Christine Poole's Top Picks
FOCUS: North American large cap stocks
The dual impact from the continued spread of the Delta variant and the recent expiration of fiscal income-support programs is dampening U.S. consumer confidence and poses a potential overhang on household spending. While spending may moderate in the near-term, households are to be in good shape to support the recovery with personal income excluding government transfers above its pre-crisis level and significant excess savings accumulated since the crisis started. Consumers have exhibited a high propensity to return to social and travel-oriented activities when allowed.
Despite rising case counts, governments seem unwilling to impose similar onerous restrictions that locked down economies last spring. Instead, alternative actions to manage the virus include vaccine passports, vaccination mandates from the private sector and incentives to overcome vaccine hesitancy.
The job situation is expected to continue to improve as fiscal support programs expire and job openings continue to climb. With employment remaining well below pre-pandemic levels, central bank policies should remain broadly accommodative. Inflation is the wildcard that may cause monetary policy to deviate from its current path. The consensus view from central banks is that the surge in inflation is transitory. Encouragingly, the monthly rate of increases has slowed recently and remain largely contained to a handful of categories most closely tied to the reopening of the service sector. Inflation should steadily subside as the base year effect passes, consumer spending decelerates to a more normalized rate, and supply bottlenecks begin to ease.
While the resurgence of COVID is dampening growth expectations this year, GDP growth rates in Canada and the U.S. remain above trend. Corporate balance sheets are strong and with the rebound in profits and confidence, companies are investing to increase productivity and grow their businesses. Shareholders will also benefit from improved profits through increases in share buybacks and dividends.
Apple (AAPL NASD)
Recent purchase price: $150 range in September 2021
Apple has successfully transitioned from a product-driven company to a provider of both products and recurring high margin services, with the latter accounting for a third of profits. Apple’s large installed base is supportive for recurring upgrade cycles and continued growth in services with additional digital offerings as well as higher attach rates to its wearables. Apple offers a modest dividend yield of 0.6 per cent.
Envista Holdings (NVST NYSE)
Recent purchase price: $42.55 range in September 2021
Envista is a leading dental products company, providing products that are used to diagnose, treat, and prevent disease and ailments of the teeth, gums and supporting bone. It has a global presence with North America representing 48 per cent of revenues, western Europe union 23 per cent, emerging markets 22 per cent, and rest of world 7 per cent. Demand for dental products and services is driven by favourable demographics, emerging middle class in developing countries and new technologies.
TD Bank (TD TSX)
Recent purchase: $82.50 range in September 2021
TD is a leading North American bank, deriving 56 per cent of its net income from Canadian retail operations, 34 per cent from U.S. retail and 10 per cent from wholesale/capital markets. TD is well-positioned to participate in the economic recovery through improving consumer activity and business investment. Its strong capital base provides flexibility to make opportunistic acquisitions as well as share repurchases and dividend increases when regulatory restrictions are lifted. TD’s current dividend yield is 3.8 per cent.
PAST PICKS: September 15, 2020
Algonquin Power and Utilities (AQN TSX)
- Then: $18.77
- Now: $19.53
- Return: 4%
- Total Return: 8%
Johnson & Johnson (JNJ NYSE)
- Then: $148.89
- Now: $166.36
- Return: 12%
- Total Return: 15%
Loblaw (L TSX)
- Then: $68.66
- Now: $88.30
- Return: 29%
- Total Return: 31%
Total Return Average: 18%