A Comment -- General Comments From an Expert (A Commentary)

Educational Segment. How to assess revenue and earnings outlook. The market is going put trade issues in the rear view mirror. Revenue and earnings growth are going to be spectacular this quarter. He always likes to look at revenue growth as a qualifier to earnings gains. Buy-backs boost earnings per share. About 50% of revenues come from foreign companies so US$ currency is a factor. Energy, Tech and Materials should be the top sectors for revenue growth during FY 2018 as well as Q2/18. If the markets don't make new highs over the next 2 to 3 months then the tops are in in the markets.

Technology is all about digitalizing business. There are 10 trends such as digital content (i.e. in gambling), A.I. and advanced analytics. He runs a fund specializing in tech stocks.

Market. The markets haven’t moved much since the volatility bomb at the start of the year. The market is trading in a technical range while people stay undecided about the broader issues. It is hard to tell where we are in the cycle because of conflicting signals from emerging markets. And the trade war adds uncertainty. There won’t be a sustained break to the upside until some of the short-term issues are resolved. The underlying reality is that the US economy is doing well and should be fine unless there is a full-blown trade war. He sees the market “late-cycle but not end-of-cycle.” A typical bull market ends with a few common characteristics: (a) yield curve inverted (hasn’t happened yet--the end of the cycle can take 6 to 12 months after inversion); (b) commodity or inflation assets lead the market (crude is just starting to do that); (c) a peak in mergers and acquisitions (this has been heavy, but not at the level of past-cycle peaks). The peaks of past cycles look about 50% higher than today’s level of M&A’s. This usually happens after yield curve inversions and in that period, banks do a lot of lending to finance M&A deals. These two tend to go hand-in-hand.

Summary of his style of evaluation. He looks for three things. (a) Reasonable valuation: based on cash flow, quality of earnings and balance sheet; (b) Good price momentum; (c) Stock is fairly stable, has low volatility.

Comment on Utilities and REITs. The utilities were probably oversold as rates rose. They have recovered sharply recently. However, if the bull market continues, there will more interest rate increases and utility stocks will probably come back down. For an investor looking for yield, he recommends REITs over utilities because they have more pricing power in an inflationary environment.

Market. What’s moving markets? What about the US - China trade kerfuffle? Canadian markets are doing well, as oils have come back and banks have stabilized. All surprises will be on the upside, especially in US. US markets have been moving sideways, despite trade issues. Expectations of positive earnings and lower multiples are offsetting negative aspects of trade. Remember that trade is only 20% of the US GDP. Real concern is tariff on imported cars. Open to question whether it will apply to Canada. Doubts whether markets will go anywhere until this is sorted out. Trump is playing to his base and trying to maintain Republican majorities in November mid-term elections.

US jobs report shows unemployment ticking just a bit higher from an 18-year low, so perhaps Trump’s job plan is working? Coloured workers’ job improvement has been excellent. You may not like how he approaches the process, but he was voted in as someone who’d be disruptive. Immigration issue doesn’t bother his supporters.

NAFTA. Good for Canada that things are on hold? Trump has put NAFTA on the shelf until after the mid-term elections. Holding pattern is a positive move. If mid-terms turn out OK for Republicans, takes some pressure off to throw NAFTA into the fire. Less incentive for Trump to be more destructive in trade. NAFTA has a lot of support in US, and many states would be hurt if it were thrown out.

Equities vs. fixed income. More cautious in equities. Using a lot of fixed income alternatives. Pretty reasonable cash on hand, emphasizing the cash flow side in some of our alternative income investments 8. Shopify ( SHOP-T ) [OWN=n ] [signal=Speculative buy ] Good growth prospects? Used to own, but took their profits. Would have bought back at $100. Kicker niche with lots of growth prospects. But earnings are nebulous. Speculative stock. Well run, with a good product. Can be volatile, especially with negative news. 5% weighting at most. Concern would be that some of its competitors would eat into their business, but that doesn’t seem to have happened.

ETFs good for a long-term hold in a TFSA? Big advantage of ETFs is they give you instant diversification. If you want something fairly stable, BMO covered call for banks would be good. Canadian bank index has outperformed the TSX significantly over the years. Covered call ETF gives a better yield than a straight bank index, and banks are one of the best areas to invest in Canada.

Utilities -- buy now or wait? If you need income, and you can get 5.5% return on ETFs, he prefers those. Best GIC yield you’ll get is only 3.5%, and fully taxable. Look at the ETF’s yield and if it has good diversification, you can buy at any time.

Canadian banks. They own TD because of its US presence, and BMO has a good yield and has entered the US. They’re buying Canadian banks with offshore holdings in North America, rather than in Europe.

Market. Big cap tech and small cap stocks are up and the rest are down. Canada is now matching the US coming off energy. For the second half of this year, just don't lose. Sometimes playing not to lose is more important than the win. The good news with tax cuts are behind us. There are headwinds in the US. Facing us in Canada are rising interest rates, housing and NAFTA. Reset your expectations in terms of what returns you can earn in all asset classes. There is a risk of a 'made in Canada' recession. We had an energy bounce but we can’t get our product out of the country. He would prefer to hold a bit of cash and you get a bit of reward for it this year.

Market. Longer term it is undeniable health care is one of the sectors benefiting directly from an aging population. This is a permanent non-cyclical thematic. Shorter term the political noise is changing with the FDA and the Administration and even with Amazon entering the space. But valuations haven’t been at these levels in the last 15-20 years. Because of that, he thinks it is a good entry point for somebody looking at the middle to long term horizon. He thinks this is not for the novice investor. You want diversity in the space. Individual stock risk could be very high.

What company is going to take the lead on oncology? Merck & Co (MRK-N) came with data at a recent conference in Chicago that puts them at the forefront in this area. He has been advocating this for a coupe of years. He would own a basket. Bristol-Myers Squibb (BMY-N) and Astrazeneca ADS (AZN-N) would also be part of that basket.