Portfolio Positioning: Taking Some Profits Off The Table But Still See Opportunities in Travel and Leisure
Cameron Scrivens
Portfolio Manager and President
Kai Lam
Chief Investment Officer
REGIONS IN FOCUS
CANADA
TSX continues to lag international markets, with cyclical stocks (banks and energy) underperforming on recessionary concerns.
Inflation is trending lower, increasing odds the Bank of Canada leaves benchmark rates at current levels.
Tight labour market continues to support GDP growth.
U.S.
Market expectations are for one to two additional interest rate increases, finishing 2023 around 5.25-5.50% range.
Market rally is broadening out; some non-technology sectors have consolidated (or are consolidating) and seeing valuations climb.
Watching consumer/household data flow closely for any cracks in relative strength year-to-date.
INTERNATIONAL
Waning consumer confidence in China is hampering the “reopening” trade. A struggling property sector isn’t helping.
Japan’s stock market rally has overshot. It remains an area of interest to us, but we are not buyers at current levels.
Europe recession risks are rising, but market exposures are performing well year-to-date.
Learn how JCIC can help you invest in a good life.
MARKET WATCH
What we’re adding – Equities
The short end of the yield curve is offering very attractive returns right now. We’ve been using the cash we’ve raised from selling equities to deploy into cash ETFs. Those funds are carrying distribution yields of nearly 5%. If we can get that kind of yield without risk, that’s something we’re going to take advantage of.
What we’re underweight – Cash ETFs and Equivalents
We haven’t reduced our cash and cash equivalent holdings, but we are not currently adding to positions. The short end of the yield curve continues to deliver very attractive returns and we’ve been using the cash we’ve raised from previous equity sales to deploy into cash ETFs. However, we are satisfied with our current allocations.
Read More | Get additional commentary from JCIC Asset Management
A look at some of the companies we’ve been buyers, holders or sellers of in the past month:
| Company or issue | Buy, Sell, Hold | Thesis |
|---|---|---|
| Buy
Ryanair Holdings PLC
(RYA:Dublin)
Sell Airbus SE (AIR:Paris) | Swap | We continue to like Airbus over the long-term but see a better opportunity in Ryanair.
Airbus' share price has recovered 92% of its pre-COVID high, earnings for 2023 are also expected to reach 92% of 2019 EPS levels. However, shares are up over 15%, valuation has expanded above pre-COVID levels yet earnings expectations have declined this year.
In contrast, Ryanair is trading at half the valuation of Airbus, has seen earnings estimates increase significantly and earnings are expected to be over 50% of pre-COVID levels. Ryanair is an ultra-low cost carrier that is consistently taking share from Europe’s legacy carriers. This is possible as a result of material differences in cost structures. Ryanair’s cost structure ex-fuel on a per unit basis is significantly lower than competition which allows them to offer fares at an average 20% to 80% discount to competitors. |
| Waste Connections Inc. (WCN:NYSE) | Hold | WCN is the third largest integrated solid waste services company in North America and operates mostly in exclusive and secondary markets. The company's strategy allows it to generate sector-leading EBITDA (earnings before interest taxes depreciation and amortization) and FCF (free cash flow) margins. About 80% of its business is on a subscription basis, which reduces revenue risk during recessions. However, the 20% that is volume based can be very economically sensitive and tends to be higher margin. WCN offers defensive qualities but long-term has proven to be a compounder of growth through volume and pricing in its dominant position in secondary markets as well as through acquisitions. |
| Advanced Micro Devices Inc. (AMD:NASDAQ) | Hold | AMD provides a range of microprocessors that power PCs, servers, and game consoles and embedded processors that control functions in machines used in industrial control and automation, as well as medical imaging, and telecommunications. Besides processors, AMD makes graphics cards and systems-on-a-chip. Artificial Intelligence has become an area of focus in the market after NVDIA indicated significant earnings upside due to AI-driven demand. AMD is also a beneficiary of AI technology which we expect to develop rapidly. In fact, AMD estimates the total addressable market for AI will reach $150 billion by 2027 as compared to $30 billion today. |
NEWSLETTER
Disclosure:
Although we obtain information contained in our newsletter from sources we believe to be reliable, we cannot guarantee its accuracy. The opinions expressed in the newsletter are those of JCIC Asset Management, its editors and contributors, and may change without notice. Any views or opinions expressed in the newsletter may not reflect those of the firm as a whole. The information in our newsletter may become outdated and we have no obligation to update it. The information in our newsletter is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. It is provided for information purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor or a group of investors. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. We strongly advise you to discuss your investment options with your Relationship Manager prior to making any investments, including whether any investment is suitable for your specific needs.
The information provided in our newsletter is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. JCIC Asset Management reserves all rights to the content of this newsletter.