Darren Sissons, vice president and partner at Campbell, Lee & Ross
FOCUS: global and technology stocks

MARKET OUTLOOK: 

2021 will be a busy year, with four significant catalysts on the horizon for investors to consider:

First, the disconnect between Main Street and Wall Street has never been so pronounced. Given the fact large swathes of workers in most countries are still working from home, the underlying economic fundamentals are very weak. Indexes in all markets should be significantly lower. Applying a “dogs of the Dow” lens, the major winners in 2020 are unlikely to be major winners going forward. Similarly, sectors that lost ground in 2020 will likely see in-bound fund flows as the recovery broadens. 

Second, the return of the professional politician. The new U.S. president will usher in a more normalized and saner U.S. administration. Nevertheless, old American insecurities such as the concern around the rising economic and military might of China won’t dissipate anytime soon. Comments from Republican Party veterans, including Newt Gingrich, on the failure of U.S. foreign policy during the Donald Trump administration, noted the need for a smarter, more pragmatic and forward-looking relationship with China. That understanding by senior Democrats and Republicans alike coupled with career politician Joe Biden at the helm suggests improved U.S. geopolitical relations moving forward. This bodes well for global investors over the next four years. 

Third, it’s all about the vaccine. Vaccine roll-out will differ from country to country. To date, the nations with better COVID management protocols have seen significant improvements in their economy. New Zealand, for example, saw a 14 per cent improvement in their most recent GDP print. That strong GDP growth trend should be broadly reflected in other nations as vaccine roll-outs progress and the world gradually returns to a more normalized environment. Another anecdotal observation from the better COVID-managing nations is the acceleration of discretionary consumption as consumers began deploying their lockdown savings. 

TINA (“there is no alternative”) will continue to drive the markets. The absence of a fixed-income yield of any significance continues to drag on portfolio returns. Low interest rates, which have been with us since the global financial crisis, are now the lowest in my lifetime. Cheap debt and mortgages in the 1.7 per cent range for a five-year fixed term will over the foreseeable future continue driving capital into equities and real estate. Coupling the TINA dynamic with the substantial COVID-related fiscal and monetary stimulus should provide a supportive backdrop for equities in 2021.   

TOP PICKS

Alibaba (BABA NYSE) Most recent purchase price US$235.06

Alibaba is an asset-light business model that benefits from a defensive moat and operates in a structural growth market. There’s a substantial valuation discount versus U.S. peers, so global fund flows will be a catalyst. Revenue and net income grew at an average annualized rate of 46 and 32 per cent respectively over the last five years. It’s got a strong balance sheet and an annualized Canadian five-year total return of 24 per cent.    

Linde Plc (LIN NYSE) Most recent purchase price US$262.43

Linde is a well-managed German-U.S. multinational offering global exposure to the industrial gases market, which tracks global GDP. Dividend currently yields 1.5 per cent and has grown at an average of 10.6 per cent in Canadian dollars for 10 years. The December 2016 merger of Praxair with Linde has been a major earnings catalyst with further gains from scale and scope of operations expected. A pipeline of new projects will also drive higher earnings looking forward. The company is a key beneficiary of hydrogen as a fuel source, so it will benefit from the ESG thematic. In Canada, the company has averaged a total return of 10.8 per cent per annum for 15 years. 

Medtronic Plc (MDT NYSE) Most recent purchase price US$117.06

Medtronic is the largest med-technology company by revenue. Its dividend, which currently yields two per cent, has risen annually for 42 consecutive years. It operates in structural growth healthcare markets and augments that growth through tuck-in acquisitions. Revenue and net income grew at an average annualized rate of 9.1 per cent and 8.5 per cent, respectively over the last 10 years. It’s got a strong balance sheet and an average annualized Canadian five-year total return of 9.4 per cent. 

PAST PICKS: January 13, 2020

Automatic Data Processing (ADP NASD)

• Then: $172.36
•  Now: $160.52
•  Return: -7%
• Total Return: -5%

HSBC Holdings (HSBC NYSE) HSBC was sold March 31, 2020 following the U.K. Bank Regulator’s cancellation of all U.K. bank dividends.

• Then: $38.52
• Now: $27.43
• Return: -29%
• Total Return: -29%

Vodafone (VOD NASD)

•  Then: $19.70
• Now: $17.35
• Return: -12%
• Total Return: -7%

Total Return Average: -14%