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COMMENT
The U.S. Midterms last night were as expected. With uncertainty removed--and historic seasonality--the markets took off today. Also, the third year of a U.S. presidency also sees the strongest returns, averaging 14% (6% in the 4th year). True, US-China trade tensions, rising rates and peak earnings remain concerns, but he's bullish. Investors have something to look forward to.
COMMENT
Are you concerned about China with its volatility, and emerging markets? He actually likes some of the Asia EM markets. He won't buy big now, but he has some limited holdings there. China is trading at forward earnings less than 10x. Sentiment is still negative. Wait until that sentiment turns. He doesn't see a major shift in U.S. policy towards China after the Midterms. It's more like how long can China hold out on these tariffs. A trade war benefits no one. It's a matter of coming to an agreement.
DON'T BUY
Owns Alibaba instead. JD is like Amazon for China. Its market cap is larger than eBay's. There's so much negative sentiment around Chinese internet stocks now, so they've come down. Trading at 58x forward earnings--pricey, but long-term growth is estimated at 50%+. Possible take-out from another company. Need to see a basing pattern first before buying this. Also, there are allegations of misconduct about the CEO/founder.
0
BUY
Just reported earnings last week, beating the street by 6%. It's been sideways, but pays a 4.9% dividend that should grow. Trades at 10x forward earnings at a 11% growth rate. But the market isn't recognizing this now. It's a good healthcare name, and healthcare has been outperforming the S&P in the current late cycle. ABBV has beaten earnings many quarters in a row.
0
DON'T BUY
The effect of the Democrats winning the House in the US Midterms? Both parties are still committed to defence spending, he's read. Below its 200-day moving average. Trading at 16x earnings with a 14% growth rate. It does not scream buy. Look at other names like Boeing. He doesn't own any defence names. Also, industrials tend to underperform in late cycles.
Defense
DON'T BUY
Telecoms are high-dividend payers. Great income, but this has been falling, trending below its 200-day moving average. Great cash flow. There's more room for wireless penetration in Canada than the US. But rising interest rates will pressure telecom stocks. Better to wait until rates settle in 12-18 months. Better to look for dividend growers than high-dividend payers.
telephone utilities
DON'T BUY
Owns SunLife instead. Interest rates are rising and pressuring these stocks. He likes MFC's exposure to Asia, which will help them long term. But MFC has been sideways. He needs to see MFC to rise far above its 200-day moving average before stepping in. Pays a 4.7% dividend, but little dividend growth.
insurance
DON'T BUY
He likes the tech space which has runway to grow. It holds Apple, but it doesn't own FB anymore, but it owns Visa and Mastercard. He'd rather buy the individual names than the ETF. That said, don't overweight this space--people have been piling in and the trade is getting crowded. As for Apple, guidance for phone sales forward will be weaker, so that's a caveat. Depends on 60% of revenues on the iPhone, too.
E.T.F.'s
PAST TOP PICK
(A Top Pick Oct 12/17, Down 16%) It's had some tough times recently, but it's cheap at 26x forward earnings with a 25% growth rate, unless China falls into a downturn via US tariffs. Has fallen below its 200-days moving average. Long-term, though, it's great to own. Expects $250 billion in revenues this year, more than Amazon.
0
PAST TOP PICK
(A Top Pick Oct 12/17, Down 3%) It's cheap, trading below 1x price-to-book. Decent growth. They're committed to share buybacks and dividend increases. What's hurt them is they are very international with more than 50% of revenues outside America. That's why it's been sideways lately. As long as the US economy is firm, US banks will perform decently.
banks
DON'T BUY
Valuations are high earlier this year and have been dropping. Long-term, he likes this. Dollar Tree might expand here, and the rising dollar doesn't help. Nothing's really a dollar at DOL anymore. It's below its 200-day moving average. Trading at 20x earnings, not exactly cheap. He's watching it.
Consumer Products
BUY
BAC vs. Canadian banks He likes the large-cap US names. With BAC you get a domestic US bank that pays a 2.10% dividend that will grow; and they will do share buybacks over time. Caveat: don't overweight banks. Vs. Canadian banks, the American economy is stronger than ours and U.S. banks enjoys a lighter regulatory environment, so he prefers U.S. banks.
banks
