Christine Poole, CEO and Managing Director, GlobeInvestCapital Management
FOCUS: North American large caps
Top Picks: CGI, LIN, Microsoft
MARKET OUTLOOK:
Major stock market indices melted up in the third quarter, driven by interest rate cuts from central banks around the world, signalling a synchronized easing cycle. Investors are increasingly optimistic that a recession can be averted. We note that a broadening in price appreciation and leadership across more sectors this past quarter is a welcome development.
Additionally, in late September China’s central bank further buoyed investor sentiment when it unveiled a broad package of stimulus measures to revive its economy. It is much too early to conclude whether the stimulus measures will work. The Chinese government has pledged to support fiscal spending to revive growth, but no specifics have yet been offered. As the world’s second largest economy, stopping a slowdown in growth would be positive for the global economy.
Global inflation is cooling, and most central banks have pivoted toward interest-rate cutting. This suggests that central banks are prioritizing supporting economic growth. Bear in mind that despite slower inflation presently, global prices remain much higher than before the pandemic, with lower-to-middle income households feeling the cumulative impact of higher prices depressing their purchasing power. Hence, the easing cycle is underway to stimulate economic growth.
History shows that stocks and corporate bonds have tended to perform well in the 12 months after the U.S. Federal Reserve begins to cut rates if a recession is averted. When growth holds up, or gets boosted by rate cuts, corporate profits tend to be strong.
Presently, earnings per share for the S&P 500 Index companies are expected to grow four per cent for the third quarter 2024, 9.4 per cent in 2024 and 15 per cent in 2025. Based on the economic data released so far, U.S. gross domestic product (GDP) is expected to grow 3.4 per cent in the third quarter.
The strength in equity prices suggests these expectations must be met or exceeded to support further market upside.
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TOP PICKS:
CGI (GIB.A TSX)
CGI is a leading global IT services, consulting and outsourcing firm. Its sales are split between managed services/outsourcing representing 55 per cent of revenue and systems integration & consulting services 45 per cent of revenue. Its client base is diversified across multiple industries and geographies. CGI recently implemented a dividend, providing a projected dividend yield of 0.4 per cent.
Linde plc (LIN NASD)
LIN is the largest industrial gas company worldwide, serving a diverse group of industries and geographies. Linde is positioned to benefit from its leading positions in attractive secular growth end markets including healthcare, electronics, and clean energy. Its production efficiency and on-site contracts provide earnings stability when economic conditions soften. Linde provides a dividend yield of 1.1 per cent.
Microsoft (MSFT NASD)
Microsoft is a global technology company providing a wide range of software services and products including Windows, Office 365, LinkedIn, and Azure cloud computing as well as owning a leading gaming platform, Xbox, and video game publisher, Activision Blizzard. Its business segments include Productivity & Business Tools, Intelligent Cloud and More Personal Computing. Microsoft. Its growing recurring revenue stream and strong balance sheet are appealing investment attributes. Microsoft’s dividend yield is 0.8 per cent.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GIB.A TSX | Y | Y | Y |
| LIN NYSE | Y | Y | Y |
| MSFT NASD | Y | Y | Y |
PAST PICKS: OCTOBER 23, 2023
ABBOTT LABS (ABT NYSE)
- Then: US$95.78
- Now: US$117.18
- Return:22%
- Total Return: 25%
JPMORGAN CHASE (JPM NYSE)
- Then: US$141.00
- Now: US$224.73
- Return:59%
- Total Return: 63%
Thermo Fisher Scientific (TMO NYSE)
- Then: US$461.81
- Now: US$596.685
- Return:29%
- Total Return: 29%
Total Return Average: 39%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ABT NYSE | Y | Y | Y |
| JPM NYSE | Y | Y | Y |
| TMO NASD | Y | Y | Y |