Hap Sneddon is chief portfolio manager and founder, CastleMoore Inc. His focus is technical analysis.
Proctor & Gamble (PG.N)
Procter & Gamble is working to be more responsive to changing markets by cutting over 100 of its brands to focus on its highest return products. The company is also looking at $10-billion (U.S.) in cost savings by reducing material, overhead, and design costs but maintaining or raising expenses relating to innovation and marketing. The sector ranks well on a relative but also absolute basis. Price target $97 USD
TransCanada represents a first in/last out philosophy. In June/July of 2014 we sold all pure energy-related stocks but held onto to infrastructure and pipeline-related ones until the price of crude impacted this area later that summer. While there maybe stocks in the energy sector that provide more upside in the next year, this space is a more risk-averse way to participate including receiving a 4.25-per-cent yield. The company is diversifying some risk as well by raising its liquids business. Target price $59 CDN
After losing its way over the last couple of years due to poor execution and competition to its model of convenience and pricing, the company recently announced it is closing 269 stores and stepping up its e-commerce business. It is also focusing on its express neighbourhood stores, which are grocery- and pharmacy-focused. The stock has recently broken out from a long-term downtrend. Upside target of $79 USD
Past Picks: February 9, 2015
BMO India Equity ETF (ZID.TO)
Then: $19.08 Now: $17.04 -10.69% Total return: -10.11%
iShares 20+ Year U.S. Treasury Bond ETF (TLT)
Then: $130.75 Now: $128.77 -1.51% Total return: +1.00%
Consumer Staples Select SPDR Fund (XLP)
Then: $48.70 Now: $49.64 +1.93% Total return: +4.63%
Total Return Average: -1.49%
We have consistently held to the thesis since 2007 that the Balrog down in the deep has always been deflation. With U.S. quantitative easing behind us and the first hike of 5 (4 to come in 2016) completed in December, interference in market price discovery has been reduced. The initial reaction has been a strong bid in defensive sectors, areas that are showing positive absolute and relative strength.
The key during the next year will be to ensure a "barbell" approach to risk by adjusting the balance of asset and sector allocations. Defensive holdings, such as longer-dated bonds, utilities, consumer staples and infrastructure for example, will provide portfolios with a stable, trending core while more pro-cyclical areas such as energy, industrials and technology need to be strong individual securities (sector outliers) or the sectors must be bought on weakness. Spreading out risk in this way, combined with active management, will support decent absolute returns one year from now.