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Hap Sneddon is founder and chief portfolio manager, CastleMoore Inc. His focus is technical analysis and macro portfolio strategy.
Top Picks:
MacDonald Dettwiler and Associates Ltd (MDA.TO)
This multifaceted company (aerospace, land based-systems and communications) generated an in-line quarter in what has been a stable sector for investors. More importantly, the company had two significant catalysts for future growth. MDA continues to hit markers to achieve U.S. military contract status and it brought on board a star CEO, Howard Lance from Harris Corp. Technically, the stock is at an excellent risk-to-reward level (risk management of $82.25) with an upside target of $95.00.
Pfizer Inc (PFE.N)
Pfizer had a recent solid earning beats in what is an improving company. Guidance for 2016 revenue and EPS is up $2-billion (U.S.) and $0.18 respectively. Healthcare is in a secular bull market that began in 2012. Upside target of $45; risk level $32.38.
BCE Inc (BCE.TO)
BCE had a solid start to the quarter with both revenue (+.6 percent) and EBITDA (+3.3 per cent) up. While no division blew the doors off this defensive position, it has a good bid underneath. It recently broke above previous resistance just below $60 to hit an all-time high. Price target is $82.00.
Past Picks: June 10, 2015
Aecon Group (ARE.TO)
Then: $13.50 Now: $17.42 +29.04% Total return: +32.85%
Utilities Select Sector SPDR ETF (XLU)
Then: $42.58 Now: $48.75 +14.48% Total return: +18.74%
JPMorgan (JPM.N)
Then: $68.26 Now: $65.03 -4.73% Total return: -2.03%
Total Return Average: +16.52%
Market outlook:
The major themes impacting the markets over the next few months will be Chinese data and yuan devaluation, forward corporate earnings guidance and the June and July Fed meetings. Of the three, the Fed will have the most impact as the market tries to square a "data dependent" Fed with a "market level dependent" Fed.
Technically, there is room for pro-cyclical equities – e.g. energy, financials, industrials, consumer discretionary – to run in the short term, certainly into the June meeting and then maybe to the July meeting. But also technically, the ratio of the S&P to the 10-year U.S. treasury is stuck in a band where stocks versus bonds are expensive. This level capped the run in the spring and late summer last year, and as well back in 2007.
Market dichotomies require client portfolios to have a high level of "convexity." Portfolio convexity means that assets are allocated across defensive and pro-growth securities, whatever class the securities come from. This insulates assets from both the long- and short-term consequences of these opposing forces. It's diversification by risk, not asset class. In addition, this approach reduces the impact and guessing game surrounding monetary policy or GAP to non-GAAP earnings, while being mindful of asset protection and absolute client asset growth expectations. Portfolio convexity for CastleMoore portfolios is not balanced. At present, it is more heavily weighted to one side over the other.
At CastleMoore, we are treating the rise in pro-growth securities as a short term event until it's borne out that there's more to the moves, requiring us to adjust this balance.