A new spring season is well upon us and with the blossoms, may there be plenty of flowering investments. Although the first quarter of the year tends to be a fairly strong one in terms of North American stock markets, we have seen the TSX finish very close to flat these last few months. In fact, since the last Pick Performance update, the TSX is actually down slightly. Between oil price pressures, a commodity which Canada is heavily dependent upon, fears of real estate over-valuation in the Lower Mainland and Greater Toronto Area (GTA) and an unclear future for trade agreements with the United States, investors both domestic and foreign have been weary to throw more money in Canada's direction.
This also happens to be the time of year that you'll start to hear "Sell in May and go away" resonate among some market analysts. Although there is statistical data proving that North American markets in the last few decades do typically underperform during the summer months, that is not necessarily a signal for you to dump all of your holdings in the next couple of weeks. Some sectors tend to do well in the summer, including consumer staples (grocery stores) and healthcare. At the same time, even if there aren't big capital gains in the summer on average, you are still getting a dividend from companies that pay one. And as the table below shows, the dividend gained from my recommendations does contribute to the overall return, and over long periods of time is not trivial.
As you can see from the performance of Gildan Activewear, despite relatively negative continued sentiment in the consumer cyclical (and retail, specifically) sector, the latest quarter of earnings proved to be stable. This can likely be attributed to the fact that Gildan has very limited retail presence (no branded standalone stores) and a large proportion of products being more of a necessity (like undergarments and socks). I would expect the strong performance to continue, especially as direction for the strategically-acquired American Apparel intellectual property becomes clearer.
The other big mover since the last Pick Performance update is Telus Corporation. The November to February period was characterized by a fairly strong bullish run that is often referred to as the "Trump bump." The idea being that having a president whose platform seemingly indicates lower corporate taxes and a general positive bias towards business would help raise overall profitability of businesses. However, Trump has had quite a number of challenges in terms of getting policies implemented, which has dampened the optimism that investors had. Defensive sectors, including telecoms and utilities, did not participate in the Trump bump the way more cyclical and "growth-oriented" sectors did. But since the end of it, there has been a bit of a rally in these neglected defensive sectors as the market has taken a second look at them in light of potential regulatory challenges and uncertainties.
The only pick that has not outperformed the TSX Composite in the respective time period is Fairfax Financial Holdings Ltd. Since posting fairly substantial losses on the defensive hedges that were abandoned early in the late-2016 market rally, the latest earnings release at the end of April is setting FFH up to have a full year (2017) of more typical performance as the insurance business has been steady. Moving past the defensive hedges was, in hindsight, a good move, as holding them until even now would have resulted in substantially larger capital losses. Another positive driver that Fairfax has going forward are stakes in Fairfax India Holdings (FIH.U) and Fairfax Africa Holdings (FAH.U), both of which are recently-debuted geographically-focused investment companies. Both emerging markets represent higher growth potential than similar investments in developed markets.
As we are in the middle of the first quarter earnings season, look out for a number of my picks reporting this week, including WSP Global (May 8), Linamar (May 10), Enbridge Inc. (May 11) and Power Corporation of Canada (May 12). Depending on analyst expectations, these companies could see share price increases to reflect great performance, or decreases if expectations aren't met. If you are a shareholder in any of these companies (or any other companies, for that matter), earnings season is a good time to look over the financial statements of companies to get an idea if anything has changed. If things look good, you can have the confidence of continuing to be a shareholder.