MARKET OUTLOOK:

Health concerns surrounding the Delta variant of the coronavirus are being offset by stronger than expected corporate profits and positive earnings revisions.  Whilst rising case counts are worrisome, there is an available remedy and as such, it is unlikely to result in the return to widespread lockdowns.   The robust price gains year-to-date for the broad equity indices have been driven by better earnings and not multiple expansion.        

As economic conditions improve, central banks will inevitably begin to remove excess liquidity albeit at a very gradual pace with overall monetary policy remaining accommodative.  The ongoing recovery in the labour market will counterbalance the expiration of fiscal support programs.  With savings rates remaining at elevated levels, consumers have exhibited a willingness to spend as economies reopen.     

Corporate capital spending expenditures (CAPEX) is accelerating this year given the strong rebound in corporate profits with a focus on automation, digitalization, and shift to cloud-based applications.  Lower borrowing costs, governments’ infrastructure spending and global transitioning to green energy are also boosting CAPEX.  Lastly, a restocking of depleted inventories will contribute to the ongoing economic recovery.

TOP PICKS:

MONDELEZ INTERNATIONAL (MDLZ NASD) 

Mondelez is a global snacking company with top category market shares in biscuits, chocolate and candy.  Biscuits represent 43 per cent of sales, chocolate 32 per cent, gum & candy 13 per cent, cheese & grocery 7 per cent and beverages 5 per cent. Its portfolio of leading global brands include Oreo, beVita, Ritz, Cadbury, Toblerone, Trident, Dentyne and Halls.  With close to 40 per cent of its revenues from emerging markets, Mondelez is well-positioned to benefit from the growing middle-class population in these regions.  Per capita consumption of confectionary and biscuits in developing countries are significantly below that of developed countries and is expected to increase as personal income levels rise.  Mondelez provides investors with a dividend yield of 2.3 per cent

VISA (V NYSE) 

Visa is a global payments technology company, operating the world’s largest retail electronic payments network and providing financial institutions with a broad range of platforms for consumer credit, debit, and prepaid payments.  Visa benefits from the ongoing global secular shift from cash/cheque to card-based and electronic payments. Visa is also a natural beneficiary in the growth of e-commerce/online retail spend. Visa offers a dividend yield of 0.5 per cent.

ZOETIS (ZTS NYSE) 

Zoetis is a global leader in the animal health industry offering therapeutics for companion animals (55 per cent of revenues) and livestock (45 per cent of revenues).  Operations outside of the United States account for 46 per cent of revenues, including 21 per cent in emerging markets.  The company has a diverse, durable, and innovative portfolio with about 300 product lines across eight animal species and within seven major product categories.  Zoetis provides a dividend yield of 0.5 per cent.

PAST PICKS: August 11, 2020

Alphabet (GOOGL NASD)

• Then: $1,480.54
• Now: $2,716.70
• Return: 83%
• Total Return: 83%

Brookfield Asset Management (BAM/A TSX)

• Then: $45.08
• Now: $71.77
• Return: 60%
• Total Return: 62%

Fortis (FTS TSX)

• Then: $53.87
• Now: $57.77
• Return: 7%
• Total Return: 11%

Total Return Average: 52%