It appears we’re in full “risk-on” mode as investors have forgotten the reasons behind the massive sell-off in the fourth quarter of 2018 and the fact that global economic growth is slowing, as are corporate earnings. The race to S&P 3,700 is well underway – only 1,000 more points to go and we’ll be back at historical tops last seen in 2000 and 1929.
According to Andrew Slimmon, managing director at Morgan Stanley Investment Management, “The market is pricing in a down Q1 (a drop in corporate earnings) but they’re pricing in a positive Q2 and Q3,” said. “The risk is that Q2 slips to zero growth and now you’re talking about two consecutive quarter of negative earnings growth, which is technically an earnings recession. The reason why the market has not focused on this yet is there was such an overwhelmingly high level of bearishness at the beginning of the year,” Slimmon said. We couldn’t agree more. For all equity portfolios, we’re 80 per cent invested and still holding 20% in cash until we see some form of market capitulation.
CN RAIL (CNR CN) $111.41 operates a network of track in Canada and the United States, transporting forest products, grain, coal, sulfur, fertilizers intermodal and automotive products. It operates a network of about 20,000 route miles of track connecting the Atlantic and Pacific oceans and the Gulf of Mexico. We have owned the stock since 1997 and have captured a dividend that has grown an average of 16%. With the North American economy crippled by logistics issues (a dearth of transport trucks because of a lack of drivers or pipeline issues in the oil and gas industry), more freight is being shipped by rail. The increase in revenues essentially falls directly to net income which should help buoy the stock price. Last purchase was on February 13, 2019 at $108.31 CAD.
IPSEN SA (IPN FP) $124.45 Euros is a pharmaceutical firm whose drugs target oncology, endocrinology and neuromuscular disorders. The oncology business now represents over two-thirds of sales. Somatuline (for advanced carcinoids) leads the way, with Cabometyx (renal cell cancer) and Onivyde (metastatic pancreatic cancer) picking up more revenues. The company has $1 billion euros in cash-on-hand, its debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) is only 2 times, leaving it with plenty of room to make acquisitions. R&D expense is average, around 13% of revenues. Last purchase was on February 13, 2019 at 109.95 euros.
THERMO FISHER SCIENTIFIC (TMO US) $249.91 offers analytical instruments, laboratory equipment, software, services, consumables, reagents, chemicals and supplies to the pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions and government agencies. It is a serial acquirer as its recent purchase of Patheon was made to offer its clients beginning (research) to end (manufacturing) opportunities. Of the top 15 innovations in 2018 that were recognized by the readers of Analytical Scientist Magazine, five of them came from TMO. Their strong free cash flows allowed them to reduce debt by $2 billion and reduce leverage from 4 times to 3 times. The dividend was also raised by 13%. Last purchase was February 12, 2019 at $247.32 USD.