This year is flying by, isn’t it? The earnings season is winding down and the quarter has seen mixed news. Some companies were able to easily beat the estimates, while some companies could not. One general trend that is continuing is that companies are still spending record amount of cash on buybacks in order beat those estimates and manage those bottom-line (earnings) numbers. At the top-line (revenue), the story isnt as rosy as things appear. Revenue has declined for most companies and the following chart from FactSet illustrates the point well. It is no wonder that only a handful of companies that have rising revenue are doing much better than others.
The overall market sentiment is starting to get a more bullish again – as investors are piling back into the risky assets. All this is in hope that the Fed has its hands tied and realizes that it made a mistake in raising rates in December and guided for four more raises in 2016.
In Canada, after a lack of rate cut in January, the Loonie seems to have stabilized and recovered a bit. But things are still looking bad with the housing market standing precariously at the edge of a cliff. Citizens are tapped out with record consumer debt and with the loss of jobs in the oil market – the housing market has started correcting, but only limited to certain cities/provinces for now. Meanwhile, housing remains out of reach for everyday Canadians in the two big cities of Vancouver & Toronto. Just this week, Royal Bank of Canada joined National Bank in sounding the alarm bells about the imminent crash.
Outlook for March 2016
As things stand, there are a lot of headwinds facing the economy. Potential recession/depression troubles still exist. The bond market, commodity market, transportation market, manufacturing market indices are all sending very strong signals that all is not well in the world. It is for this reason that gold, a typical safe haven, has done well in the month of February. The overall stock market is being held up with a handful of companies while the rest of the stocks are approaching or already in correction/bear market territory. Also, in the coming months, we can expect bankruptcies and consolidation in the energy market – so, all in all, things are looking bad. After capex and job cuts, companies have now resorted to dividend cuts – which is usually the last step before companies face solvency issues. Generally speaking, things havent changed much since my Outlook for 2016 (from January) post. Be sure to check it out for further investment ideas.
We are currently holding approx 5% of our portfolio in cash (see our portfolio diversification below), and looking forward to build that up more. If a great opportunity shows up, we might nibble a bit, but our main focus will be to build up that cash level and look for “screaming buys“.
The start of the calendar year usually sees a lot of dividend increase announcement. As a result, I am excited at the prospect of getting pay raises. We are expecting dividend increase announcements from the following companies in our portfolio.
Bank of Nova Scotia (BNS) – last increase was 2.94% in Aug 2015(BNS announced a 2.86% raise yesterday)
- Realty Income Corp (O) – last increase was 3.92% in Jan 2016
- Qualcomm Inc (QCOM) – last increase was 14.2% in Mar 2015
- Wells Fargo & Co (WFC) – last increas was 7.1% in Mar 2015
What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.
Photo Credit: Global Panorama