Christine Poole, CEO and managing director at GlobeInvest Capital Management
Focus: North American large caps
Equity markets have absorbed the unexpected outcome of the U.S. presidential election astonishingly well. Trump’s pro-growth policies, including lower taxes (corporate, individual and repatriation), increased fiscal spending through infrastructure investment and decreased regulation, against a backdrop of a Republican-controlled House and Senate, should be positive for equities. However, while largely ignored for now, uncertainties persist: Trump’s transition into office and his cabinet selections, the timing to implement the aforementioned policies and their eventual impact on the U.S. and global economies. Investors are also cautioned to consider the potentially negative implications of Trump’s protectionist policies, such as anti-free trade and lower immigration/mass deportations, over the longer term.
Fundamental economic data reported in the U.S. indicates an expanding economy and continued steady gains in employment and wage growth, providing solid support for a December Fed rate hike. So far, reaction in both equity and bond markets post the U.S. election suggests stronger future economic growth resulting in reflation, higher interest rates and possibly more aggressive Fed hiking.
The Canadian economy is showing signs of slow improvement, posting the third consecutive month of positive GDP growth. While the possibility of increased protectionism from the U.S. represents a potential headwind, catalysts for future continued economic improvement include higher exports to a relatively stronger U.S. economy, which accounts for close to 75 per cent of Canadian exports and an expansionary domestic fiscal policy to stimulate growth.
Q3/16 earnings season for the S&P 500 companies came in better than expected, up 4.3 per cent year-over-year (YOY) versus consensus expectation of down 1.9 per cent. This marks the first quarter of positive YOY profit growth since Q2/15. Presently, consensus earnings are forecast to rise 0.5 per cent in 2016 and 12.4 per cent in 2017. Corporate earnings growth is necessary to support higher equity prices as an expansion of stock valuation multiples is unlikely.
CHARTWELL RETIREMENT RESIDENCES (CSH_u.TO)
Chartwell is the largest provider of seniors housing communities in Canada. The seniors housing industry is attractive due to an aging demographic and rising longevity. According to Statistics Canada, the seniors population (65 years+) in Canada will increase from 16 per cent of the overall population in 2015 to 25 per cent by 2031. The industry is relatively fragmented, with the top 15 retirement home operators accounting for 43 per cent of total suites. Chartwell offers retirement homes across the continuum of care: independent living (five per cent), independent supportive living (72 per cent of suites), assisted living (five per cent), long-term care (17 per cent) and memory care (one per cent). Chartwell provides an attractive income yield of 3.9 per cent.
Recent purchase price: $14.50 range in November 2016.
Alphabet is a global technology company providing the world’s leading search engine, Google. It dominates in both global desktop and mobile search engine queries. Google benefits from the secular shift to online advertising, which garners about 35 per cent of global advertising budgets and offers significant secular growth ahead. Alphabet boasts a strong balance sheet, with net cash of $79 billion (60 per cent is overseas) or over $110 per share.
Recent purchase price: $772 range in November 2016.
HOME DEPOT (HD.N)
Home Depot is the leading home improvement specialty retailer with 2,270 stores covering the U.S. (87 per cent of stores), Canada (eight per cent) and Mexico (five per cent). Its business benefits from the cyclical recovery in the U.S. housing market, improving employment, rising consumer confidence and an aging housing stock. Private fixed residential investment as a share of GDP remains below the historical average. Growth drivers include initiatives to increase store and supply-chain productivity, support online sales and develop programs focused on the lucrative professional customer. HD has a proven track record of consistently reducing share count and raising dividends, providing investors with a yield of 2.2 per cent.
Recent purchase price: $129 range in November 2016.
PAST PICKS: DECEMBER 17, 2015
CVS HEALTH CORP. (CVS.N)
- Then: $94.71
- Now: $75.04
- Return: -20.76%
- TR: -19.33%
WALT DISNEY (DIS.N)
- Then: $112.01
- Now: $97.70
- Return: -12.77%
- TR: -12.14%
ROYAL BANK (RY.TO)
- Then: $74.94
- Now: $86.02
- Return: 14.78%
- TR: 19.67%
TOTAL RETURN AVERAGE: -3.93%