Hap Sneddon, president and chief portfolio manager, Castlemoore
FOCUS: Technical analysis
Top Picks: Walmart, Nutrien, Constellation Software
MARKET OUTLOOK:
Today the conditions are optimal for a pause or corrective period on several fronts.
The four-year U.S. presidential cycle is upon which normally sees some market froth because of promises made. This year sees the “incumbent” tag still on the Democrats which makes it extra whippy.
When we extend out from just the political, we see that there are strong geopolitical tensions too from the Ukraine/Russia war and the Israel/Iran proxy war, both of which are hard to quantify in terms of how escalations impact market movements.
Interest rates are more important than most inputs as they affect consumers and business growth. Though rates are pushing up against resistance near term, market expectations for further rate cuts are likely to be dashed, especially if we follow any U.S. Federal Reserve member or business leader comments. Higher rates eventually and always, make investors consider the effects of higher rates.
Earnings have been decent and do not corroborate investors' clamouring for a more accommodative interest rate policy. This said, as we are about to enter the third quarter earnings season there is the possibility of disappointment. Expectations for 2025 are high too.
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TOP PICKS:
Walmart (WMT NYSE)
Walmart is much like Costco – you just buy it. Margin pressures are falling as its investments in omnichannel fulfillment, and its third-party marketplace rise.
The growth of its grocery business has been booming (I was a disbeliever at first, but my family does a big chunk of its groceries online and then just pick it up) protecting it from digital competition in other areas. Last, Walmart’s recent campaign in supply chain automation will allow it to raise margins and lower prices.
Nutrien (NTR TSX)
Nutrien is the world’s largest crop nutrient company by capacity and the largest agricultural retailer (direct) in North America and Australia. Its Brazil operations are increasing market share. Buying the company at historical lows and just before its period of seasonal strength provides investors with a decent risk-to-reward.Getting your money in good here is supported by declining arable land which forces growers to be more productive, driving crop input growth, lagging application rates in India and China, two countries focused on secure food supplies and a commodity use that will outpace supply in the coming years.
Constellation Software(CSU TSX)
Constellation, a little-known Canadian business, provides software and services. The company acquires, manages, and builds vertical market software (one example is point-of-sale) businesses, which provide specialized, mission-critical software solutions. It has grown primarily through identifying companies with above-average growth, consistent profitability, and outstanding management. Recent results show the company has excellent management itself, a robust mergers and acquisition strategy, including a deep acquisition pipeline, solid financials and a compelling all-weather cash flow generating model.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| WMT NYSE | Y | Y | Y |
| NTR TSX | Y | Y | Y |
| CSU TSX | Y | Y | Y |
Past Picks: JANUARY 18, 2024
Bristol-Myers Squibb (BMY NYSE)
- Then: US$50.09
- Now: US$52.53
- Return:5%
- Total Return: 9%
Chemtrade Logistics Income Fund (CHE.UN TSX)
- Then: $8.84
- Now: $11.15
- Return:26%
- Total Return: 33%
Arista Networks (ANET NYSE)
- Then: US$257.56
- Now: US$403.52
- Return:57%
- Total Return: 57%
Total Return Average: 33%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BMY NYSE | Y | Y | Y |
| CHE.UN TSX | Y | Y | Y |
| ANET NYSE | Y | Y | Y |