Brett Girard, chief financial officer and portfolio manager at Liberty International Investment Management

FOCUS: Global stocks

MARKET OUTLOOK:

Between energy-led inflation, labour market strength, developments in Russia’s invasion of Ukraine and equity sector dispersion, there has been no shortage of headlines so far in 2022. As these trends evolve over the balance of the year, investors should expect to be (unfortunately) more than repaid for the suppressed volatility of 2021.

In light of this, portfolio management must be a focus. Sticking to a target asset mix and maintaining a broadly diversified set of holdings, with appropriate position sizes, allows for risk to be kept in line with premeditated goals. Doing so also helps avoid the temptation of sweeping portfolio changes at an inopportune time.

On security selection, investors should focus on pricing power as an inflationary hedge, appropriate levels of corporate leverage and the capital allocation skills of a given management team. Moreover, investors need to consider ungluing from the daily noise and enjoying the first Canadian spring largely free of COVID-19 restrictions in two years.

TOP PICKS:

Fairfax Financial (FFH TSX)

2021 was a turning point in the business with revenues growing 34 per cent, net earnings (including one-time items) up 15x and the consolidated combined ratio down to 95 per cent from 97.8 per cent. Going forward, their insurance businesses are expecting continued hard pricing while the float is short duration and will benefit from higher interest rates. Trading near 1x book value is a discount to the sum of the parts. 

CN Rail (CNR TSX)

With global resource supply chains in flux, Canada, as a commodity rich nation is poised to benefit. 2/3 of CN Rail’s revenue is attributable to moving commodities including petroleum, grain and fertilizers. Further, transporting goods via train vs. truck is a quarter of the fuel. New CEO, Tracy Robinson, joined from TC Energy with extensive experience in rail shipping. Dividend increased 19 per cent Y/Y and a CAGR of 14 per cent over the last decade.

Novozymes (NZYMB OMXC)

This Danish biotech offers multiple lines of business that harness biology to reduce costs and increase output. Examples include enzymes to improve laundry detergent efficiency in cold water, biocontrol solutions for crops, probiotics for livestock and ethanol and biodiesel production. With high switching costs and strong market share (e.g. ~50 per cent industrial enzyme market) Novozymes is well positioned to participate in the impending green revolution. 

PAST PICKS: March 29, 2021

Brookfield Asset Management (BAM/A TSX)

• Then: $57.49
• Now: $70.84
• Return: 24%
• Total Return: 25%

Analog Devices (ADI NASD)

• Then: $153.85
• Now: $163.86
• Return: 6%
• Total Return: 8%

Stryker (SYK NYSE)

• Then: $242.03
• Now: $263.07
• Return: 9%
• Total Return: 10%

Total Return Average: 14%