Apr 20, 2020

Darren Sissons' Top Picks: April 20, 2020

BNN Bloomberg

Full episode: Market Call for Monday, April 20, 2020

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Darren Sissons, vice-president and partner at Campbell, Lee & Ross
Focus: Global tech stocks

MARKET OUTLOOK

At present it is difficult to forecast the near-term macroeconomic outlook with a high degree of certainty. China offers the best illustration currently of a post-COVID landscape. Its workers have largely returned to work, but factories are still generally operating below capacity as export markets are largely closed and the domestic economy is still quite weak.

From a market perspective, the global economy is in recession. Central banks via monetary policy liquidity injections and governments through fiscal payments paid directly to citizens have stabilized the downside. However, the fundamentals will ultimately. provide longer-term leadership for the markets. Key indicators to watch will include how sticky unemployment remains, the tolerance or embrace of remote working and interest rates. Governments and corporates will generally have diminished financial firepower, so on balance we should expect a slow and steady emergence from the recession.

Given the above, investors should take the opportunity to upgrade their portfolios. Add securities that have been on long term wish lists but have always been too expensive to own. Investors should also re-visit their current portfolio with an eye to trimming securities that no longer fit in a post-COVID world.

A word of caution on corporate activity moving forward: Investors should brace for dividend cuts and management “kitchen-sinking” their operational challenges with write-downs. Dividend cuts, be they temporary or permanent, will be an unfortunate result of the COVID lockdown. Investors should also be vigilant for management teams using the COVID narrative to explain prior sins, trigger write-downs and or reset management option agreements.

TOP PICKS

Darren Sissons' Top Picks

Darren Sissons shares his top picks: Corning, Kone and Disney

CORNING INC (GLW NYSE)

Corning is a global leader in a variety of glass end markets including optical fibre, displays and other growing glass substrate markets. It’s currently offering an elevated dividend yielding 4.40 per cent. An active share buyback program has eliminated 8.90 per cent of the share count annually for five years. It’s well-positioned to benefit from corporate remote working and the disaster recovery industry as fibre optic investment will be required. The 5G rollout will be a structural tailwind as well. We’re at an attractive entry level given the heavily discounted valuation.

KONE OYJ ADR (KNYJF NASD)

Kone is a growing structural elevator franchise with exposure to regulated and non-regulated growth markets. It has a safe 3.30 per cent dividend yield. The balance sheet is extremely strong as they have C$1.5 billion of cash over and above all liabilities. Expect Kone to use its balance sheet firepower to acquire market share and to continue its successful tuck-in acquisition strategy. Kone common shares can be purchased in Finland under the ticker KNEBV or in the U.S. under the ticker KNYJF.

WALT DISNEY (DIS NYSE)

Disney is a strong franchise of unique, impossible-to-replicate assets with a growing dividend currently yielding 1.7 per cent. The recently launched Disney Plus streaming service will generate strong earnings over the COVID lockdown and thereafter. The dividend and total return have grown at an annual average rate for 10 years of 20.2 and 16.7 per cent respectively in Canadian dollars. COVID-19 fears have hit the stock hard over attendance concerns at its theme parks, but if prior history is a guide the sell-off is a buying opportunity.