Market Overview
The markets are proving to be quite resilient. The TSX Index posted its fourth consecutive month of gains. The Index closed the month up by 4.22% as the markets are shrugging off pandemic-related results. Our Bull List has been equally as strong, closing the month up by 4.49%.
There appears no stopping the markets. Now down by only 5.24%, the TSX Index is making a strong push towards break-even. Is your portfolio underperforming?
It is likely because it lacks exposure to technology and gold – two white-hot sectors which account for most the gains, and two sectors members will know we have been extremely bullish on, and so has our Top 20 screener.
Case in point, Shopify (TSX:SHOP) accounts for ~ 17% of the gains since the Index touched March lows.
In terms of our individual performances, six stocks on our Bull List delivered double digit gains. Leading the pack, Kirkland Lake Gold (TSX:KL), TFI International (TSX:TFII) and Lightspeed (TSX:LSPD).
Kirkland Lake released strong quarterly results in which revenue more than doubled. It ended the month with gains of 30.86%. We believe the company still has room to run given its valuation compared to peers. Kirkland Lake, at least here at Stocktrades, is a prime example of how short term market fluctuations can really take a toll on an individual investor.
Kirkland Lake was recommended by us on April 21st at $51.95. The stock increased to the $60 range, fell back down to the low $50’s and remained relatively flat. We received quite a few e-mails and questions on the Q and A asking if they should sell their shares in Kirkland, regretting their buy. We stressed the long term bullish outlook on the company, and it has since returned over 40%. The main point we’re getting at?
Investing is not a 2 or 3 month game. Buying companies with strong fundamentals can take months, or even years to come to fruition.
For its part, TFI International also posted strong quarterly results. It has been hitting all-time highs almost weekly. In July, TFI International gained 20.61% and is now up 32.79% year to date.
Which brings us to Lightspeed (TSX:LSPD). One of our most volatile Bull List stocks, Lightspeed is benefiting from industry strength. Likewise, it is benefiting from Shopify’s blowout results. The company is often compared to Canada’s tech giant and is benefiting by association.
Lightspeed is scheduled to report quarterly results on August 6. Will Lightspeed’s 16.68% monthly gain prove to be justified? We’ll find out next week.
NFI Group was the main underperformer. It lost 9.97% on the month and is now down 43.75% since it was first added to the Bull List. Not a great result. There was no notable news on the company that would justify a near double-digit loss.
It appears that NFI Group is stuck in a technical downward trend. It may take time for this stock to recover, however we have full confidence in the company’s long-term prospects. We will be watching quarterly results (August 6) quite closely.
In our last newsletter, we were eagerly anticipating Capital Power’s (TSX:CPX) quarterly results. The company delivered – raising the dividend by 6.8% which effectively extends its dividend growth streak to 8 years.
The company also-reiterated cash flow guidance and expects to raise the dividend by 5% in 2021. Steady as it goes for Capital Power.
*Mat Litalien is long TFI International, Lightspeed and Capital Power. Dan Kent is long TFI International, Lightspeed and Kirkland Lake Gold.
Portfolio Reviews
As we move to our Boomer portfolio reviews, you’ll notice these portfolios have significantly less changes than their Millennial and GenX counterparts. Why is that?
Well for one, 2 of the 3 portfolios are underperforming the market. Not because they contain weak stocks, but because they contain a large amount of financials stocks. As the economy continues to move forward into a recession, record low interest rates will plague financials companies and the outlook will remain bleak in the short term. However, the key thing here, especially with them being Boomer, or “near retirement” portfolios, is that the dividends stay in tact.
And thus far, the only stock within these 3 portfolios to cut the dividend is one in our Boomer Moderate, Suncor Energy (TSX:SU).
With that being said, we’ll still provide an update and outlook for all 3 portfolios. But no changes will be made in our Conservative or Moderate version.
Boomer Conservative
Our Boomer Conservative portfolio has actually done quite well all things considered. Since December 28th 2018, the portfolio has returned 13.23% (not including dividends) which is slightly underperforming our benchmark index the TSX, which has returned 15.17% over that time frame (again, no dividends included.)
The portfolio has struggled mainly due to its exposure to the financial sector. Currently positions in Royal Bank (TSX:RY), Manulife Financial (TSX:MFC) and Bank of Nova Scotia (TSX:BNS) make up nearly 25% of the overall allocation.
With that amount allocated towards Canadian financials, we’d expect the portfolio to perform worse. After all, these stocks are lagging the overall market in terms of recovery. However, it is our energy and consumer staple plays that have propped the returns up, and this portfolio is actually in a prime position to outperform once financials do recover.
Stocks like TC Energy (TSX:TRP), Premium Brand Holdings (TSX:PBH) and Metro (TSX:MRU) are posting very strong gains and continue to be cornerstones in the portfolio. In fact, the financial positions are the only disappointing thing about this portfolio currently.
This portfolio is primarily for the defensive investor, one who is looking for income and stability. There have been no dividend cuts, and it contains some excellent high yielding options like CT Real Estate (TSX:CRT.UN), BCE (TSX:BCE) And TC Energy.
Keep in mind, this portfolio was only designed with 40% equities. That means that all of these stocks only make up 40% of an overall portfolio. The remainder is up to the individual investor. If they picked fixed income or ETF’s wisely, they could actually be outperforming the overall market right now.
There isn’t much to change in this portfolio. Our outlook has not changed on any stocks within it, and we’re forced to wait until financials recover. If you’re looking to take advantage of some undervalued plays, a strategy could be to allocate less towards the consumer staple stocks like Premium Brands and Metro, and more to financials like Bank of Nova Scotia and Manulife. It all depends on your overall outlook for the Canadian economy.
Boomer Moderate
The Boomer Moderate is slightly underperforming the index as well, posting returns of 11.55% while the TSX has returned 15.17%. This portfolio is very close in overall makeup to the Boomer Conservative, but there are some key differences.
For one, we aimed for a higher growth rate in this portfolio so instead of Royal Bank invested in TD Bank (TSX:TD). The company has one of the fastest growth rates out of the Big 5 banks and has large exposure to the U.S economy. As a result, it has underperformed. RBC however is one of the better performing banks due to its global exposure.
2 other positions that were taken in the portfolio to achieve higher growth were Telus (TSX:T) and OpenText (TSX:OTEX). In our conservative portfolio, we went with the slower growing yet higher yielding telecom BCE.
But, we really like Telus’s exposure to both 5G and telehealth. Telus is almost a pure-play telecom company, which is a simplified business model and drives higher margins, unlike BCE and Roger’s media divisions.
OpenText is the “conservative” technology play, and is more of an option for DGI investors. You won’t see Shopify or Real Matters level growth here, but the company is an excellent option and is the best DGI stock in the tech sector, bar none.
This portfolio does contain a smaller allocation to the financial sector than the conservative portfolio at 18%, and the underperformance is in large part due to Telus trading relatively sideways and Suncor Energy’s fall from the mid-$40 range.
The thing that is most damaging in this portfolio is the fact that Suncor Energy cut its dividend. Suncor is a prime example of what happens when a dividend is cut. Not only is your forward income slashed, but the stock price usually takes a large hit. Suncor’s stock price has not only faced the wrath of a dividend cut, but it also has fallen sharply due to record low commodity prices.
As with our GenX and Millennial portfolio reviews stated, we think Suncor has room to run upwards, so we aren’t looking to exit the position just yet. However, we will be looking to cut ties with the stock once it recovers.
No changes will be made in the portfolio at this time.
Boomer Aggressive
Our Boomer Aggressive portfolio is the only Boomer portfolio that is currently outpacing the TSX, and it’s outpacing by a significant margin. The portfolio has returned 72.67% since inception, compared to the TSX Index’s 15.17%.
Shopify (TSX:SHOP) played a large part in this outperformance, and as such we actually ended up selling off a portion of our position in earlier portfolio reviews, we felt at the price points it was at, we didn’t want to wait.
However, there is plenty of other outperformers in this portfolio and Shopify shouldn’t take all the spotlight. Dollarama (TSX:DOL), the consumer discretionary play in this portfolio has provided some excellent growth. Since inception, Dollarama has not only provided stability in the midst of this economic uncertainty, it’s also provided 50% gains in terms of share price. Another outperformer has bee TC Energy, which is one of the best pipeline companies in the country.
Overall, this portfolios outperformance is primarily due to its low exposure to the financial sector. The portfolios makeup does include 3 financial stocks, however their allocations are quite low, totaling around 10% of the portfolio. In fact, the drop in prices in the financial sector is going to be what we capitalize on during this re-balancing period.
With this being a Boomer portfolio, income is still one of the main concerns in the portfolio and we’re happy to report that no dividends have been cut.
The portfolio has $2708 cash, and we’re going to be deploying all of that in this rebalancing. First things first, we’re going to be topping up all of our financial positions. This leaves a fairly even weighting across all individual stocks except Shopify. Our hands are tied with Shopify’s high stock price however, so allocation remains high.
Buy – TD Bank (TSX:TD) – 6 shares at $60.12 per for a total of $360.72
Buy – Manulife Financial (TSX:MFC) – 19 shares at $18.70 for a total of $355.30
Buy – Bank of Nova Scotia (TSX:BNS) – 7 shares at $55.85 for a total of $390.95
We will also look to take a position in recent Bull list addition CCL Industries (TSX:CCL.B). The stock is perfectly suited for a Boomer Aggressive style portfolio, as it looks to take advantage of undervaluation in combination with one of the best dividend growth stocks in the country.
Buy – CCL Industries (TSX:CCL.B) – 16 shares at $45.18 for a total of $722.88
And as always, we’re still bullish on the material sector, especially gold stocks. We’ve added exposure to the sector in pretty much every single one of our portfolios, and will continue to do so even with stock prices hitting all time highs. Gold broke $2000/oz for the first time in history yesterday, and lots of analysts are still confident there is room to run.
We took more aggressive approaches in other portfolios, but again with this being a Boomer portfolio, we’re going to focus on a strong and growing dividend. Kirkland Lake provides exactly that. In fact, the company’s most recent increase doubled the dividend in a single quarter.
Buy – Kirkland Lake Gold (TSX:KL) – 12 shares at $73.36 for a total of $881.53
**Writer Daniel Kent is long Kirkland Lake, Royal Bank, Suncor, Bank of Nova Scotia, TC Energy, TD Bank, Telus and Suncor**
