One week into 2020
A week has barely passed in 2020, and already markets have already been rocked by the threat of war between the U.S. and Iran. That drone attack shattered weeks of several all-time highs.
Will this be a short-lived skirmish or all-out war?
No one knows, and investors well-are advised to have a plan for each outcome.In fact, let’s look at several outlooks and determine which stocks and sectors you should buy (or avoid) in the coming 12 months.
BDC, Canada’s entrepreneur’s bank, expects our economy to continue to grow at 1.7%, driven by real estate and consumer spending.
Casting a shadow over our growth lies abroad: trade tensions, the U.S. election in November and Brexit. The trade wars launched by America slowed global growth to 3% in 2019 and will slash almost $700 billion this year. Even if China and America sign phase one, uncertainty persists. The saving grace will be continued low interest rates, plus improving economies in India, Russia and Brazil.
What to expect from the stock market in 2020?
Meanwhile, Bay Streeters expect the TSX to reach anywhere from 17,750 to 18,500 in 2020, with energy, materials, and financials to outperform.
Top Energy Stocks Predictions for 2020
Eric Nuttall, who specializes in oil stocks, names Baytex, Crescent Point and Tourmaline as his top picks. Most oil stocks pay generous dividends. CPG-T, for example, yields nearly 8% (disclosure: I own this).
Here are Eric Nuttall‘s top oil stocks outlined:
A Calgary based oil and natural gas company. A junior stock that is trading below book value, with good assets in shale in Texas. A well-managed company that was chosen as a Top Pick by Eric Nuttall in mid-December.
Off most people's radar. Has had success in the Clearwater area. The well has come on very strong. Good economics. Oil prices is fixing their leverage problem and the new well might fix their inventory problem. Trading at 2.7x cashflow at $70 oil. Could privatize themselves in 2 years from free cashflow. Very inexpensive. 4x…
A Canadian oil and natural gas company. They have assets mainly in North Dakota and Southern Saskatchewan. The company continues to buy back stocks.
He had left the intermediate producers behind. It is between investor bases. There is not a basis beyond a pop in the commodity price. He sticks to those that did a better job at maintaining their dividend.
A big natural gas producer that continues to buy back stocks. They spun out some of their infrastructure into a royalty offering that gives them liquidity to make acquisitions.
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The Black Swan deal is a good acquisition. It makes the company the fastest growing producer. It will move around 500,000 boe per day next year.The deal adds more than $300M in debt but the balance sheet remains fine. Unlock Premium - Try 5i Free
Top Materials Stocks for 2020
Here are Jaime Carrasco‘s top material stocks outlined:
A major Canadian gold producer with operations in North America and Finland. They operate in lower geopolitical risky areas. New mines are producing and they have increased their dividend by 40%.
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. You could take a full position in AEM today. Gold stocks are likely better than bullion right now. A good hedge against inflation with more upside potential. Unlock Premium - Try 5i Free
A financing company for precious metal mining companies. The company has good cash flow and continues to buy back shares. They have a mine in Turkey that will go online in the next few years that will help the stock jump higher.
(A Top Pick Nov 20/19, Up 8%) It's lagged the sector, because it's a royalty company. You need to hold producers and royalties in a portfolio. With royalties, you expect more asset growth in the value of these assets. These companies help finish financing and building a mine for a producer. Once that mine is…
Top Financials Stocks in 2020
One of the leading Candian banks with US exposure. They have over 50% of their business in US retail space. Analysts expect a dividend increase, putting the yield at 4.5%.
Benefits from a rising interest rate environment. With its footprint in the US, influenced by the USD. Very well capitalized, solidly profitable, not that expensive. In great parts of the US; bought its assets really well. Cream of the crop of retail banks in Canada, and less sensitive to capital markets.
The leading bank in Canada. A good income investment choice with yield at 4%. Higher interest rates would be beneficial to the banks. This could be a good entry point for banks.
Another favourite of his. Tax-preferred dividends, even though it's on a global scale. Quality is well understood by the markets. Not sure if dividend hikes are imminent. His concern is that they overreach in capital markets, and get away from the crown jewels of the Canadian banking brands. Own, put it away, and don't think…
Playing the TSX with an Index ETF
A simple way to play the TSX would be an index ETF, such XIC or XIU, but the difference between the current 17,000 level to the most optimistic 18,500 is only 8.8%. Add to that the 2.8% yield (after the MER) of either ETF, and you will gain 11.6%.
Even better, wait for a market pullback of, say, 5% before buying a tranche to better your adds and gains. Though the TSX could fall deeper, nobody sees a recession coming this year. Hope they’re right.
An ETF that tracks the TSX closely. A good way to diversify with a low MER and get a broader exposure to Canada.
(A Top Pick Dec 05/19, Up 2%) It is a core holding for the TSX. He has little Canadian holdings and has not had for several years. He is not that keen on Canada mainly because of government policy bent on destroying the energy industry.
An ETF that tracks the TSX60 large cap stocks. A low-cost way to get exposure to good names like the banks. One of the largest and oldest Canadian ETFs.
An ETF to buy? There are so many ETFs, so it depends what you're looking for. XIU offers growth and income for retirees. This is a core holding for any investors. There's also a BMO utilities ETF offering a yield and upside. Also, a Canadian bank ETF from any vendor will give you income and…
US Banks to Buy in 2020
JP Morgan predicts U.S. growth to slow from 2.3% last year to 1.7% in 2020 as the American consumer continues to spend. The bank sets a 2020 price target for the S&P at 3,400 with an EPS of 19x, which is the Wall Street consensus, but don’t expect the stellar performance of the past two years.
Rather, 2020 to be the “year of the Great Rotation II,” a repeat of 2013 when retail investors shifted from bond funds into equity funds. Also, JPM reflects Wall St. Consensus that the US dollar will show weakness, at least early this year. Oil should improve in 2020, given OPEC’s deeper production cuts, with Brent averaging US$64.50 per barrel.
One of the big American banks. A leader in the US banking space and a bellwether. A premier company that comes with a premium. Analysts expect to see continued dividend growth and steep earnings growth.
(A Top Pick Jul 28/20, Up 74%) Arguably the best bank in the world with global reach. Hitting on all cylinders right now. Not terribly expensive.
Wells Fargo is a little less optimistic. It calls for 1.8% growth; targets 3,200-3,330 for the S&P; and WTI between $55-65. For maintain global growth, consumers must continue to spend, fixed-income spreads must be “well-behaved” and the US-China trade war must de-escalate. WF favours tech, consumer discretionary and financials, but gives the thumbs-down to communication services and materials. It predicts large-cap’s EPS to rise 6.3%, but only 3% in mid-caps.
An American bank that recently hired a new CEO, who was accepted by the market. There were some regulatory issues following fraudulent accounts that has hurt them. It now seems to be improving and has started to follow the other US banks.
She owned Wells Fargo years ago until problems with their sales practices arose. That's now behind them, but WF lost momentum and they need to prove to investors that they can gain market share.
More US stocks to buy in 2020
The ubiquitous coffee chain that has gone global. They have successfully expanded into China. They are in a very high margin business that continues to do well.
Didn't deserve to sink 3.2% today after its quarterly report released late Tuesday. He blames trigger-happy traders. This is a buying opportunity.
A computer software, cloud and service company. Their position in the cloud space is only disputed by Amazon. Their subscription business has continued to go well. A good long term hold.
It is one of her larger positions. It is going to continue to be a very solid investment. They are continuing to build their businesses that have a big competitive moat around them. She thinks this a pretty good entry point for a very high quality company.
The electric vehicle company that started the trend. It has been known to have high volatility. Valuation is very expensive but the stock continues to edge higher despite all the concerns.
Elon Musk's cyptic Tweet today pressured Bitcoin Musk has talked things like copper and cryptos up or down in price, but there comes a point when the tweets become manipulation.
Emerging Markets and China Stocks to Buy in 2020
After two weak years, emerging markets are poised to enjoy a better, even upbeat 2020. While the U.S. Fed is expected to keep interest rates steady, EM central banks are expected to continued cutting rates. That’s the good news. The bad news depends on which country you’re investing in.
Russia, Mexico, South Africa and Argentina are wrestling with political and economic difficulties, including debt repayments. India has its bulls, but also bears. XID-T plays India, though VEE-T covers Asia, including India but excluding Japan. India has great promise, but hasn’t blossomed into a powerhouse like its neighbour, China. In fact, her economy remains sluggish.
An ETF that covers India broadly. The country has a growing middle class with upwardly mobile, English speaking workforce. It is a bet on India and it’s growing population that is set to surpass that of China.
He had been suggesting China but he now suggests changing that to India. The median age there is 28. The rate of literacy is growing dramatically.
An ETF that covers emerging markets broadly. A good long term buy that is one of the best emerging market ETFs in Canada. The MER is 0.25% and covers India as well.
More of higher risk, higher return holding. It has a lot of weight in China (37% of the portfolio). Global growth will start to participate in the growth seen in industrial markets recently, he thinks. MER 0.24%. Yield 2.65%
In contrast, China remains the biggest economy in emerging markets though her growth will likely continue to slow in 2020: the IMF estimates 5.8% GDP growth, the World Bank 6.1%. Trump’s tariffs and the trade war hurt Chinese stocks in 2019 (and harmed American productivity as well), but the scheduled signing of phase one of the trade deal has lifted a lot of tension.
China will also benefit if the American consumer continues to buy. Bay St. remains bullish on Alibaba and Tencent. But investors either believe in the Chinese economy and the transparency of its financial reporting, or they stay out altogether.
The Amazon of China. The stock has been hit due to the US-China trade war and uncertainty over China. The price has remained the same for a few years. There is no dividend, and has a PEG ratio of over 50.
The Amazon of China. It's had a rough ride because of Chinese government pressure, but he expects this stock to come back.
The largest online advertiser and gaming space. It is getting into fintech and cloud storage as well. It is one of the largest internet companies in the world based on revenue and market cap.
Recommendation to buy on the HK exchange. Price target is in HK$. Wanted exposure to Chinese internet but without the risk of the US delisting. The underlying growth of the Chinese market is significant. A very high growth company with dividends. There is growth in revenue and underlying market. (Analysts’ price target is $787.65)
After gleaning several 2020 outlooks, I can report: sluggish world growth, low yields, but also low or flat interest rates. Risk assets will grind higher while the U.S. dollar will soften. Gold will continue to be a hedge against uncertainty. Trade tensions between the U.S. and China will decrease, but remain on the table.
After all, both the Republicans and Democrats will talk tough about China during the election campaign, a campaign that will play a huge role in 2020 markets. There’s little chance of recession this year, but geopolitical tension remains, as we are experience now with Iran and America. Expect more volatility.
Have a good 2020!