Full epsiode: Market Call Tonight for Monday, October 16, 2017
Barry Schwartz, chief investment officer and portfolio manager at Baskin Wealth Management
Focus: North American large caps
The TSX has finally woken up from its deep slumber. Investors have finally realized that the Canadian banks were ridiculously cheap given the consistency of their results. In our opinion, the Canadian banks are undervalued compared to their U.S. peers, and they could provide more firepower to the TSX as we head into 2018.
It appears that the Bank of Canada has gotten more than it bargained for when it decided to increase rates in 2017. We believe the Canadian dollar has gotten ahead of itself and may run out of gas. We also believe that an 80 cent loonie is as good as it gets, especially in the face a strengthening U.S. economy and the potential for U.S. tax reform.
On an absolute basis, stocks are not cheap. However, when compared to low interest rates, stocks offer more upside potential. It still doesn’t make sense to us to have a large weighting in fixed income securities that will deliver a limited return at best after taking into account taxes, fees and inflation. We continue to allocate our clients’ capital to investments in North America and have begun looking at opportunities in other markets.
Apple is our clients’ largest position and also one of our best ideas going forward. We are genuinely excited about the iPhone X as well as Apple’s plan to be a leader in virtual and augmented reality. Apple has tremendous pricing power. It is able to sell a luxury product to the masses while maintaining strong gross margins. It is also the single largest holder of off-shore cash with US$246 billion and counting, and it stands to be the biggest beneficiary of a repatriation tax holiday.
Facebook has created one of the most amazing networks the world has ever seen. There are over 7 billion people on this planet, and 20 per cent of them are checking their Facebook accounts daily. Even with its eye-popping runway of growth, Facebook only captures a small sliver of the worldwide US$700 billion advertising market at this point. The company still trades at a reasonable valuation given the expectation for many years of potential double-digit earnings growth.
ACADIAN TIMBER (ADN.TO)
Acadian Timber is a truly unique asset class. With a 12 per cent compound return, it has delivered an excellent total return to shareholders over the past 10 years. Unlike its U.S. peers, Acadian Timber actually covers its dividend payment with internally generated cash flow. In our opinion, the current valuation of its timberland is underpriced by at least 20 per cent compared to recent timberland transactions.
PAST PICKS: NOVEMBER 3, 2016
MOLSON COORS (TAP.N)
- Then: $103.02
- Now: $82.75
- Return: -19.67%
- Total return: -18.29%
- Then: $59.21
- Now: $77.65
- Return: 31.14%
- Total return: 34.26%
MORGUARD CORP. (MRC.TO) [not the REIT]
- Then: $171.87
- Now: $192.00
- Return: 11.71%
- Total return: 12.08%
TOTAL RETURN AVERAGE: 9.35%