MARKET OUTLOOK:

We remain optimistic regarding the outlook for many stocks as we believe the market still has a ways to go before fully discounting the continuing economic recovery. COVID created the need and opportunity for the early arrival of a more digital and virtual world. This, in turn, unleashed greater productivity, which has offset the negative effects of COVID on GDP. Much of the world’s production of physical goods still has not caught up to the production losses caused by the pandemic, and employment in the services sector awaits the benefit of a reduction of COVID related subsidies. 

We feel that exciting opportunities for capital appreciation remain in industries supporting vacation travel, in businesses like autos and appliances that face restricted componentry, and in significant areas within the health care sector. The core growth stocks will also do well for the patient investor.

As we move forward, the major concern will be the declining rate of earnings growth in the coming quarters as we move past the peak in year-over-year growth that occurred in the most recent quarter. 

TOP PICKS:

Broadcom (AVGO NYSE)
Broadcom is among the world’s prime chipmakers with leading positions across the entire communications networks from server farms, to set-top boxes, modems, Wi-Fi and cell phones. The company is run by CEO Hock Tam - a very successful entrepreneur with an outstanding record for growth, acquisitions, and profitability. His most recent acquisitions have been in software: Brocade, CA Technologies, and Symantec. Broadcom now derives over 25 per cent of its revenue from infrastructure software. Gross margins and free cash flow have grown significantly over the past five years. The company pays a very nice dividend (currently about 3 per cent), which has grown every year. We are very comfortable with AVGO selling at 16X 2022 EPS.

Uber (UBER NYSE)
Uber is a reopening 2.0 play. We purchased an initial position earlier this year when it appeared the coronavirus was coming under control. However, the Delta variant arrived, a California court declared drivers employees and Uber experienced driver shortages due to relief payments, taking the stock down significantly. When COVID fears finally fade and we return to more (new) normal life, we believe the promise of Uber’s potential will resurface and the stock, down some 30-35 per cent from earlier this year, will rebound quickly. Revenue growth of over 40 per cent is forecast for both 2021 and 2022. We believe the convenience of ready delivery and passenger pickup is a very powerful and increasing trend.  Uber is forecast to become profitable in 2023.

Canadian Natural Resources (CNQ TSX)
CNQ has been Canada’s most successful large oil company over the course of my career. The company has developed a diverse asset base in the oil sands, complemented by substantial conventional and heavy oil production. It has maneuvered through the downturns of the industry emerging stronger every cycle. The company’s strong operational team and financial discipline has allowed for significant free cash flow and growing dividends. The stock is very attractive as demand continues to recover with the reopening of the economy. Our target price for the stock approaches $60. 

PAST PICKS: December 1, 2020

Amazon (AMZN NASD) 
We believe AMZN will continue to grow and be a stock market leader as its profit margins actually increase and more revenue comes from higher margin businesses like AWS (the largest provider of cloud computing), Amazon Prime (membership still growing and price increases are coming) and advertising (Amazon now selling ad space to its outside vendors).

• Then: $3,220.08
• Now: $3,368,17
• Return: 5%
• Total Return: 5%

Linamar (LNR TSX)
LN profitability held back by global semi-conductor shortage, but strong cash flow has led to significant debt reduction. I still see over $100 per share when auto production recovers. LNR has had significant wins in EV and Hybrids which will offset declines in internal combustion engines. The SkyJack and MacDon division have seen market recovery and we see solid revenue growth in both divisions. 

• Then: $137.82
• Now: $138.88
• Return: 1%
• Total Return: 2%

Boston Scientific (BSX NYSE)
BSX recovered as the delayed surgical procedures due to COVID declined. BSX has recovered from a decade of no growth with the introduction of more successful products. We believe health care stocks may outperform in the less volatile market. BSX still has 10-15 per cent upside to respected analysts target prices.

• Then: $33.65
• Now: $44.83
• Return: 33%
• Total Return: 33%

Total Return Average: 13%