Christine Poole, CEO and managing director, GlobeInvest Capital Management

FOCUS: North American large-cap stocks 

MARKET OUTLOOK:

The U.S. economy has remained resilient, but cracks in the economy are starting to appear. Excess savings built up during the pandemic have dampened the impact of tight monetary policy, but the household sector has now whittled down its stockpile of excess savings. Consumers have also reduced their savings rate to finance spending. The household savings rate of 3.5 per cent of disposal income in July is near a historical low. In addition, households have relied increasingly on credit to make purchases, with credit card debt steadily rising. Delinquency rates have edged up and have normalized to pre-pandemic levels. Moderating wage growth, high debt servicing costs and the resumption of U.S. student debt payments will soften consumer spending in the coming months.

Recent economic data in Canada has not been encouraging. Gross domestic product (GDP) in the second quarter contracted at an annualized rate of 0.2 per cent, coming in below consensus expectations. More worrisome is the two per cent decline in real GDP per capita over a year, a measure that has historically occurred in recessions. The Bank of Canada will need to maintain a close watch on household credit performance given our country’s elevated debt-to-income ratio of 180.5 per cent as higher interest rates continue to weigh on households.

Economic growth is expected to slow as the lagged impact of higher interest rates is fully absorbed. Inflation continues to recede, although there is still some way to go before the U.S. Federal Reserve’s two per cent inflation target comes into view. Ironically, the resilience of the economy suggests there is no urgency for rate cuts, but rather a higher-for-longer policy path. Long-term inflation expectations remain well-anchored. Future policy decisions by central banks will be data-dependent.

We adhere to the adage that time in the market through investing in a diversified portfolio of quality companies is the key to generating long-term wealth. 

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TOP PICKS:

Fortis (FTS TSX)

Recent purchase $55.25 range in September 2023.

Fortis is a North American electric and gas utility company, generating its cash flow primarily from regulated assets with over half its revenues from the U.S. Fortis is a stable cash flow generator, posting 50 consecutive years of annual dividend increases. Supported by a backlog of low-risk, regulated projects, and cleaner energy initiatives, Fortis has affirmed an average annual dividend growth between four and six per cent through 2028. Fortis offers a yield of 4.2 per cent.

Mondelez International (MDLZ NASD)

Recent purchase price $71.80 range in September 2023.

Mondelez is a global snacking company with category-leading market shares in biscuits, chocolate, and candy. Its portfolio of leading global brands includes Oreo, beVita, Ritz, Cadbury, and Toblerone. With about 35 per cent of its revenues from emerging markets, Mondelez is well positioned to benefit from the growing middle-class population in these regions. Mondelez provides investors with a dividend yield of 2.4 per cent.

S&P Global (SPGI NYSE)

Recent purchase price $355 range in May 2023.

SPGI is a diversified financial information services company and operates in five business segments: Market Intelligence (34 per cent of revenues), Ratings (25 per cent), Commodity Insights (15 per cent), Mobility (11 per cent) and Indices (11 per cent). Its businesses are leading players within its respective sectors, providing proprietary “need to have” information with attractive organic growth opportunities, highly profitable, and scalable. Due to the subscription-based nature of many of its services, 72 per cent of SPGI’s revenue base is recurring. SPGI provides a dividend yield of one per cent. 

Past Picks: September 20, 2022

Alphabet (GOOGL NASD)

• Then: US$101.14
• Now: US$131.05
• Return: 30%
• Total Return: 30%

BCE (BCE TSX)

• Then: $61.74
• Now: $54.24
• Return: -12%
• Total Return: -6%

Dollar Tree (DLTR NASD)

• Then: US$142.62
• Now: US$109.91
• Return: -23%
• Total Return: -23%

Total Return Average: 0.3%