Market Call for Tuesday, August 1, 2017
Bruce Murray, CEO and chief investment officer at The Murray Wealth Group
Focus: North American equities
We are constructive on the market outlook due to strong forecasted earnings growth of nine per cent in 2018 for the S&P 500, continuing low interest rates and low inflation. Economies are strengthening with GDP in North America and Europe improving and emerging markets continue to grow at a high rate. We continue to weight our portfolio towards the U.S. market focusing on Internet technology companies that are growing quickly with very high incremental gross margins, health-care stocks, and consumer stocks with strong brands portfolios. We are less constructive on commodities as we believe the past super cycle from the industrialization of China should provide ample supply at existing prices. As we saw in the late 1960s with the Nifty Fifty stocks, investors will pay a premium for strong global growth brands. Thus, we believe multiples will remain elevated through this expansion.
MAGNA INTERNATIONAL (MG.TO) – July 21, 2017 at $59.80
- High-quality global leader in auto parts with good exposure to newer technologies and autonomous driving.
- Strong financial position, very low debt (debt/equity ~25 per cent) and ROIC in high teens.
- Stock is cheap selling at a P/E-to-growth of about 0.75. A 10 P/E on forecast EPS of $8.00 gives an $80 target.
ALPHABET (GOOG.O) – February 17, 2017 at $823.33
- A long advertising runway will support high teens growth for the foreseeable future.
- Pullback after most recent quarter features a $2.7-billion fine and higher traffic acquisition cost.
- TMWG believes EPS will reach $54 in 2020 versus $34 in 2016. The growth will still justify a 30 P/E.
- 12-month target is $1230.
NEWELL BRANDS (NWL.N) – July 18, 2017 at $53.88
- Strong management track record of acquisition and brand management makes this broad-based consumer company a buy.
- Recent acquisition of Jarden has identified $1.3 billion of cost savings which in combination with 45 sales growth and debt reduction will lead to 10 per cent EPS growth through the rest of the decade.
- December 2018 EPS forecast of 3.40 and a 20 P/E lead to our $468 target price.
PAST PICKS: OCTOBER 4, 2016
CBS CORP (CBS.N) – Sold at $60.70 on November 28, 2016
- Then: $55.55
- Now: $66.23
- Return: 19.22%
- TR: 20.23%
CELGENE (CELG.O) – Still hold although traded partial position several times
- Then: $104.67
- Now: $134.80
- Return: 28.79%
- TR: 28.79%
DOLLAR TREE (DLTR.O) – Still hold although traded partial position several times
- Then: $76.43
- Now: $72.81
- Return: -4.73%
- TR: -4.73%
TOTAL RETURN AVERAGE: 14.76%
FUND PROFILE: MWG INCOME GROWTH FUND
PERFORMANCE AS OF JULY 31, 2017:
- 1 month: -0.9%
- 1 year: 9.9%
- 2 years: 15.0%
TOP HOLDINGS AND WEIGHTINGS
- Bank of Nova Scotia (BNS.TO): 6.5%
- Chorus Aviation (CHR.TO): 6.1%
- Power Financial Corp (PWF.TO): 6.0%
- TD Bank (TD.TO): 5.4%
- BP PLC (BP.N): 5.2%