Outlook for March 2016

Outlook-for-March-2016

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.

678f895db15cf1ad20a73da336d1126c

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.

R2R-portfolio-Mar2

Portfolio Considerations

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“.

Portfolio-Diversification-Feb2016

Dividend Increases

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.

Disclosure: Our full list of holdings is available here.

Photo Credit: Global Panorama

12 thoughts on “Outlook for March 2016

  1. Time is flying indeed! I think your well diversified portfolio should lead you through these headwinds quite easily.

    Congrats on the BNS dividend increase. I now find myself a little overexposed in Financials (POW, PWF, Ry and BNS). Might have to rebalance the whole thing soon.

    PS Are you sure TD is a Communication Service and Wells Fargo a REIT? 😉 You work to much R2R!

  2. Time sure is flying by buddy. We’re up against a tight deadline for our trip, so we’ve been hustling like crazy over here. We’re building cash as well, right now. We invested $12,500 in late January, but have been holding pat since. If this really continues much longer, we’ll end up selling a few of the other holdings…..which we want to unload anyway. I think it’s important to NOT ALWAYS be doing something. That cash will serve you well

    I hope you’re having a great week buddy
    -Bryan

    • Not a bad time to cash out — esp if you are going away and will be on the road for long durations…but then again, investments shouldnt need constant monitoring. If you are uncomfortable with something and are nervous enough to stay on top of it day in and day out…you should probably sell those investments.

      Looking forward to see your moves.

      Best
      R2R

  3. I own all four of the stocks you mentioned. I want to add more shares but O is too expensive right now. The others are still undervalued in my opinion, but I’m waiting on another dip before I buy any more shares.

    • I agree – O is quite expensive. I wouldnt add this point and will wait for a better entry point. Looks like ppl are feeling bullish again – we will have to wait until they panic again.

      R2R

  4. I can’t believe we’re already into March. This year is going ridiculously fast although I’m glad to say that we’re already in a much better financial position than the beginning of the year. We’ve still got a decent haul in front of us but we’re working towards reducing debt. My plan after that is to build up cash reserves in our portfolio to take advantage of better opportunities or even dabble more in the options market. Once cash gets to between 5-10% of our portfolio I’ll then start to regularly invest each month.

    The energy company insolvencies are a necessary evil for the market to correct itself. And the financially sound companies, XOM just raised $12 B in debt, will be able to take advantage of that by purchasing assets on the cheap. The economic situation hasn’t changed much in my eyes over the last couple weeks but the markets have definitely rebounded. Like you I think it’s partially on speculation that the Fed can’t make any other moves. It’ll be interesting to see how things play out I’m sure.

    • Sounds like a good plan, JC. Our short term focus is the same – we want to reduce our debt a bit and bulk up our savings and emergency funds a bit, before we pile back into the investments. I am definitely ok with taking it easy right now on making new investments – as I find that we need to go through some tougher times before things get better. Hopefully we will have a decent sized cash position to take advantage when that happens.

      Strong names such as XOM will come out on top — good time to load up on strong credit rating companies trading at a discount.

      Best wishes
      R2R

  5. Hey R2R,

    Nice commentary. Whatever happens with the world economy, the world itself keeps turning, so always have to make sure we take the time to enjoy our lives (it goes by too quickly..)

    I think it’s always a good idea to have a good amount of cash, not because it’s the best investment at the tme, but because it gives you ammunition for future purchases. Always have some in reserve, prices can always go lower and present even better value.

    I think your first graph just goes to show that there are some industries (like health) whose demand and revenue should march un-stoppably higher, regardless of the economy, whereas there are some like resources who will always be inconsistent with booms and busts.

    Tristan

    • I agree…whatever happens, things will keep chugging along. I decent amount of cash holding will be prudent to take care of the knee jerk reaction that we will eventually see in the markets.
      Re the first graph — I agree that healthcare is a great place to be…theres no way to get around it. Its definitely a recession-proof sector.

      Best
      R2R

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