MARKET OUTLOOK:

For over 30 years, the chairman of our firm has said that interest rates are the determining factor. We believe that to be especially true as we look towards 2022. 

Facing a scenario of strong demand, record inflation and continuing supply chain pressures, the U.S. Federal Reserve has signaled a more aggressive timeline to its tapering program and the market is pricing in rising rates as early as next spring. 

As a result, volatility has spiked in recent weeks and we believe it will remain elevated as higher discount rates would adversely impact currently unprofitable companies with expected cash flows far in the future. 

Since a disproportionate share of these companies lie within the information technology sector, and its more than 25 per cent weight in the S&P 500, we see this as a major headwind to the S&P moving higher next year. 

Despite these challenges, we continue to look for companies with strong management teams that can successfully navigate challenging environments while positioning themselves to emerge as stronger companies on the other side.

TOP PICKS:

Texas Instruments (TXN NASD)
Last bought on July 27, 2020 for $132.06 
Texas instruments is a top U.S.-based semiconductor (semi) manufacturer. High exposure to automotive and industrial end markets should drive sustainable growth over time as semiconductor content increases with every new generation of applications. A massive product catalog and thousands of customers result in lower customer concentration risk than other semi peers. The majority of chips are manufactured in-house and their process technology provides a cost advantage that should drive margin expansion over time. Lastly, Texas has a strong management team and industry leading history of free cash flow and dividend growth.  

Motorola Solutions (MSI NYSE)
Last bought on August 23, 2021 for $240.63 
Motorola is a leading provider of land mobile radios and command center software primarily used by first responder and law enforcement end markets. Multi-decade relationships with key decision makers at the state and local level creates a strong barrier to entry. Stimulus funding should provide a tailwind to growth as customers embark on a multi-year product refresh cycle. A strong and growing pipeline in their video security business is benefiting from a ban on Chinese products in many global markets. The software business provides growing recurring revenue stream and is margin accretive. Lastly, the company is taking meaningful market share in the body-worn camera segment which was historically dominated by one player.

Church & Dwight (CHD NYSE)
Last bought on October 9, 2020 for $92.30 
Church & Dwight is a leading consumer products company. Almost all brands are #1 or #2 in their category and an attractive mix between premium and value pricing positions the company well to benefit from potential consumer trade-down activity in tough economic environments. Given changing consumption habits as a result of COVID-19, we believe demand for certain brands is structurally higher than pre-pandemic. A strong management team and a solid history of growth through M&A is driving above-market growth. Given a healthy acquisition pipeline and strong balance sheet, we believe this trend can continue. Good integration execution has also driven margin expansion over time and temporary margin pressures should turn into headwinds as COVID-19 eases.

PAST PICKS: September 28, 2020

Dollar General (DG NYSE) 

• Then: $209.80
• Now: $220.76
• Return: 5%
• Total Return: 6%

UnitedHealth (UNH NYSE)

• Then: $303.23
• Now: $487.06
• Return: 61%
• Total Return: 63%

Broadcom (AVGO NASD)

• Then: $367.30
• Now: $646.80
• Return: 76%
• Total Return: 81%

Total Return Average: 50%