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.
He sold it a few days ago. The amount of financial participants in the sector right now is a fraction of what it was in the past. There is financial leverage that dissuaded him from holding. There are more compelling opportunities.
A Canadian oil and natural gas company. They have assets mainly in North Dakota and Southern Saskatchewan. The company continues to buy back stocks.
It is undoubtably inexpensive at 3x cashflow. However, he no longer owns this because there are other opportunities, but there is nothing wrong with this name.
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.
(A Top Pick Jun 20/19, Down 26%) It's generating free cash flow and paying down debt. Buy this under $10 for the long term. This is the premier large gas company in Canada with a strong management team who will maximize shareholder value. Managers also own a lot of shares.
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%.
The company has so many mines and projects that issues in one doesn't affect it. They execute well and are diversified. The price of gold makes profits go up. Let it ride and let people come in. He expects more institutional support going forward. (Analysts’ price target is $120.00)
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.
The analysts are very slow to raising their earnings forecasts with the price of gold. The rebound in earnings in some of these companies will be really something. He likes the producers as opposed to the commodity. Producers give you leverage due to the fast rising earnings. He likes the Juniors as well as ABX-T.
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%.
(A Top Pick Oct 28/19, Down 13%) Still their bank of choice in Canada. A big mistake for Canadians is to hold too many Canadian banks. TD is underindexed on oil and gas, dividend has increased this year, franchises have grown, insurance has done well. Predicts job cuts later this year.
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.
It has a great dividend yield. The risk on all these companies is that their loan loss book gets worse. They deferred a lot of payments on loans. It has a great retail franchise but they grew their investment banking side. He thinks you are fine owning it at these levels.
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.
XIC-T is not tracking the index, TSX –T or TSX-60. The problem is the system. It does not look at dividends correctly. He finds that it tracks the TSX correctly. The TSX is identical to the XIC-T but tools online do not necessarily track the over all returns accurately.
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.
As easy as it gets for passive investment. Broad-based exposure to the Canadian market. Financials, tiny bit of energy, lifecos, pipelines. If you expect returns over time of 6-7%, it's a good holding. Income stream is pretty solid. Markets are a bit overbought right now, so don't go full bolt right now. Instead, dollar cost…
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.
She prefers JPM to Citi because their managers are strong; they're the cream of the crop among US banks. JPM was very conservative in their provisions in the last few quarters. JPM will bounce back well.
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.
Weakest of the big US money centre banks. A chequered recent last 10 years. 60% off of pre-pandemic highs. Hard to get behind them in this environment. Err to the side of safety and go with some of the more senior banks.
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.
They closed down many stores during the pandemic. During the openings now it's tougher to walk in and get a coffee. They've had stops and starts. However, coffee culture won't go away and people will go to Starbucks. SBUX has reduced earnings numbers and the PE will decline. There's still global growth in this company,…
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.
After the last crash, its value was decimated. He saw it as a utility company, as people need to pay MSFT to upgrade. Tremendous job of growing its cloud business. He's not selling anytime soon.
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.
Oil Sector and Impact from E-cars. He thinks they will continue to grow over the next little while. TSLA-Q is not the only one. GM, Ford and all the majors are coming out with electric vehicles. Tesla has grabbed the imagination of consumers. He thinks E-cars will be more and more of the auto industry.…
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.
VEE vs. XID VEE covers EM. XID: India has a young working population who speak English. India fits well into global commerce. If they build their infrastructure, India will do well. Problem is, everyone knows India's long-term story and already have high expectations. India has been underperforming the past year, so he wants to see…
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.
It has been a great company in the last decade. However, he has always hesitated buying China-based business due to political risk like what is happening with TikTok. You can get exposure to similar themes in North American with companies like Amazon or Google.
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.
Challenge with Chinese stocks is when you invest in China, you don't actually hold the shares in your name. From a political perspective, you don't have claim to those assets. Now we have US-China tensions. He'd rather buy one of the multinational companies with operations in China that benefit from the recovery.
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!