FILE - In this May 5, 2016 file photo, Jeff Bezos, the founder and CEO of Amazon.com, speaks in the State Dining Room of the White House in Washington. Bezos is listed in the credits for "Star Trek Beyond," the third installment of the rebooted sci-fi franchise. Producer J.J. Abrams and director Justin Lin confirmed his appearance in interviews on Friday, July 15, 2016. (AP Photo/Susan Walsh, File)The Associated Press
Warren Buffett called Amazon.com's Jeff Bezos "the best business person he has ever seen" in a November presentation to University of Maryland students so it shouldn't be a surprise that Mr. Bezos' business philosophy offers good advice for investors in the current market.
When asked to predict what the retailing industry would look like in 10 years, Mr. Bezos responded by noting that 'what's not going to change?' was by far the more important question, "'you can build a business strategy around the things that are stable in time. … [I]n our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection."
Investors are now confronted with a market backdrop rife with extreme levels of uncertainty, not just U.S. policy but also in terms of economic growth, bond yields and inflation. Mr. Bezos' comments suggest that a good way to deal with this lack of transparency is to identify trends that definitely won't change.
We know, for instance, that the average age of developed world populations will be higher for the foreseeable future. This strongly suggests both demand for sustainable income and revenue growth for health care sectors.
It is also reasonable to assume that the advance of technology will continue. Goldman Sachs expects that spending on cloud computing will more than quadruple from $32-billion (U.S.) in 2016 to $137-billion by 2020. This will benefit a wide range of software subsectors including data management and network security as well as the usual suspects, like Amazon.com, that directly offer cloud services to corporations.
These are only two examples of sustainable trends. There are numerous other candidates for the category involving alternative power, nutrition, virtual reality and streaming media. Thinking in terms of things that won't change is, in my opinion, a healthy exercise in light of recent events, offering an opportunity for constructive decision making in a period where uncertainty threatens to paralyze investors.
-- Scott Barlow
Three big numbers to note
15,610.69 Closing level of the TSX on Tuesday, its highest point since September 2014, and up 130.6 points for the day.
$64.24 Closing price of TransCanada's TSX-listed shares Tuesday, up 2.7 per cent for the day, as Donald Trump signed an executive order paving the way for the Keystone XL pipeline.
2,280.07 Tuesday's S&P 500 close, up 0.6 per cent for the day, and a record high.
Stocks to ponder
TransCanada Corp. The stock offers investors a 3.6-per-cent yield combined with 10-per-cent upside forecast, writes Jennifer Dowty. If history repeats itself, management may announce a dividend hike next month along with the expected release of its year-end financial results. The average one-year target price based on analysts' forecasts is $68.50, suggesting the shares may realized a potential price return of 9.5 per cent over the next 12 months.
Maple Leaf Foods Inc. This stock may breakout to the upside sometime in 2017 as the share price has been quietly climbing higher, writes Jennifer Dowty. It is a stock that may retain its value during periods of market volatility and is forecast by analysts to deliver a double-digit return to investors over the next year. It's a company loaded with cash and an expected gain of 18 per cent.
MacDonald, Dettwiler and Associates Ltd. Investors hoping a new American chief executive officer at MacDonald, Dettwiler and Associates Ltd. would help boost the shares of the satellite technology firm may have to be patient this year, analysts say. A weaker communications satellite market and some uncertainty around how much its initiative to boost its U.S. defence business will cost the company have been – and will continue to be – headwinds for the company, known as MDA. Some analysts lowered their price targets as a result, but say the stock is looking inexpensive and now could be a good time to buy.
The Rundown
Buy gold and raise cash - our world is about to be turned upside down
For better or for worse (almost certainly the latter in Canada's case), Donald Trump is now President of the United States, writes Gordon Pape. His inauguration speech on Friday did nothing to calm the fears of those who view the new administration with trepidation. Instead of being conciliatory, he was combative and belligerent. His dystopian description of "carnage" in the country he inherits made it sound like the Panem of The Hunger Games rather than the richest nation on Earth. Most disturbing to Canadian politicians and investors was his pledge to put America First in everything he does. For investors, this should be a time for caution. We are venturing into unknown territory and the surprises that are coming will rattle the markets, says Mr. Pape.
Goldman's top 25 secular growth stocks for an uncertain world
Goldman Sachs chief U.S. strategist David Kostin published a list of secular growth stocks – companies with proven growth no matter what the economic conditions – that is ideally suited to an investing environment that has, all of the sudden, become decidedly uncertain, writes Scott Barlow. To develop the list, Mr. Kostin screened the Goldman Sachs equity universe using his "Rule of 10" to find companies with long-term expected earnings growth of more than 10 per cent, sales growth in 2015 and 2016 above 10 per cent, and with earnings forecasts for this year and 2018 above 10 per cent. Check out the list here.
Market rarities: Two reasonably priced TSX blue chip dividend stocks
The rally of the past year or so in the Canadian stock market has greatly complicated the job of finding reasonably priced blue chip dividend stocks., writes Rob Carrick. He looked for top stocks in the S&P/TSX 60 and came up with two winners, and two that came close.
The billion-dollar fund manager's challenge: Reading the mind of Donald Trump
Jack McIntyre, a globetrotting portfolio manager at Brandywine Global Investment Management in Philadelphia, says he has frequently felt more like a political scientist than an investment analyst in the years since the financial crisis put governments at the centre of many bond markets, writes Ian McGugan. "I can't remember a time like this – when so many things are fluid and we legitimately don't know what a new administration will do," the fund manager says of the new Trump era. But he's still finding value in certain fixed income markets.
Robo-advisers take aim at high-net-worth clients
Robo-adviser customers are often considered to be young, tech savvy investors with little money, seeking a low-cost passive investment approach, writes Brenda Bouw. As the online investment management model matures, more of these financial technology players are targeting older, higher-net-worth investors with a broader range of products and services, including financial and tax advice, mirroring offerings from traditional money managers.
Why investors are vulnerable to a shock
Margin debt is sending a worrisome signal about where stocks are heading next, writes Thane Stenner. While it's not perfect, margin debt is a fairly good proxy for stock market confidence. And that's because there's only one logical reason why anyone would borrow money to invest: They're confident the value of a given investment is going up and would like to leverage their bet. Historically, there's been a strong correlation between margin debt and market corrections. Tracking the amount of margin right now should provide a fairly good indication of how many investors are feeling confident – and how vulnerable equity markets are if that confidence were to dissipate.
Railway investors bet on changes coming down the track
Seven years after Warren Buffett paid $44-billion (U.S.) for Burlington Northern Santa Fe Corp. in late 2009, marking the biggest bet of his career, investors continue to see great opportunity in railway stocks, writes David Berman. But their optimism rests on ongoing efficiency gains and speculation that a round of consolidation is in the works, which makes these stocks look far less inviting.
Why risk and volatility are underpriced heading into Trump's presidency
Donald Trump is now the U.S. president. We now confront the "first hundred days" time frame, where our heads are likely to spin as much of the Obama regime gets unwound. David Rosenberg writes that he realizes he has been quite harsh in his assessment of Mr. Trump, but, if you go back over the years, he was also critical of Mr. Obama and George W. Bush as well. His intent is going to be to figure out what all the changes are going to mean for the investing landscape. And he comes to the same conclusion: we are going to be in a heightened state of uncertainty, extreme volatility and a high likelihood of over-promising turning to under-delivering.
A sector-by-sector approach to finding value stocks
When it comes to fishing for stocks, value investors are skating on thin ice because the bargains they desire are disappearing as the markets warm. To find the few bargains that remain it is useful to take a step back, consider the market as a whole, and drill down into different sectors, writes Norman Rothery. If you break the market down into sectors, you'll see where earnings are plentiful and where they are scarce. Three sectors are outliers at the moment because less than a third of their members managed to earn a profit over the last year. If you break the market down into sectors, you'll see where earnings are plentiful and where they are scarce. Three sectors are outliers at the moment because less than a third of their members managed to earn a profit over the last year.
A strong finale for Investor Challenge fund managers
The fourth quarter saw the rotation out of defensives and bond proxies and into cyclicals accelerate after the election victory of Donald Trump, making for favourable market conditions for a trio of fund managers trying to make money for a good cause, writes Tim Shufelt. The three are participants in an investment challenge to raise money for the Holland Bloorview Kids Rehabilitation Hospital in Toronto – the largest facility of its kind in Canada. Its aim is to improve the lives of children living with disabilities. In support of that mission, three fund managers each started with $25,000 donated by their respective firms.
Number Crunchers
Ten Canadian stocks with high, sustainable dividend yields
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What's up in the days ahead
Globe Investor has got the scoop on how the rich are investing. We'll be first to report in Wednesday's paper the latest Tiger 21 survey of the portfolio moves of the highly affluent. Meanwhile, David Berman will examine the investment case for Chartwell Retirement Residences, which has left the TSX in the dust over the past five years thanks to a sound strategy of focusing on an undeniable demographic trend: we're getting older. Meanwhile, John Heinzl will explain why February is a most wonderful time of the year for dividend investors.
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Compiled by Gillian Livingston