Hap Sneddon is chief portfolio manager and founder of CastleMoore Inc. His focus is on technical analysis and macro portfolio strategy.
Extendicare, a Canada-based company that owns and operates long-term care centres and provides publicly funded home healthcare services, has seen some fundamental challenges over the last few years. However, the continuing U.S. divestitures, focusing on positive takeovers in Canada as well as home-grown growth make this a decent value play. The yield is rich but sustainable at 5.26 per cent as investors march towards the $13.25 target.
Altagas, a multi-faceted natural gas business, is a timely purchase on a technical basis. The recently positive third quarter results, including a jump in discounted cash flow, strong portfolio growth opportunities and stable distribution pushed the security above resistance. Based on this and a favourable risk-to-reward, we have recently taken an initial position with a $44.00 target.
MasterCard is a utility for financial transactions. Its safe and reliable business model and robust brand, not only presents a large barrier to entry, but the company is also excelling in data analytics, which will eventually lead to ancillary revenue streams. While alternative digital payment methods may eat into the company's share of the pie, the overall global market is benefitting from secular global growth. This, too, is a timely purchase with tentative $132 target.
Past Picks: October 15, 2015
Then: $661.74 Now: $795.37; +20.19%; Total return: +20.19%
Then: $56.34 Now: $60.53 +7.44%; Total return: +12.57%
Powershares Financial Preferred Portfolio (PGF.US)
Then: $18.35 Now: $18.84; +2.45%; Total return: +8.43%
Total Return Average: +13.73%
Short-term markets are in a corrective mode, which will play out through a varying combination of price and time. Fundamental hurdles include the U.S. presidential election, China debt and high property valuations, corporate earnings and U.S.-Russian relations in the Levant. All of these issues will have both a short- and long-term impact on markets, though the shape and scope are yet to be determined.
In the mid-term, markets are set up for a potentially strong bullish move. One indicator, positioning, tells us that many investors are underinvested. Sentiment is also quite bearish. And lastly, a positive correlation exists between a Hillary Clinton victory and rising markets.
Longer-term, there is both technical and fundamental challenges. Fundamentally, monetary policy has run its course. Elected governments need to take up the mantle with fiscal initiatives, which take a long time to filter through, in order to address structural challenges (for example infrastructure, pensions, healthcare, and demographics). Two metrics, price-to-sales and asset prices-to-GDP, are at historically high levels. Technically, on the long term we have begun to roll over, though on this timeframe it's like watching an ocean liner changing course – it takes time and it's not obvious when it's happening. Together, the fundamental and technical pictures imply that a necessary rebalancing of risk is already underway.
In the meantime, investors seeking positive absolute returns and the flexibility to take advantage of investment opportunity over the next couple of years will benefit from prudent stop-loss management, a blend of sector momentum and stock-picking, and a portfolio with strong "convexity" attributes.