JMRD Market Observer for May 1, 2015: JMRD U.S. Growth Basket Q1 UpdateMay 1, 2015
**May 1st Issue of The JMRD Market Observer**
In This Week’s JMRD Market Observer
- JMRD U.S Growth Basket Q1 Update
- NBFM Monthly Economic Monitor
- JMRD Basket Corner
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
The JMRD U.S. Growth Basket Q1 Update
Launched on January 1st, 2014, the Team is delighted to announce a first quarter gain of 2.36% after a 15.0% return last year.
This compares to the following returns from other benchmark indices:
We launched the US Basket after we received numerous requests for a portfolio of US companies trading in US dollars. Diversification by asset class and currency is important, making the launch of this new Basket very timely.
We will focus on five questions you may have on the new Basket as a way of re-introducing it:
- Who should buy it?
- How do I buy it?
- What is in the Basket?
- How do you pick the holdings?
- What are the parameters in terms of buying the new Basket?
Who should buy it?
- Clients who have US dollar accounts are the best candidates for the Basket.
- The Team was being proactive in this Basket launch as NBF has just recently rolled out US dollar RSP accounts. The U.S. Growth Basket can be purchased in this new USD RSP.
- Remember, if you don’t have US dollars, a new buyer would first need to convert to US dollars.
- With the weakness in the Loonie over the past year, it takes more Canadian dollars to buy US dollars
- NBF’s current forecast for 2015 for the USD/CDN dollar is to end the year at $1.28. The rate at the time of writing was $1.2090 as the Canadian dollar has strengthened during the month of April. The reason is that the Bank of Canada intimated that another rate cut may not be necessary as economic growth was not as bad as originally feared. In addition, the U.S. Dollar has also weakened against other currencies
- Clients who think the Canadian dollar will continue to decline are also good candidates as this is also a currency call.
- For those in this camp, the conversion provides a way to diversify by currency as well.
How do I Buy it?
- The JMRD US Growth Basket is purchased the same way as our other Baskets.
- We would recommend setting up a US dollar account as a start.
- We would need to ‘code’ the account for Basket purchase as per usual – for those interested let us know and we will get the paper work together.
- The Basket is purchased on an annual fee basis similar to our other offerings.
What is in the Basket?
- We continue to include company updates on the holdings in our Market Observers so you can become more familiar with the individual positions.
- You will find below a full snapshot of all holdings.
How do we pick the holdings?
- We use a proprietary relative strength technical analysis research that helps us to identify the stronger sectors to invest in.
- From there, we look to buy the strongest stocks in the best sectors. Stocks can be trading well but if they are in a strong sector, they can still be underperforming.
- Conversely, we look to avoid weak sectors as weak sectors and companies within those sectors can often stay weak for an extended period of time.
- Instead of trying to ‘guess’ when a stock might bottom, we look to identify the strongest companies that are performing well compared to their peers.
- For the U.S. Model we select among the top companies in the S&P 100 combined with Credit Suisse’s top picks.
- The requirements are: Minimum $1B market capitalization, no more than two securities per sector and an initially equal weighted portfolio.
What are the parameters in terms of buying the new Basket?
- The current value of the JMRD U.S. Growth Basket is approximately $12,000 (all figures in US dollars).
- The initial minimum position mandated by is 5 Baskets, or approximately $60,000.
- Subsequent purchases can be made in increments of 1.5 Baskets, or about $18,000.
Note that the minimum and subsequent purchase amounts are mandated by National Bank Financial’s Baskets department, not by JMRD.
NBFM Monthly Equity Monitor – May 2015
NBF’s Economic and Strategy Group published its May Equity Monitor. We wanted to highlight that there are no changes to its asset mix or its sector rotation.
- Global equities rose to another all-time high in April. Encouragingly, the gains have been widespread. All major regions show positive returns so far in 2015. Markets where central banks are applying quantitative easing – the euro zone and Japan – are still showing double-digit gains year to date (in local currency). Emerging markets have taken a commanding lead early in Q2 with a month-to-date return of 7.1%.
- Going into the Q1 earnings season, there was much apprehension of drag from USD strength. With just over 40% of companies now reporting, the news is encouraging. All of the main sectors are beating earnings expectations.
- After a difficult beginning of the year, the S&P/TSX has been doing well in recent weeks. A month into Q2, the index has advanced 3.4% on the strength of sizeable gains for energy and bank stocks, up 8.6% and 5.1% respectively.
- Our asset mix view is unchanged this month. We remain comfortable with our recommendation to overweight equities relative to our benchmark, with a slight preference for non-U.S. assets to reflect our view that the U.S. dollar is likely to stabilize somewhat. Our year-end targets are 16,200 for the S&P/TSX and 2,220 for the S&P 500.
- Our sector rotation is also unchanged this month with its slight preference for non-interest-sensitive sectors. We are staying with our overweight recommendation for the Canadian Energy sector. A rise in energy prices due to the combined effect of U.S. production cutbacks and a tamer greenback could reignite interest in this sector.
(see attached for the full report)
JMRD Basket Corner
Crescent Point Energy (CPG) – “Crescent Point CEO Plans Saskatchewan Deals in Crude Rout” (Bloomberg)
DH Corp (DH) – DH reported Q1 results in line NBF and consenus of $297M (vs. $283M est. & $276M Q1/14), adjusted EBITDA of $87M (vs. $84M estimate & $79M Q1/14) and reflecting a 69% payout (vs. $0.54 / 60% est. & $0.55/58% Q1/14). Results were similarly in line with the Street’s $294M top line and $84M EBITDA estimates. The company’s recent $1.6B acquisition of Fundech, a global payments and transactions solutions provider closed on Thursday
All Cap Growth Basket
Stella-Jones (SJ) – Stella-Jones announced Q1 sales increased 32.3% year-over-year to $340.7M, materially above NBF’s $298.3M forecast and consensus of $315.5M. Excluding M&A and FX, revenue still grew an impressive 12.7% thanks to healthy demand and railway tie price hikes. EBITDA of $53.4 million and EPS of $0.43 also beat. In railway ties, NBF expects solid performance to continue thanks to improved untreated tie availability, implemented selling price increases and healthy demand. Near-term demand for utility poles should remain robust with upside in the mid-term as poles reach the end of their service life. SJ also agreed to acquire Ram Forest Group, an Ontario-based manufacturer and seller of pressure treated wood products to the retail building materials industry with sales of $90.2 million. The acquisition, expected to close in October 2015, represents a solid fit with SJ’s residential lumber operations.
U.S. Growth Basket
AAPL (AAPL) – The company said on Monday that quarterly iPhone sales in greater China, which includes mainland China, Hong Kong and Taiwan, had surpassed those in Apple’s home market, the United States, for the first time. While Apple did not disclose specific numbers, the performance powered the company’s revenue, with sales in greater China rising 71 percent to $16.8 billion in the fiscal second quarter compared with the same period last year. Revenue from greater China also exceeded that from Europe for the first time. The China results punctuated another strong quarter for Apple. In total, revenue climbed 27 percent to $58 billion, up from $45.6 billion last year, the company said in its earnings report. Profit was $13.6 billion, up from $10.2 billion a year ago.
Sealed Air (SEE) – Sealed Air Corp. on Thursday reported first-quarter earnings of $97.2 million. On a per-share basis, the Elmwood Park, New Jersey-based company said it had net income of 46 cents. Earnings, adjusted for non-recurring costs, were 54 cents per share. The results surpassed Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of 42 cents per share. The packaging company posted revenue of $1.75 billion in the period, also beating Street forecasts. Four analysts surveyed by Zacks expected $1.72 billion.
Week at a Glance
(See attached Week at a Glance report)
Reads of the Week
- “This Was Never Easy” (Motley Fool) Don’t kid yourself. Good investing hurts.
- “How the dollar store war was won” (Fortune)
- “These Titans of Oil Are Experts at Making Bold Predictions*” (Bloomberg)
Monday May 4th – US Factory Orders
Tuesday May 5th – US Service Sector ISM
Wednesday May 6th – US ADP Employment Numbers
Thursday May 7th – Canada Building Permits; US Initial Jobless Claims
Friday May 8th – Canada Housing Starts, Canada Unemployment Rate; US Non-Farm Payroll and Unemployment Rate
Monday May 4th – Enbridge Income Fund
Tuesday May 5th – Bellatrix Energy, Riocan REIT, Sunlife, Gibson Energy, Pembina Pipeline, Keyera Corp, Pason Systems, Agrium, Parkland Fuel
Wednesday May 6th – Brookfield Asset Management, Enbridge, Veresen, Metlife
Thursday May 7th – Bombardier, Canadian Natural Resources, Magna, Telus,
Friday May 8th – Cineplex, Vermillion Energy
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Have a good weekend!
Categorised in: JMRD Updates