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This is right at the heart of one of the most important secular themes which is on-line retail. It has been a top pick and his view has not changed. The trend is very clearly higher. This can only be one part of a portfolio. There are always risks and you have to know where to exit. They have a very low cost of capital and they have gone and disrupted a lot of industries.
We are in a structural bull market for equities. We are skating through the two toughest months of the year without much volatility. Don’t buy a company that has been put into the penalty box. Stocks that have broken down have an army of people who just want to get their money back.
Ten year investment? This is tough. They are great at execution and built a great business. He likes the auto group but there is improvement happening in various parts of the world. If he had a choice, he would buy MG-T (which he owns) over LNR-T, which is a hold. There are no transmissions in an electric vehicle.
It is in the center of a couple of structural changes taking place in the world’s economy. One is artificial intelligence and autonomous driving and the other is augmented reality. Breadth within the semiconductor industry is expanding. The multiples are expanding. This is a leader in the group. It broke out recently – a nice break out, and then pulled back over the last couple of days. There are always shakes in these types of stocks. This is a great entry point.
(Top Pick Oct 17/16, Up 44%) Financials are a big weighting for him. There is a multiyear theme in financials ahead of us. He likes capital markets and net interest margins growing for most of the banks. The US banks are one by one starting to break out of consolidations after the election last year.
It rallied from $10 to $100. This is a great sector. It has gone through this transition over the last number of years. Now you buy extra weapons and tools on line with real money. He does not think it is over yet. He would average his way into something like this. He owns three of these in a basket. He would buy any of the three. It has a PE of 25 but is a highly predictable business model.
[Is it too late to add?] Technology is a key driver of the market right now. You want positions there. Don’t focus only on one sector. He has recommended this a couple of times on this show. They only have a 5% market share at present. They are moving into credit and delivery. This is a company that can continue to grow. These are three and four percent positions in portfolios.
We are in a process of reflating the system and materials are behaving quite well. Breadth is expanding and momentum is improving. He owns another. This one does look good and pricing is firm. They should continue to do well. He really likes the timber companies, though.
It is the one decision way to get exposure to the S&500. The recent weakness in the US dollar doesn’t hurt. You will do just fine with it. We are in a market that is benefiting some sectors more than others so he would like a more targeted exposure. Financials, industrials – a basket of 3 or 4 of them.
Markets. We are in a long slow expansion that has been going on for quite some time now. There is very little excess built into the system. The US Fed will work to normalize interest rates and it is important that they do that. It speaks to the confidence that the Fed has in the sustainability of the recovery. What’s working is a reflationary trade. We are seeing a rotation from tech to cyclicals. Europe and Japan are working hard to keep rates lower. We saw secular lows in interest rates 16 months ago. Bonds do not look very attractive. There are controls in China being brought in that limit foreign real estate investment. We are seeing real estate in Canada slowing down and also auto sales slowing down.