Christine Poole's Top Picks
FOCUS: North American large cap stocks
The world economy is still recovering and has yet to achieve a synchronized reopening. Growth expectations for first quarter of 2022 are being revised downwards due to the impact of the Omicron variant, but the damage should be offset in subsequent quarters.
In the U.S., retail inventories have collapsed to a historical low. Restocking will be a tailwind to manufacturing activity and trade flow for some time. The eventual return of international travel is another source of incremental business activity. As the year progresses, a more balanced global recovery should take hold.
Inflation over the near term will be elevated. That is what happens when economies catapult rapidly out of a pandemic-induced recession resulting in too much demand chasing too little supply. Inflation should progressively dissipate as supply chain bottlenecks abate and demand normalizes, however, the process is taking longer than expected. Admittedly, the longer elevated inflation persists, the greater the risk that the current price environment starts to influence future expectations.
While monetary policy has turned less accommodative, at near zero, interest rates had only one way to go – up as the employment situation recovers to near pre-pandemic levels. History shows that stock returns remain positive in the months leading up to and following the first rate increase which has now been penciled in as earliest as March. The negative impact from higher interest rates tends to happen later in the economic cycle when a tight monetary policy flattens or inverts the yield curve.
The economic backdrop remains supportive for continued growth in corporate profits and higher stock prices. Growth rates will moderate from the sharp rebound witnessed last year to a more normalized pace. As the imbalances are resolved, the long-term deflationary trends of demographics, globalization and technology should reassert themselves.
JPMorgan Chase & Co. (JPM NYSE)
JPMorgan is a leading financial institution in the U.S. engaged in consumer & corporate banking services, investment banking and asset management. The bank has a solid track record of successfully navigating to outperform through the cycle. JPMorgan offers a dividend yield of 2.4 per cent.
Microsoft (MSFT NASD)
Microsoft is global technology company providing software products, support, services, and devices. Its business segments include productivity & business tools, intelligent cloud and more personal computing. Microsoft benefits from widespread consumer adoption of digital tools and corporate adoption and utilization of cloud technology. Its growing recurring revenue stream and strong balance are appealing investment attributes. Microsoft’s dividend yield is 0.8 per cent.
TE Connectivity (TEL NYSE)
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 1.3 per cent.
PAST PICKS: January 18, 2021
Fortis (FTS TSX)
- Then: $52.64
- Now: $58.44
- Return: 11%
- Total Return: 15%
Home Depot (HD NYSE)
- Then: $275.59
- Now: $363.52
- Return: 32%
- Total Return: 34%
S&P Global (SPGI NASD)
- Then: $305.95
- Now: $424.17
- Return: 40%
- Total Return: 41%
Total Return Average: 30%