MARKET OUTLOOK:

Policy error is a rising market threat. The flood of fiscal and monetary COVID stimulus drove asset bubbles in real estate and growth stocks. More worrying, is rising wage inflation. We, along with many other market observers, are concerned central banks moved too slow on higher interest rates, so expect accelerating inflation moving forward. Interest rates are expected to rise in 2022, which will increase the pain on high consumer, corporate and government debt. 

Inflation, as a means to deflate record debt across consumer, corporate and government segments, is also a pending headwind. Given the U.S. central bank provides global interest rate leadership all eyes remain firmly fixated on the U.S. Federal Reserve.  

Investors should take a view on Omicron but initial data suggests it’s more contagious but less deadly.  In any event, the general populace now has limited appetite for further lockdowns so investors would be advised to position their portfolios to view COVID as a persistent near term challenge the pharmaceutical industry will eventually conquer. 

Investors looking for new opportunities would be advised to take advantage of December profit taking and tax loss selling to acquire high quality companies trading at a discount to their trading history. Financials and sectors benefitting from rising interest rates and inflation are worthy investment choices. 

Thematically, ESG is a growing opportunity albeit an underperformer this year. Oil & Gas is still attractive despite its strong 2021 run. COVID recovery trades will work but may require patience. Canadians, as mentioned in prior appearances, should use our strong petrocurrency to buy inexpensive quality names in foreign markets.

TOP PICKS:

Givaudan (GIVN SWX)
Last bought for CHF 4,137.00 
Perhaps largely unknown or under followed here in Canada, the food and flavour giant has built a strong business via supportive industry growth, low risk tuck-in acquisitions and expansion into adjacent markets. The movement into high margin natural flavours and fragrances is an excellent strategic decision. The company, which currently yields 1.45 per cent, targets a growing dividend.  

Johnson & Johnson (JNJ NYSE)
Last bought for $159.30 
The 58-year, consecutive dividend increase business case is well known to investors. The consumer business spinout will be a catalyst for unlocking unrealized value and will provide additional capital to accelerate the pharmaceutical and device businesses. JNJ currently yields 2.67 per cent. 

Munich RE (MUV2 FRA)
Last bought for €245.70 
Mr. Consistent is an apt catchphrase for Munich Re. The 141-year-old company’s annual shareholder algorithm is typically a 7 per cent total shareholder return driven by a dividend increase and a buyback. The company performed well during COVID. Harder insurance markets (i.e. higher premium costs and less coverage) along with rising interest rates should drive higher profitability. The discounted Euro makes Munich Re relatively inexpensive for new Canadian investors and increases the quantum of profits repatriated to Germany from other nations. It currently yields 4.00 per cent.

PAST PICKS: November 6, 2020

Visa (V NYSE) 

• Then: $198.47
• Now: $206.97
• Return: 4%
• Total Return: 5%

Atco (ACO/X TSX)

• Then: $37.06
• Now: $42.38
• Return: 14%
• Total Return: 20%

Novartis AG (NVS NYSE) 

• Then: $84.72
• Now: $80.33
• Return: -5%
• Total Return: -1%

Total Return Average: 8%