Mike Newton's Top Picks
Mike Newton, director of wealth management and portfolio manager at Scotia Wealth Management
Focus: North American large caps and ETFs
I dislike having to mention global macro political forces in a market commentary, but in the near term it really does matter, especially from a Canadian perspective. All eyes will be on Washington simply because of the speed in which early initiatives are being announced and positively/negatively received by certain sectors. “‘Unsettled’ would be the best description of investor mindset as they debate how to best position portfolios under a Trump presidency. Any political objections meant to slow down the Trump train or water down the effectiveness of new policies will send stocks lower. Executive orders have already been signed to open NAFTA negotiations, exit TPP trade talks, change Obamacare, and impose a federal hiring freeze. All of which tells me caution is still the best portfolio policy in the short term. Remember, you might own the best name in a sector, but a trade war (or a Trump tweet) could pull the rug out from under your feet. As a result, we continue to employ stop-loss strategies so we don’t inadvertently hit our heads on the bathroom floor.
COMCAST (CMCSA.O) – Most recent purchase January 17, 2017 at $72.50
Comcast expanded its base of cable TV subscribers in 2016 for the first time in a decade. Comcast added a net 161,000 cable TV subscribers last year, defying the trend of customer cord-cutting that has concerned Wall Street. Comcast now has nearly 23 million cable TV subscribers, gaining on rival AT&T. The company also increased its high-speed Internet subscribers by 1.4 million in 2016. Last year, it added DreamWorks Animation to its entertainment portfolio, which continues to do very well. Analysts are expecting a flood of mergers and acquisitions as President Trump and his administration have said they would relax regulations governing the telecommunications industry. Given U.S. dollar strength, the fact that Comcast is a primarily domestic company with very little business overseas attracts me, as well.
ULTA SALON (ULTA.O) – Most recent purchase December 2, 2016 at US$260
Ulta is a fast-growing specialty retailer of beauty and related products in the U.S., with most of its stores located off-mall in power shopping centres. The company employs a “category killer” strategy, offering products across a number of categories and price points in a big-box format, as well as services for hair, nail and skin. Its historical growth has occurred with very little investment in technology and merchandising systems. However, ULTA’s investments in new brand and product introductions, marketing, merchandising technologies and store remodels should help it gain share within the beauty and personal care market despite increasing competition from other specialty retailers and alternative sales channels, including the Internet. They recently announced targets of 1,400 to 1,700 new stores equating to a potential five to seven years of further penetration growth.
SUN LIFE FINANCIAL (SLF.TO) – Most recent purchase November 10, 2016 at $49
We purchased Sun Life after the strong Q3/16 results delivered by the Canadian lifecos, which coincided with the renewed investor interest in the stocks due to their status as benefactors in a rising rate environment. With treasury yields jumping, the TSX Life Insurance Index has come to life after many rather lacklustre years. As long as the upward move in yields translates into operational and valuation positives, the sector should remain strong. The recent Trump rally has also been driven by the prospect of a reduction in U.S. corporate tax rates, which alone would boost 2018 earnings prospects for SLF. Although Sun Life carries a cash balance of about $1.8 billion, management has noted that the focus will be on integrating its recent acquisitions, including Assurant and its recently created asset management unit.
PAST PICKS: JANUARY 26, 2016
NEWELL BRANDS (NWL.N)
- Then: $38.18
- Now: $46.35
- Return: +21.39%
- TR: +23.41%
ALIMENTATION COUCHE-TARD (ATDb.TO)
- Then: $62.13
- Now: $60.18
- Return: -3.13%
- TR: -2.64%
- Then: $601.25
- Now: $839.15
- Return: +39.56%
- TR: +39.56%
TOTAL RETURN AVERAGE: +20.11%