Kim Bolton, president and portfolio manager of Black Swan Dexteritas
FOCUS: technology stocks
Top Picks: IBM, Cadence Design Systems, EA
MARKET OUTLOOK:
On Aug. 5 when the S&P 500 Index gapped sharply lower and the S&P 500 was looking at a 10 per cent correction from its high, less than three weeks earlier, you probably weren’t expecting the market to be where it is now. By the end of August, though, the S&P 500 was already within fractions of taking out that July high before a growth scare in early September and weak seasonal trends clipped the rally’s wings. Once again, however, the market quickly rebounded, and on Thursday, Sept. 19 the S&P 500 finally cracked through its July high to new all-time highs.
Now that the S&P 500 has returned to record highs, it feels as though the hard work is behind us, but holding on to these gains and establishing a new trading range will be just as, if not tougher. Between now and year-end, there’s still a ton of uncertainty regarding not just the election but also the economy.
Sure, interest rates are lower, but it has yet to spur any uptick in housing activity, and since the U.S. Federal Reserve cut last Wednesday, the 10-year yield has moved higher, so that’s not going to get people rushing to their realtor. Don’t forget either, that there are only a few days left in the quarter, and earnings season will be here before you know it.
If FedEx (FDX) is any indication, there could be some potholes along the way, especially with a market already at overbought levels. There are always worries when it comes to investing, and we’re still not through the worst of the seasonally weak period of the year, but so far, the market’s resilience has been impressive. Market leadership has shifted from the few to the many as mega-caps have handed the baton over to their smaller peers. The result has been one of the most impressive breadth backdrops we’ve seen in years.
Fed rate-cutting cycles haven’t always been positive for stocks, but as long as they aren’t followed by a recession (which we don’t think it will) and/or are preceded by gains in the market, the S&P 500 usually continues to rally. Also, since 1945 there have been 21 years when there was a record high in September, and the medium rest-of-the-year performance was 4.7 per cent with gains 90 per cent of the time. There’s no denying that the economy is slowing, and North America has plenty of problems, but when you look out at the rest of the world, things don’t look so bad here. Last but not least, if the last six weeks have shown us anything, it’s that there has been plenty of capital on the sidelines just waiting for an entry point.
While the market searches for the next fundamental catalyst or technical signal, your BSD Global Tech Hedge Fund and Separately Managed Accounts will continue to trim those securities that are achieving their respective intrinsic values, and buy those technology stocks that exhibit longer, more lucrative investment runways. The hedging overlay will always be an important tool to protect your capital in bearish markets, and also an important tool to be “dialled down” in bullish markets.
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TOP PICKS:
IBM Common Stock (IBM NYSE)
IBM is an information technology company which provides integrated solutions that leverage information technology and knowledge of business processes. This includes software, hardware and services.
AI is where “IT” is and IBM is strong in AI via its flagship product, IBM Watson which is well recognized for its capabilities in areas like question-answering, language translation, and image recognition.
Note that the AI landscape is highly competitive, and other companies, such as Google, Microsoft, and Amazon, also have strong AI offerings. Strong dividend consistently paid for 100 plus years (currently 3.4 per cent).
IBM plans to combine AI with their cloud services to offer unique services. This is part of an offering which they call “IBM enhanced cloud.”
Cadence Design Systems (CDNSNASD)
Cadence Design Systems, Inc. provides software, services, and reusable integrated circuit (IC) design blocks worldwide. Cadence serves industries including consumer electronics, hyperscale computing, 5G communications, mobile, automotive, aerospace and defence, industrial, and life sciences. The company plays a key role in the design and verification of ICs, printed circuit boards, and systems, supporting complex design workflows.
Second-quarter results exceeded its outlook on all key financial metrics, closing the second quarter with a backlog of approximately $6 billion.
Electronic Arts (EANASD)
Electronic Arts Inc. (EA) develops, markets, publishes, and delivers games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. EA operates across a wide variety of gaming genres, including sports, racing, first-person shooter, action, role-playing, and simulation. The company distributes its games and services through digital and retail channels and also licenses its games to third parties for distribution and hosting.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| IBM NYSE | Y | Y | Y |
| CDNS NASD | Y | N | Y |
| EA NASD | Y | N | Y |
PAST PICKS: SEPTEMBER 20, 2023
Intel(INTCNASD)
- Then: US$34.69
- Now: US$23.78
- Return:-31%
- Total Return: -30%
Visa(VNYSE)
- Then: US$241.86
- Now: US$269.09
- Return:11%
- Total Return: 12%
Applied Materials (AMATNASD)
- Then: US$136.97
- Now: US$199.67
- Return:46%
- Total Return: 47%
Total Return Average: 10%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| INTC NASD | N | N | Y |
| V NYSE | Y | Y | Y |
| AMAT NASD | Y | Y | Y |
