“3 Top Picks with Keith Richards!”

I had some fun with this title- which is the typical intro done by my host on Bloomberg/BNN TV before we go over my 3 stock picks on MarketCall.

Technical Analysts like myself are not appearing on the show lately. That’s because the show is being conducted live via “stay at home” software programs. Fundamental Analysts are able to address questions on stocks, but us Technical types need the “telestrator” to draw lines on the chart. So, in the absence of being on the show, I thought it might be fun to post 3 stocks that we at ValueTrend bought fairly recently in our Equity and/or Aggressive Equity Platforms. Before we get to the ideas, please read this disclaimer:

The information provided is general in nature and does not represent investment advice. It is subject to change without notice and is based on the perspectives and opinions of the writer only. It may also contain projections or other “forward-looking statements”. There is significant risk that forward looking statements will not prove to be accurate and actual results, performance, or achievements could differ materially from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements and you will not unduly rely on such forward-looking statements. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please consult an appropriate professional regarding your particular circumstances.

 

OK, with that disclaimer out of the way, here are 3 stocks that we bought within our strategies. Do keep in mind that 3 stocks represent a small fraction of our total stocks held, so you really need to take a diversified portfolio into account before assessing the validity of these ideas. On with the show:

Canadian Tire (CTC.A- T)

We bought this stock in our Aggressive Platform. Why not the Equity Platform? Well, ValueTrend Portfolio Manager and Fundamental Analyst/ CFA, Craig Aucoin feels that there are still risks to any bricks and mortar retail store to return to the same level of revenue seen in the pre-COVID era. For that reason, its perhaps a little risky for the Equity Platform, but quite suitable for our Aggressive Platform.

CTC.A is a leader in traditional retail, however, and its online presence is growing. They own other valuable franchises like Marks, SportChek, Helly Hansen, and others. That, and a very lucrative financial arm, plus real estate holdings. The stock fell like a brick in March and has begun a nice recovery trend on the chart. Yet, it is not displaying an overbought status as so many of the FANGs, technology and “at-home” stocks are displaying. Its 4% + dividend is likely safe at this time, and adds to the value proposition.

The daily chart below shows us a rising neartermed trend, without momentum signalling any danger signs. The 200 day SMA lines up with prior technical support – providing a potential target near $130. That’s a 30% potential, plus the dividend. Keep in mind the risk of a disappointing earnings report crushing the stock. Moneyflow (bottom pane) looks horrible. This implies that the market isn’t yet convinced of the story. Another reason to consider the trade a bit less stable than some other stocks. But our view is the stock has enough potential to merit a small position in our strategy.

Walmart (WMT-US)

Walmart, another retailer, displays some similarities to Canadian Tire,  yet enough differences to merit a significantly different relative stock performance during the COVID crises. Walmart is up there with Target, Amazon and Costco when it comes to their online presence. That, alongside an “essential services” status, allowed them to remain open (with constraints on customer counts) in their traditional venues. Not only were they able to sell groceries, but shoppers could buy china-made Crocks and cheap underwear just like old times!

The daily chart shows us that the stock remains above its 200 day SMA (one of only about 30% of all stocks on the SPX to do so–see this blog). After it broke out of a short consolidation pattern, we bought on the neckline test. This is noted on the chart. A good earnings report came out recently, and that spiked the stock (you can see that on the chart easily enough). It’s settled back since that spike, and shows no signs of being overbought. We own it in the Equity Platform. Its a lower risk position that might not offer the 30% potential upside of CTC’a – but it offers a better fundamental picture for a more conservative portfolio.

 

Loblaws (L-T)

Loblaws is known as a grocery store, and that has enabled the company’s traditional locations to remain open during the COVID crises. The company also has a decent presence in pharmacy and financial services. They differ as a grocer in their sales drive towards “other” products such as clothing within their stores. Impulse buying is a part of their revenue. Come for a bag of milk, leave with a pair of cargo pants.  As such, they face the same risks that Canadian Tire does – another classic “come for some motor oil, and add a bag of peanuts plus some air fresheners” impulse buying strategy. Less walk-in customers (due to social distancing and fear of COVID) may significantly reduce the profitability at brick n’ mortar stores for the foreseeable future.

The stock has under-performed of late. You can see that by the falling Comparative relative strength line (vs TSX) which is the third pane from the bottom on the chart. But, anyone who follows my work will know that I quite like range-bound stocks. In fact, I named my book on Technical Analysis “Sideways” because of that preference. Loblaws is at the bottom of its trading range. Technical support is strong with this stock (which sounds like Star Wars: “The Force is strong with this one”)- beyond the COVID crash in March. We just entered this position. There is a potential for it to get into the low $70’s again which might represent a quick n’ dirty 10% return from current levels. While not a huge upside objective, the risk is very well defined. A break of around $66 that lasts for a number of days would force one to consider stopping out.

 

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8 Comments

  • This blog post got me thinking when I read the word “sideways” “The Plan” is quite clear if the market moves above MA200 or below in a range you have specified. But may also be possible that “true value” may be at the current level until the market sees a reason for bulls or bears to take over the trend. The correction would therefore be done over time rather then trend. I am curious under this scenario what “The Plan” would be besides maintaining the current cash position.
    A shame your book is not in kindle format.

    Reply
    • Thanks Pierre. Yes, your point is quite valid. For that reason, I remain open to any possibility. The only stance (if you want to call it that) I currently hold is that its probably a bit risky to bet on a breakout before it happens. Its just too close to key resistance right now. However, such a break would in theory be very bullish. Keeping an open mind!

      Reply
  • Do you recommend we wait for a possible correction before adding to our positions? In your estimation what is the likelihood of a correction?

    Reply
    • Read my last blog John–we truly are at an inflection point. Evidence of that resistance noted on the blog is last weeks giant run right up to the resistance/just under 200 day SMA, but absolutely no breakout yet. It needs to be seen if it can break- or turn down. For that reason, I remain open to either a pullback or a breakout. Here is the blog: https://www.valuetrend.ca/inflection-point/

      Reply
  • Two comments to make Keith. Firstly I have been irritated at BNN’s inability to provide decent software for technical analysts for a long time. You even have to draw a straight line freehand!!! And the lack of any ability to show other kinds of charts makes yours, and others’, appearances less than optimal. I do, however, always enjoy your BNN appearances, just to be clear.

    Secondly, I recently sold L over $70 and will wait for it to again be closer to $60 to buy back. I like the business and especially since acquiring Shoppers which I held for a long time. Interestingly I recently started looking at CTC again since it got under $100 and like your strategy here.

    Thanks, as always, for your comments.

    Reply
    • Thanks Ralph–I have spoken with the producers (as most of my TA colleagues have) about their charting package, which is stone-age.
      Anyhow, I do miss the show–it was one of the more enjoyable parts of my routine that is gone, for now anyhow. Hopefully some day….back.

      Reply
  • Hi Keith, I am making a comment for the first time and since I know you from BNN Bloomberg, this seems the best place to start. What do you think about the recent rally of the banks, especially after reporting low earnings? And the banks are not the only example. Recently a tech company, I don’t want to give names, because it’s not about the stocks, reported low earning follow by a 30% spike in price. The fundamentals seem not to matter at this time, but what matters? Thank you!

    Reply
    • Ana–fundamentals do not seem to matter when the worlds biggest buyer (Fed) is in there creating demand for stocks.
      Re the banks–I assume you mean the CDN banks. They (as a group, aka the ZEB ETF) have simply returned to the top of their consolidation patterns that has contained them since the March low. If they break out, it might imply bullishness. But for now, I have remained totally out of the sector except for within our Income Platform, where we hold a bit of exposure for dividends. I would say they are fine for the dividend seeking investor (as in our Income Platform) but not so great for anyone wanting to earn more than the yield. That is, unless the sector breaks out. Then I will become interested in them for our Equity Platform.

      Reply

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