Mike Newton, Director, Wealth Management & Portfolio Manager, Scotia Wealth Management 
Focus: North American Large Caps & ETFs

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MARKET OUTLOOK:

“For the markets to keep up their recent pace, President Trump will have to start delivering some specifics on his plans (and soon). Investors are looking for details on three specific topics: reductions in corporate and individual tax rates, infrastructure spending, and deregulation. Thus far, markets have been patient on the particulars of these issues. No matter what lens you are looking through, conditions are good and getting better. Any period of sideways activity would be welcome and could be enough for most indicators currently flashing red to cool down, and the uptrend could continue. Rich Bernstein said it best: “When has Washington ever talked about tax cuts and fiscal stimulus when the economy is as healthy as it is today. You don’t have to get a big package to make this thing take off.”

Top Picks:

Goldman Sachs ActiveBeta Emerging Markets ETF (GEM.US) most recent purchase February 15th, 2017 at $29.50 USD

This is a potential value play. I am not too sure that many investors in Canada are aware that Goldman Sachs has a suite of low cost ETFs. This particular ETF, which has a 45bps management fee with 1 billion in AUM, utilizes Goldman’s propriety research to invest in the emerging markets space. Companies are reporting encouraging results around the world as the benefits of reflation—rising wages, growth and inflation—are spreading beyond the U.S. Earnings estimates have been revised up for many companies in the emerging markets since late 2016. Meanwhile, the estimates for U.S. companies have been revised down moderately. Global earnings are posting some of their best joint performance in the post-crisis environment and this growth will translate into even stronger earnings in emerging markets over coming quarters, similar to the U.S. experience in the second half of 2016. The weighted average PE ratio of the holdings inside this ETF stands at 13.6 which is well below valuations currently found in the U.S. The ETF is predominately positioned in Asia at 70 per cent. China represents 25 per cent. Indeed the space may due for a pullback but consensus growth forecasts are still pretty cautious. These improving fundamentals should eventually boost EM growth.

Nvidia (NVDA.N) most recent purchase February 27th, 2017 at $103.25 USD

Nvidia has transformed itself from a graphics chip company to a GPU computing company. Nvidia is a provider of visual computing technologies and the inventor of the graphic processing unit (GPU), a processor that generates graphics on workstations, personal computers, game consoles and mobile devices. The company's products are designed to generate realistic, interactive graphics on consumer and professional computing devices. Last year, Jim Cramer remarked that “the data center and machine learning trends that are expanding Nvidia’s profile beyond gaming are a multi-year set of trends that will make the company just as central as Intel was to PCs in the 1990’s.” Since then, the chipmaker has pulled back from a string of huge upside surprises (and a high valuation) and we are taking advantage of the price drop. Many view artificial intelligence (AI) as a potential $15 billion opportunity by 2025 and Nvidia is well positioned. Virtual reality for gaming, movies, science, healthcare, advertising and other applications will continue to be a major thematic growth area in 2017-2018.

Alimentation Couche-Tard (ATDb.TO) most recent purchase February 13th at $62.60 CAD

I am highlighting Couche-Tard as good value in a high valuation market. Couch-Tard has demonstrated a history of consistent execution, disciplined approach to returns, and a solid M&A growth strategy. Couche-Tard is feeling the impact of a major sector rotation in the context of the Canadian market. Couche Tard’s stock price barely grew last year. With brands such as Mac’s to Circle K, and operating over 10,000 gas station and convenience stores across North America, Europe, and Asia, this is a world class company denominated in Canadian dollars. ATDb shares are currently trading at 14.9x and affords long-term investors a solid buying opportunity. 

Past Picks:  April 27, 2016

Adobe (ADBE.O)

• Then: $95.64
• Now: $118.78
• Return: +24.20%
• TR: +24.20%

Comcast (CMCSA.O)

• Then: $30.65
• Now: $37.53
• Return: +22.45%
• TR: +23.97%

AutoCanada (ACQ.TO)

• Then: $21.33
• Now: $23.10
• Return: +8.30%
• TR: +10.31%

Total Return Average: +19.5%

Company Twitter Handle: @NewtonGroupSM

Company Website: www.newtongroupwealth.com