Original article from La Presse – LE PLACEMENT À ÉVITER by RICHARD DUFOUR.
1. What was this week’s most important event on the markets?
Despite last Friday’s deadly attacks in Paris and the subsequent aftermath of the tragedy, the markets defied expectations and rallied this past Monday to post their strongest session in weeks.
In addition to the stock markets being oversold leading up to the Paris attacks, investors have increasingly realized these tragic events have a more muted impact on economies and markets, despite the terrorists’ best efforts to create chaos and fear around the world. While there could be some fallout in the area of travel, which could undermine transportation, hotel and hospitality, retail and luxury stocks near term, the economy should prevail over the longer term, as consumption is deferred rather than eliminated. Also, the European Central Bank is likely to continue its quantitative easing program.
Separately, the consumer stocks have recently taken a beating, as Macy’s, JC Penny, Nordstrom, Dick’s Sporting Goods and others reported weaker results, blaming the high U.S. dollar, warm weather, online retail, and a host of other reasons for the poor showing. But it would appear the U.S. consumer still has a pulse with Home Depot and Lowe’s posting impressive results as household formation and home improvement continue to trend upwards. Fortunately, big ticket items, like cars, furniture and appliances continue to outpace small ticket purchases. Black Friday should provide some insights into the state of the U.S. consumer, although we expect flat to modestly positive results for small ticket items.
2. What are the indicators you follow closely and why?
The Murray Wealth Group (MWG) tracks a host of key economic and statistical indicators, although in-depth bottom-up fundamental analysis drives our stock selection process. However, we do frame our research against the backdrop of the economy, global trade, industrial activity, the housing markets, consumer confidence and employment, as well as other leading economic indicators that provide insights into the future.
We invest in high-quality companies that have exhibited financial and operational success along with above-average growth metrics. Identifying strong management teams is essential to our process prior to investing. MWG is a long-only, growth-oriented equity manager offering five strategies, including four equity strategies and one fixed income fund, which are constructed to deliver strong absolute returns over the long term.
3. What would you do today with a big amount of money (name stocks)?
At MWG, we are truly index-agnostic. We are active managers that can choose to avoid out of favour sectors, like oil and gas and basic materials. We have also increasingly lightened up on industrial names, given the current weakness in manufacturing, primarily due to soft energy markets, a deceleration of growth in China and the strong US dollar (impacts the translation of foreign sales and the export of high-priced US goods, offset by imports). We like companies with better mouse traps (Apple), better ideas (Alphabet (Google)), better brands and distribution networks (Coca-Cola), trusted franchises (Walt Disney), unique assets (MasterCard), market dominance (Microsoft) or better science (Celgene). In the current environment, we prefer consumer, technology and healthcare related stocks. Within consumer, we prefer brands over retail. Financials should do well on an interest rate recovery, which is likely in the U.S.
4. What investment should we avoid today and why?
We have shied away from commodities given our view that China may be a repeat of the Japanese economic situation of the 1980s and early 1990s. After modernizing its infrastructure, Japan turned into a major force behind global trade and growth on the back of a significant increase in domestic Japanese demand. Strong demand drove a massive increase in global commodity prices and the development of new supplies. When the bubble burst, global commodity prices plummeted. Flash forward around 25 years, China is now easing off of its infrastructure build, which has led to a significant downdraft in commodity prices yet again. We believe commodity prices could remain at depressed levels for an extended period of time.
5. What in your eyes is being underestimated the most by the markets right now?
The U.S. economic outlook remains healthy, with most indictors still in the green, except for select sectors like commodities and industrials. We are particularly bullish on the U.S. consumer, with an improving employment picture and demographics supportive of stronger household formation and spending, the purchasing power of the U.S. dollar, and low fuel prices. Given the U.S. is a consumer-centric economy, we believe the impact of the consumer is being underestimated. Further, while China is decelerating, it is morphing into a consumer-driven society as well, unleashing savings and leveraging a growing middle class, versus being focused on infrastructure build. Again, a positive for consumer stocks, but negative for commodities.