Hap Sneddon is president, portfolio manager and technical analyst at CastleMoore Inc. His focus is on technical analysis and macro portfolio strategy.
Consumer Staples Select Sector SPDR Fund
This sector has moved up the sector rankings to the top performing group on the shorter-term weekly basis, though it is still near the bottom on the longer-term monthly view. This set-up offers decent risk-to-reward. With growing negative corporate earnings revisions across the S&P, this sector has performed well over the recent market weakness, suggesting staying power through middling economic data prints. Top names include: Proctor & Gamble, Coca-Cola, Philip Morris, Wal-Mart, CVS Caremark.
American Electric Power
Recent moves from 52-week highs show that utilities are the strongest sector. American Electric had a good Q4, beating all expectations after disappointing for years prior. The company is now better, displaying the attributes of a regulated utility with earnings growth in the 5-6 per cent range through to 2016. The discount-to-peers is being recognized with a target in the low 70's.
Price action in the stock has been negative since last August; in late February it displayed an intermediate term reversal making a new low followed by a higher low. Upside target in the low 100's. Further cost-savings are being implemented at Loblaws, including some lower commodity input costs, and full integration of Shopper's Drug Mart will be strong catalysts for an increase in free-cash flow over the next couple of years. Weston's too has a nice war chest for reinvestment and capital plans.
Past Picks: March 1, 2013
George Weston Ltd.
Then: $73.87; Now: $81.40 +10.19%; Total return: +13.08%
Then: $30.82 (U.S.); Now: $32.80 +6.42%; Total return: +13.05%
Then: $37.81; Now: $50.62 +33.88%; Total return: +38.65%
Total return average: +21.59%
"Now" figures are intraday from the date of the analyst's appearance on BNN Market Call.
At present, the market is modestly sanguine about the longer-term picture though the U.S. Federal Reserve did send mixed messages about its "put" through to 2015 eroding some of this confidence. Fed chair Janet Yellen quickly stated that the economy will need some stimulus "for some time" still after the markets took to heart her post-Fed comment that rates would rise 6 months after the end of the stimulus program. Short-term, it is expected that the dips, including some of the recent high flyers, will eventually be bought. With some of the near-term macro-economic data weakening and the all-important JPMorgan and Wells Fargo earnings this Friday, the real question is whether the strength seen in the defensive spaces such as utilities, consumer staples and telecom is a strong theme through the remainder of the year.