Mar 8, 2018

Christine Poole's Top Picks: March 8, 2018

BNN Bloomberg

Christine Poole , BNN

Christine Poole, CEO and managing director at GlobeInvest Capital Management
Focus: North American large caps

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MARKET OUTLOOK

After the stock market gyrations in February, investors are more attuned to a less accommodative U.S. Federal central bank, rising bond yields and higher volatility. The pace of federal funds rate increases will be driven by the inflation rate, which remains subdued with the core personal consumption expenditures (PCE) index at 1.5 per cent in January, below the Fed target of 2.0 per cent. U.S. protectionism policies and possible retaliatory trade actions, however, could elevate inflationary pressures.

Corporate profits for the S&P 500 companies are being revised upwards following Q4/17 earnings season, which came in at up 16.5 per cent year-over-year, surpassing expectations of up 11.1 per cent. Revenue growth was up a solid 8.2 per cent. Earnings per share (EPS) is expected to be up double-digit for each of the four quarters this year, resulting in an overall EPS growth rate of 19 per cent in 2018. The pick-up in both revenues and profits reflects not only the beneficial impact of the Tax Cut and Jobs Act, but as well as strengthening global economic activity. In 2019, EPS growth is expected to moderate to 10 per cent.

In Canada, EPS for the TSX Index is expected to be up 12.3 per cent in 2018. With energy and materials representing close to 30 per cent of the index, the accuracy of the forecast will be somewhat sensitive to underlying commodity prices.

Based on sentiment surveys, leading economic indicators and manufacturing and services activity, the global economic recovery is ongoing and broad-based.

TOP PICKS

ALGONQUIN POWER (AQN.TO)
Recent purchase price at the $12.70 range in March 2018.

Algonquin is a North American utility company (about 75 per cent of operating profits) and diversified clean power generation (about 25 per cent of operating profits). The power generated from its wind, hydro and solar facilities are sold under long-term contracts. The utilities business services customers across 13 states in the U.S., providing electricity, natural gas and water transmission and distribution. Based on its development pipeline, Algonquin has targeted 10 per cent annual dividend growth until 2021. The recently announced joint venture with Spanish-based Abengoa opens up the opportunity to develop clean energy and water infrastructure assets globally. Algonquin provides a dividend yield of 4.7 per cent.

GENERAL DYNAMICS (GD.N)
Recent purchase price at the $222 range in March 2018.

General Dynamics is a global aerospace and defense company. Its business segments include: information systems and technology (29 per cent of sales); aerospace (26 per cent of sales), which manufactures Gulfstream business jets; marine systems (26 per cent of sales), the leading manufacturer of submarines and ships for the U.S. military; and combat systems (19 per cent of sales) which manufactures combat vehicles, machine guns and grenade launchers. General Dynamics will benefit from meaningful higher U.S. defense spending over the next few years as well as an improving business jet market. The dividend yield is 1.5 per cent.

UNILEVER (UL.N)
Recent purchase price at the $52.30 range in March 2018.

Unilever is one of the world’s leading suppliers of personal care (38 per cent of sales), food (24 per cent), home care (19 per cent) and refreshment (19 per cent) products, with sales in over 190 countries and reaching 2.5 billion consumers a day. Some of its global brands include Dove, Axe, Tres Semmes, Vaseline, Lipton, Knorr and Hellmans. With 58 per cent of its sales coming from emerging markets, Unilever is a natural beneficiary from the growing middle class in these regions. Unilever provides an attractive dividend yield of 3.2 per cent.