FOCUS: North American large cap stocks
Recessions are what causes a bear market. The high-yield credit spread typically starts to widen in anticipation of a credit crunch, however, the spread presently remains very subdued and is not signaling an imminent recession. Industrial companies are generally reporting solid demand trends across most end markets and geographies. We do not see a recession on the horizon.
Stock markets are forward looking and have been adjusting to the expectation of higher interest rates. The U.S. Federal Reserve’s dual mandate is to achieve stable prices and maximum sustainable employment. With the employment situation improving faster than expected and inflation remaining elevated for longer than expected, monetary policy should be getting less accommodative and interest rates moving higher.
Corporate profit growth is expected to continue this year and next. Corporations are offsetting higher input costs by raising prices and through productivity improvements to maintain profit margins. Capital spending by businesses has spiked to new highs which bodes well for the trend to continue as past periods of major capital spending have been associated with strong productivity growth.
Alphabet (GOOGL NASD)
Recent purchase price $2,680 range in February 2022
Alphabet is a global technology company, providing the world’s leading search engine, Google, and dominates in both global desktop and mobile search engine queries. The company is a beneficiary of the shift to online advertising, offering various digital advertising tools powered by artificial intelligence. Other revenue streams include Google Cloud, YouTube, and Google Play.
S&P Global Inc. (SPGI NYSE)
Recent purchase price $395 range in February 2022
SPGI is a diversified financial information services company and operates in four primary segments: ratings (48 per cent of revenues), market intelligence (27 per cent), S&P Dow Jones Indices (14 per cent) and Platts (11 per cent). Its attractive growth businesses are leading players within their respective industry and highly profitable and scalable. Due to the subscription-based nature of many of its services, 70 per cent of SPGI’s revenue base is recurring. SPGI provides a dividend yield of 0.8 per cent.
TE Connectivity Ltd. (TEL NYSE)
Recent purchase $140 range in February 2022
TEL is a global leading industrial technology company that designs and manufactures connectivity and sensors solutions that can withstand harsh conditions to many diverse end markets. TEL has a global presence with Europe/Middle East/Africa accounting for 37 per cent of sales, Asia Pacific 36 per cent, and Americas 27 per cent. TEL is well-positioned to benefit from increasing electrification and autonomous driving in the automotive industry as well as from the growth of factory automation and cloud computing. TEL offers a dividend yield of 1.4 per cent.
PAST PICKS: February 19, 2021
Linde plc (LIN NYSE)
- Then: $250.88
- Now: $300.51
- Return: 20%
- Total Return: 22%
Mondelez International (MDLZ NYSE)
- Then: $54.31
- Now: $66.40
- Return: 22%
- Total Return: 25%
WSP Global (WSP TSX)
- Then: $119.03
- Now: $161.91
- Return: 36%
- Total Return: 37%
Total Return Average: 28%