‘We bought Carnival, United Airlines and MGM. These are iconic U.S. companies trading at single-digit price-earnings ratios [because of the China-based virus outbreak],’ says David LePoidevin.The Associated Press
While some investors are bailing on travel and tourism stocks amid the spread of the coronavirus, David LePoidevin is buying.
Mr. LePoidevin, senior vice-president and portfolio manager at Canaccord Genuity Wealth Management in Vancouver, is snapping up names such as cruise-ship operator Carnival Corp., United Airlines Holdings Inc. and MGM Resorts International.
“Those are the kinds of stocks I love to put away in the period right now where people are overreacting,” says Mr. LePoidevin, who manages more than $1.5-billion in assets for his clients, who are high-net-worth individuals.
His clients with balanced portfolios of stocks and bonds reaped returns in the range of 10 to 15 per cent in 2019. The firm’s all-exchange-traded-funds basket had a return of about 20 per cent, while the all-stock portfolio returned about 22.7 per cent.
The Globe and Mail recently spoke to Mr. LePoidevin about what he’s been buying and selling in today’s market environment.
What concerns are you hearing from investors today?
We definitely are hearing macroeconomic concerns, worries about trade wars last year and, just when it seemed we had nothing to worry about, we have the coronavirus. There’s the old saying that stocks climb a wall of worry. Clients are extremely worried about another recession like what we saw in 2008-09. When there is euphoria and everyone wants to make more money, that gives you the sell signal. Just looking at my clients and their worry about the stock market doesn’t to me say we’re at a top like we were in 2007 or 2000. There’s a totally different feel to it. The biggest worry is from newer clients. Our clients in 2008 were on average down 2 per cent. We were well-positioned with low stock exposure back then. Our typical accounts today are 65- to 70-per-cent equities. They’re worried because they see high stock exposure.
What's your take on where the markets are heading in the short term?
I used to be a client of the late, great investor Marty Zweig, who is credited with the saying, ‘Don’t fight the Fed.’ When the U.S. Federal Reserve, which sets the tone for the world, has its foot on the accelerator, stocks generally go up, and they generally start putting their foot on the accelerator when there’s trouble. The weird part about this coronavirus is that it’s giving the green light to global central bank liquidity. When you’re printing that much money, some of it goes into cash, yes, but some of it goes into stocks and bonds and real estate, and levitates long-dated assets.
We are staying invested, but we are staying invested predominantly in the U.S. and secondarily in Europe. We are quite concerned about Canada. One of the indicators we watch is the yield curve. It has been inverted in Canada since April. [An inverted yield curve is when the interest rates on short-term bonds are higher than the interest rates paid by long-term bonds and has historically been an indicator of a looming recession.] We are also seeing a surge in bankruptcy proposals to levels not seen since 2009. In Canada, we do own Canadian stocks but want to make sure there is a low correlation to the Canadian economy.
What stock(s) have you been buying lately?
The stock markets tend to overreact to news – and right now it’s the coronavirus. We bought Carnival, United Airlines and MGM. These are iconic U.S. companies trading at single-digit price-earnings ratios [because of the China-based virus outbreak]. Those are the kinds of stocks I love to put away in the period right now where people are overreacting. Put Carnival in your U.S. dollar RRSP, collect your 5-per-cent dividend, be patient, and one of these days it will be way up, I believe, from where it is today.
We’ve also been adding to our position in U.S. banks such as Wells Fargo, Citigroup and J.P. Morgan. We also bought more Verizon recently. The stock has backed off a bit, but every year we have owned it there has been a dividend raise. It probably has the most advanced 5G network on the planet and they have the advantage over their competitors in that they have a bigger bite. Data will be a major source of competition and we believe they’re in the driver’s seat there.
What stock(s) have you been selling?
Utilities. We recently sold our position in U.S. utility Southern Co. and [Ontario’s] Hydro One Ltd. Utilities with low dividend yields and price-earnings ratios, I think, are a risky bet. They’re a bond proxy, which means that someone is buying a utility stock because they have a predictable and safe dividend stream. They do well when interest rates are falling and vice-versa. To me, the biggest risk going forward is that the investing public is loaded up with bonds in exchange-traded funds ... and that may be a really bad investment. I worry inflation is rising, not falling and I think people are going to get stuck.
What’s the one stock you wish you bought (or wish you didn’t sell so soon)?
We don’t dwell on it, and we don’t tend to buy stocks without earnings, but the missed opportunity is Tesla, when [chief executive officer] Elon Musk bought himself a boatload of stock around $250. [It’s now trading around $890.] We are religious followers of insider buying. Insider activity is maybe one of the best indicators of buying and selling, especially on the buy side. We do have some in the books, but mostly it’s people who have a Tesla and said, ‘I want to buy some,’ but we didn’t’ generally buy it across our portfolios.
Mr. LePoidevin’s views, including any recommendations, expressed in this article are his own, and are not necessarily those of Canaccord Genuity.
This interview has been edited and condensed.