any pending weakness in global markets as an opportunity to put cash to work as indicators suggest the global economic recovery remains solid and recession risks over the coming year are quite low, leaving the bull market in equities on a firm fundamental footing. Lastly, with recent Canadian dollar strength I would say it is relatively “safe” to be adding to USD-denominated positions.

TOP PICKS

SHOPIFY (SHOP.TO) – Most recent purchase July 10th, 2017 at $116
Shopify continues to surpass expectations as the provider of software to help retailers generated US$151.7 million in revenue in its second quarter, up 75 per cent over the same period a year ago.

The fundamental shift in retail toward multi-channel and mobile, and the ongoing adoption of Shopify by larger brands, continue to contribute to its strength.Clients include Tesla, Nestle, GE, Proctor & Gamble, Budweiser and Red Bull.

Although not yet profitable, the company is focusing on investments to gain market share in the e-commerce industry.

Shopify now has more than 500,000 merchant customers across 175 countries. It’s seeing 56 per cent growth rates in North America but also higher expansion rates in Asia, South America and Africa.

The analyst community seems to agree that Shopify could surpass $1 billion in annual revenue as early as 2018.

JPMORGAN (JPM.N) – Most recent purchase April 3rd, 2017 at US$86.82
JPMorgan is the largest bank in the industry, is very well diversified and has dominant share across most of its businesses. Its recent results confirmed that all segments are executing well.

Despite persistently low interest rates and an unfavourable regulatory environment, it has been able to generate a strong return on equity.

Even after the recent run-up in bank stocks since the CCAR results, I continue to see more upside in U.S. large-cap bank stocks based on the interest rate outlook and potential benefits from a changing regulatory environment.

CANADIAN NATIONAL RAILWAY (CNR.TO) – Most recent purchase August 15th, 2017 at $102
After hitting a high near $109, shares have pulled back to the $100 range, so now is a great time to add to your position. The decline has been attributed to some slight degradation in their operating ratio.

In finance, the operating ratio is a company's operating expenses as a percentage of revenue. This financial ratio is most commonly used for industries which require a large percentage of revenues to maintain operations, such as railroads.

CN Rail's operating ratio is already at a best-in-class mid-50s, so investors should not be too concerned.

As well, its robust competitive position, best-in-class operating metrics, and outsized growth profile continue to impress on almost all accounts, reinforcing the view that CNR remains a long-term core holding.