The stocks in our second annual The Globe and Mail Investing Club Challenge certainly aren’t lacking in drama. From a highly profitable takeover to AI-inspired volatility and a bullish call on slacks, there has been a lot of excitement packed into the first month of the stock-picking competition.
As you’ll recall, we asked readers earlier this year to select three stocks, which we will track over 12 months. As well, we’ve corralled the 10 most popular picks into the Readers’ Portfolio, which we will also follow closely.
Globe journalists aren’t sitting on their hands. We’ve picked our own 10 stocks and assembled them in The Globe Hot List, which will compete against the Readers’ Portfolio and anything else that gets in the way of total market domination.
Okay, that’s empty bluster, as anyone who recalls our dismal performance in last year’s challenge can attest. In any case, the Investing Club Challenge is supposed to be fun and enlightening, which is why we will periodically discuss what’s working, what’s not and what’s new.
Since the competition began on June 1, the Readers’ Portfolio has gained 2.9 per cent. Although this performance is lagging the S&P 500′s 4.4 per cent return over the same period, it’s beating the 1.4-per-cent decline by the S&P/TSX Composite Index.
The Globe Hot List is doing slightly better, with a 3.9-per-cent return.
But here’s where it’s worth dipping into the details related to specific stocks to uncover the real movers and shakers within both portfolios.
The biggest development: Copperleaf Technologies Inc. CPLF-T, a software developer and one of the more speculative picks in the Hot List, agreed to a $1-billion takeover by IFS AB in June.
The deal values the company at $12 per share, compared with $8.30 when the challenge began. With the share price hovering just below the takeover price in early July, the stock has contributed a 43-per-cent gain to the portfolio.
There’s a downside to this one-month sprint, though: We can’t buy a replacement stock, so we’re stuck with that gain, and nothing more, for the rest of the challenge. There are worse fates, to be sure, but it looks as though we are down to nine stocks in the Hot List.
Among these nine, MDA Space Ltd. MDALF rallied 13 per cent after the Canada Space Agency awarded it a $1-billion contract to develop a new version of the Canadarm for future moon missions.
And Aritzia Inc. ATZ-T has gained ground after the Wall Street Journal raved about the Canadian retailer’s pleated slacks: “Devotees swear by them, and are inspired to buy in multiples.” Seems like investors are taking a similar approach to the shares.
But these three success stories are having a hard time competing against the overwhelming AI trade, which rests on large technology stocks driving investor sentiment with the transformational promise of artificial intelligence.
The Readers’ Portfolio is loaded with such tech stocks, including Nvidia Corp. NVDA-Q, which makes the chips that power AI technology.
The ride hasn’t been smooth: Nvidia’s share price slumped 13 per cent during a three-day selloff in mid-June over concerns about rising competition with the likes of Apple Inc.
Nonetheless, the stock has recovered some of the lost ground, and it has contributed an 11-per-cent gain to the Readers’ Portfolio so far in the challenge.
Other tech stocks in the Readers’ Portfolio, some with AI tailwinds, are also contributing double-digit gains, including Microsoft Corp., Amazon.com Inc. and Shopify Inc. This tech engine is working wonders so far.
The path forward is anything but clear, though.
The challenge began with a simmering expectation that the U.S. Federal Reserve will follow other major central banks – including the Bank of Canada – and slash its key interest rate as inflation subsides, giving a boost to dividend stocks and the economy.
But this expectation hasn’t played out yet, and the Fed appears to be in no hurry to cut rates midway through the year with the unemployment rate still at a low level.
U.S. politics offers another wild card as financial markets react to a shifting outlook for the presidential election, and what the winner might do for taxes and budget deficits.
As bond yields have risen over shifting political and monetary expectations, some dividend stocks have been crushed. Thank goodness for slacks and AI.