Brett Girard, chief financial officer and portfolio manager, Liberty International Investment Management

FOCUS: Global stocks 

MARKET OUTLOOK:

For a sustainable move higher in the stock market we will need to see earnings growth, clarity on interest rates and wide market breadth. After a blistering move higher in the five months ending on March 31, April has been a period of consolidation. Early first-quarter earnings/forward guidance has been mixed and the uncertainty around future interest rates is testing investor patience. On the plus side, breadth is widening, particularly with the non-AI stocks, providing stability and potential.

Two actionable items for investors to consider:

1. Increase U.S. dollar exposure. The CAD/USD FX rate is signalling the Bank of Canada will likely cut interest rates before the U.S. Federal Reserve. As a hedge, look to hold U.S. stocks or Canadian/international companies with U.S. revenues. These names will benefit from a stronger U.S. dollar and help offset the declining Canadian dollar’s impact on personal spending.
2. Lock in yield to augment equity returns and volatility. Over the last six months, estimates of 2024 interest rate cuts by the Fed have dropped from seven-quarter point decreases to somewhere between zero and three. In response, the long end of the yield curve has backed up with the five-year Treasury and 10-year Treasury yielding above 4.6 per cent. Investment grade corporates are trading at a spread of >0.5 per cent higher.

TOP PICKS:

Brookfield (BN TSX)

It owns assets that are the backbone of the global economy. Fundraising is still strong in spite of the macro with $143 billion committed in 2023. As interest rates moderate in 2024 and beyond, more realizations (carry generation) will be possible. Dividend increased eight per cent in February and has grown at 14 pe cent p.a. over the last decade.

NextEra (NEE NYSE)

It is the largest electric utility in the U.S. FPL is the cash cow that allows for renewable investment. Estimated that global electricity consumption from data centers will increase to approximately 10 per cent of total electricity demand by 2030 (from approximately two per cent today). The dividend increased 10 per cent in February and has grown at 10 per cent p.a. over the last decade.

Alimentation Couche Tard (ATD TSX)

It is approaching 17,000 worldwide with the closing of the TotalEnergies acquisition in January. Patient capital allocator willing to wait for opportunity in a highly fragmented market (60 per cent of C-stores are owned by single-store owners and ATD only has five per cent of the market) with significant room for consolidation. The dividend last increased 29 per cent and has grown at 23 per cent p.a. over last decade. 

PAST PICKS: NOVEMBER 13, 2023

Fairfax (FFH TSX)

• Then: $1239.50
• Now: $1502.44
• Return: 21%
• Total Return: 23%

TC Energy (TRP TSX)

• Then: $49.53
• Now: $48.99
• Return: -1%
• Total Return: 2%

Danaher (DHR NYSE)

• Then: US$195.98
• Now: US$236.03
• Return: 20%
• Total Return: 21%

Total Return Average: 15%