Gordon Reid, president and CEO of Goodreid Investment Counsel

FOCUS: U.S. stocks

MARKET OUTLOOK:

The latest consternation of the equity market is inflation; is it transitory, caused by dislocations in supply chains and pent-up business and consumer demand or is there some permanency that will cause the Federal Reserve to act more quickly in moving rates higher. The answer is likely -YES – a bit of both. The most recent inflation numbers were no doubt outsized. Seventy per cent of the growth in inflation came from used car price appreciation, car rental rates sky-rocketing and hotel room rates rising. Most would agree that the permanency of these is questionable. On the flip side there are sound arguments for a commodity pricing surge, as a global synchronized growth phase develops. However, a four-fold increase in lumber prices is no doubt overdone (see our blog titled “Timber” on www.goodreid.com). Expansionary economic phases normally end when the Fed gets it wrong and we have little doubt that this will change, however it is Goodreid’s view that this event is far in the future, allowing suitable amounts of time to both create and solve pressures in the system.

Another area that has captured investors’ attention is cryptocurrencies; a misnomer in our opinion as they have failed miserably in qualifying as a store of value. BUT, there is little doubt that a blockchain based system of currency will eventually evolve and be adopted by central bankers around the world. In the meantime the Bitcoins of the world should be considered speculatively based early experiments in an evolutionary process.

TOP PICKS:

Facebook (FB NASD) Latest Purchase May 2021 @ $301

Mobile advertising is the foundation of growth for Facebook. Their social networking offerings are highly coveted, reach billions of consumers and benefit as the hardware and software ecosystems steadily develop. COVID-19 has further entrenched the place of technology-driven social contact.

General Motors (GM NYSE) Latest Purchase May 2021 @ $54

An automotive chip shortage has deferred the financial re-emergence of GM but not de-railed it. Consider these facts; General Motors has shrunk its cost base to allow B/E @ 10MM N/A vehicles sales – normal run rate 17MM; they will spend US$27B on electric vehicles by 2025 and 40 per cent of offerings will be electric and a global synchronized recovery is emerging.

Lear Corp (LEA NYSE) Latest Purchase Apr 2021 @ $180

Lear Corp is supplier of automotive seating systems and electrical power systems, both in the sweet spot as demand for the car of the future emerges. On top of that LEA trades at a modest multiple to normalized earnings of around 10x and has robust cash flow generation.

PAST PICKS: June 17, 2020

JPMorgan Chase & Co. (JPM NYSE)

• Then: $99.48
• Now: $164.92
• Return: 66%
• Total Return: 71%

Piper Sandler Companies (PIPR NYSE)

• Then: $61.68
• Now: $128.88
• Return: 109%
• Total Return: 115%

Raytheon (RTX NYSE)

• Then: $66.90
• Now: $86.99
• Return: 30%
• Total Return: 30%

Total Return Average: 72%

Wesbite: www.goodreid.com