Bryden Teich's Top Picks: Sep. 8, 2020

Bryden Teich, partner and portfolio manager at Avenue Investment Management
Focus: North American equities

MARKET OUTLOOK

After a strong summer for the stock market, the first week of September has seen us give back some of those gains. We expect that the market will remain volatile over the next few months leading up to the U.S. election in November. The market rebound since April has been significant despite the fact that the economic recovery has not fully taken shape. This stock market rebound has been largely impacted by the monstrous amount of fiscal and monetary stimulus being supplied by policy makers. To sustain the economy through the balance of the year likely requires more fiscal stimulus; however, there remains a political stalemate on more fiscal support.

The Federal Reserve continues to stress the fact that they have no intention of raising interest rates anytime soon. This has encouraged a wave of investors to speculate in stocks amidst the abundant liquidity being supplied and supported by the Fed. Interest rates continued to be anchored at very low levels, creating a dilemma for investors. Should they own bonds at historically low interest rates or own equities at higher valuations? We believe the answer to that question is more nuanced and we continue to be diversified across a broad range of sectors. The sectors we continue to favour include technology, consumer and precious metals.

TOP PICKS

Enghouse Systems (ENGH TSX)

Enghouse is a Toronto-based software services company. The business is split into three segments: interactive, networks and transportation. Their Interactive segment has seen a significant boost from their acquisition of Vidyo in 2019 which is a video conferencing platform. Enghouse generates very consistent levels of cash flow and has a strong track record of making acquisitions.

Barrick Gold (ABX TSX)

We continue to like Barrick Gold as the premier large-cap gold company in our portfolio. We believe we will face a sustained period of “negative real interest rates” in the U.S. because of the federal debt burden which has increased dramatically over the past few years. The Federal Reserve is also working to actively depreciate the U.S. dollar in an attempt to create higher inflation. Given the overall levels of debt in the U.S. we believe these trends will continue for some time. Thus the backdrop for gold is expected to remain very favorable.

Brookfield Asset Management (BAM/A TSX)

Brookfield is a leading global asset manager focused on real assets including infrastructure, real-estate, renewable power, and private equity. Brookfield shares have been weak this year because of their exposure to certain segments of the real estate sector that have been under significant pressure.  We think Brookfield shares offer good long-term value at these levels.

PAST PICKS: SEP. 3, 2019

Humana (HUM NYSE)

• Then: $280.36
• Now: $404.75
• Return: 44%
• Total Return: 45%

NFI Group (NFI TSX)

• Then: $28.48
• Now: $17.21
• Return: -39%
• Total Return: -36%

Brookfield Property Partners (BPY-U TSX)

• Then: $25.03
• Now: $14.58
• Return: -42%
• Total Return: -36%

Total Return Average: -9%