Hap Sneddon is portfolio manager, technical analyst and founder, CastleMoore. His focus is technical analysis and macro portfolio strategy.
Top Picks:
CVS Health (CVS-NYSE)
The theme of best-of-breed in a company that straddles both consumer staples and health care continues with CVS Caremark. The company's strong momentum continues – it reported slightly better-than-expected Q4 earnings and reiterated its positive 2015 outlook. The four divisions – Pharmacy, Specialty Pharmacy, Caremark and Clinics – had solid topline and gross margin performance, in spite of some higher than expected expenses, underpinning a $140 (U.S.) price target.
iShares China Large Cap ETF (FXI-NYSE)
The Chinese market, though up 58 per cent year-over-year, is still down 45 per cent since its peak in 2007, some 8 years ago. After getting a handle on some challenges such as housing and loans, the market looks to be one with greater clarity and reduced risk than is found in North American or Europe. Larger currency reserves, a rate-cutting policy and growing middle class make investment in China large cap stock through this ETF a good risk-to-reward and a first price target just under $60 (U.S.)
George Weston Ltd. (WN-TSX)
With the Shopper's Drug Mart acquisition fully integrated, 2014 Q4 earnings were decent though slightly below expectations, due in part to adjustments from the transaction. Weston, through its ownership of Loblaws, is the standard for Canadian retail food and health product distribution. The stock is in a predictable sector that may see improving conditions and margins from lower input costs. A break-out in early February raises price targets to the mid $120 level.
Past Picks: April 7, 2014
Consumer Staples Select Sector SPDR Fund (XLP-NYSE)
Then: $42.99; Now: $49.73 +15.68%; Total return: +18.05%
American Electric Power (AEP-NYSE)
Then: $50.69; Now: $57.08 +12.61%; Total return: +16.90%
George Weston Ltd. (WN-TSX)
Then: $81.40; Now: $104.22 +28.03%; Total return: +29.88%
Total return average: +21.61%
Market outlook:
The markets are short-term overbought, though extreme conditions can work off excess through price or time or some combination of both. First quarter downward earnings revisions are yet to be fully understood by investors. These two points, combined with an unknown impact of the imminent euro bond buying program and Fed rate increase expectations suggest near term volatility. With euro sovereign bond rates already lower than U.S. in most cases it's hard to see that investors will accept being forced into equities for long and that the parabolic move in the U.S. dollar does not build imbalances.
While investors absorb events on either side of the Atlantic and adjust asset allocation decisions for the remainder of the year, both India and China are quietly enjoying tailwinds from the power of currency reserves, flexible rate policies and secular growth in domestic demand, offering a clearer long term investment picture at present.