JMRD Market Observer for September 26th, 2014 – Calgary Review

September 29, 2014
**September 26th Issue of The JMRD Market Observer**
In This Week’s Market Observer…
 
  • JMRD 2014 Calgary trip
  • JMRD Strategy Comments
  • NBF Monthly Economic Monitor – October 2014
  • JMRD Basket Corner
  • Retirement Corner
  • Week at a Glance
  • Reads of the week
  • Economic Calendar
  • Earnings Reports

 

JMRD 2014 Calgary trip

Last week, Zach and Jaden visited Calgary for JMRD’s annual due diligence energy trip. Joined by a few clients and acquaintances, the itinerary included meetings with Bellatrix Exploration, Canamax Energy, Canadian Energy Services, DeeThree Exploration, Painted Pony Petroleum, Paramount Resources, Pine Cliff Energy, Raging River, Surge Energy, Whitecap Resources and energy analysts. The trip was timely with the recent correction in the sector as the S&P TSX Composite Index is off 5% month-to-date and Energy has underperformed the broader index by 4% this month, which compares to outperformance of 1% in August. Business fundamentals surrounding Canadian-based E&Ps remains intact, underscored by stronger production growth and sustainability metrics. Also, it was striking to note how some of the companies have grown tremendously over the last couple years creating shareholder value through a period that has seen both stronger oil prices this year but also challenges such low Natural Gas prices in 2012. With the sector’s recent correction, there are very good growth and income opportunities in the sector as the market looks ahead to Q4 and winter energy demand, that we would be happy to discuss in more detail
 
JMRD Strategy Comments
 
As mentioned in our August 1st Strategy comments below, we do believe there will be continued volatility over the coming months.  We will be looking for opportunities during this time to upgrade holdings for the end of the year seasonal strength and in to the beginning of 2015.  The overall returns for 2014 are still quite good and the recent weakness has mostly just taken away the positive returns seen in August. 
 
From August 1, 2014:
Market volatility returned this week with a significant down day in the financial markets on Thursday.  This was the first meaningful pullback in the markets in many months and it was, in many ways, overdue.  However, to put things in perspective, the TSX hit a fresh all time high reaching 15,527 this week.   As of this writing, the TSX was hovering around the 15,200 mark.  Some stocks have been affected a little more than the TSX over the last two days, but overall, the index is still up 11% year to date. 
 
Our strategy remains the same in the long term.  Our goal is to own good quality companies that can grow their earnings and ideally pay us a dividend while we own it.  We have some cash holdings in our baskets as we think there could be more volatility over the coming few months but we will not be making any radical shifts.  Since interest rates are low and the global economy is still growing, we would expect the final months of the year to be pretty good. 
In light of the recent market movements, we have provided a link to Martin Lefebvre’s market commentary webcast with a review of last week’s FOMC meeting.  Martin is NBF’s Asset Allocation and Investment Strategist.
NBFM Monthly Economic Monitor – October 2014
 
NBF’s Economics and Strategy team published its Monthly Economic Monitor for October. Notable changes include:
 
Forecasting the Fed Funds rate to average 0.25% in 2014 rising to average 1.25% in 2015
For the Canadian overnight rate they forecast 1.00 for 2014, increasing to 2.00% in 2015.
For the CAD/USD they forecast 2014 to average $1.09 and $1.13 in 2015
 
Highlights

 

  • While the Fed is winding down its asset purchase program, other major central banks, including those in Europe and Japan, are heading in the opposite direction, flooding markets with liquidity. The resulting low interest rates will help support domestic demand for the affected economies.Moreover, such divergence in monetary policy will push the US dollar even higher, something that should help exporters not just in Europe and Japan but also in emerging economies. We remain comfortable with our call for global growth to accelerate to 3.3% this year. But considering the mounting risks, particularly in China, we have lowered our call for next year by two ticks to 3.6%.
  • The U.S. economy finally seems to be taking off. The labour market is on a clear uptrend, helping support consumption spending. Business investment is also ramping up, as is the export sector. Upward revisions by the BEA, coupled with solid results so far in Q3, prompted a two-tick upward revision to our 2014 U.S. GDP growth forecast to 2.2%. With the economy poised to accelerate further, the Fed will be called to tighten monetary policy next year.
  • Canada is reaping the benefits of the U.S. economic rebound. The export outlook continues to improve, more so with a depreciated Canadian dollar. While domestic demand growth is likely to moderate after an unsustainably hot Q2, there will, however, be some support from investment spending in light of the better outlook and record corporate profits. We remain comfortable with our 2014 growth forecast of 2.3%.

 

JMRD Basket Corner

DIG Basket
Manulife (MFC) – Manulife closed the financing last week to fund the purchase of Standard Life plc’s Canadian operations. On Sept. 3, 2014, MFC announced an agreement to acquire Standard Life Canada (SLC) for Cdn$4 billion in cash. In connection with the transaction, MFC issued Cdn$1.76 billion in subscription receipts along with a concurrent private placement of Cdn$500 million. MFC will fund the remaining amount through internal resources. The acquisition enhances MFC’s Canadian platform as the addition of SLC will double MFC’s market share in the Canadian group retirement business, while also strengthening the insurer’s group benefits and retail wealth management platforms in Canada.
All-Cap Basket
Alimentation Couche-Tard (ATD.b) – “Couche-Tard Rallying as Investors See Acquisition Growth”Alimentation Couche-Tard is outperforming other retailers as investors wager the Canadian convenience-store operator is gearing up for more acquisitions after absorbing its latest billion-dollar purchase. 
Stantec (STN) – STANTEC makes an important step into the Quebec market acquiring the Canadian engineering operations of Montreal-based Dessau. The transaction will add 1,300 people to STN’s current workforce of more than 14,000 employees of which approximately 8,000 are based in Canada. Closing of the transaction is expected in Q1 2015.
U.S. Basket
Micron Tech (MU) – Micron said “favorable market conditions” helped the memory-chip maker report a better-than-expected revenue increase of 6% in its August quarter. The company also projected better-than-expected sales for the current quarter. Shares moved higher by 6% on Friday
Nike (NKE) – Nike reported a terrific quarter after the close Thursday as the company reported $1.09 EPS for Q1 vs the average analyst estimate of $0.88. The shares traded higher by over 10% on Friday  and The Jumping Sneaker Prices Behind Nike’s Boom Times”
Retirement Corner

 

 

Week at a Glance

 Reads of the Week
  • Exploring Alternatives: A three-part series on alternative investments from Investment Executive newspaper. In September, how to structure a portfolio using hedge funds, commodities and futures. In October, accessing alternatives via mutual funds. Look for part three in November.
 Economic Reports
Monday September 29th – U.S. Personal Income, U.S. Personal Spending, U.S. Pending Home Sales
Tuesday September 30th– Canadian GDP, Canadian Industrial Product Price, Canadian Raw Materials, U.S. Consumer Confidence
Wednesday October 1st – U.S. Total Vehicle Sales, U.S. ADP Employment Change, U.S. ISM Manufacturing
Thursday October 2nd – U.S. Factory Orders, U.S. Initial Jobless Claims
Friday October 3rd – Canadian International Merchandise Trade, U.S. Trade Balance, U.S. Change in Nonfarm Payrolls, U.S. Unemployment Rate, U.S. ISM Non-Manufacturing Composite
Earnings Reports
Monday September 29th – None
Tuesday September 30th – None
Wednesday October 1st – None
Thursday October 2nd – None
Friday October 3rd – None

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