Darren Sissons, vice-president and partner at Campbell, Lee & Ross

FOCUS: Global & technology stocks

MARKET OUTLOOK:

A sector rotation is now well advanced and showing no signs of abating. The rotation is not a surprise as it merely reflects the broadening vaccination base, which will support a normalized economy (whatever that may be) and the likelihood of a stronger Canadian economy looking forward. Additionally, an improving global economy questions the need for continued ultra-low interest rates coupled with highly accommodative monetary and fiscal policies.

There are a number of challenges investors should monitor. Continuing U.S. – China tension is both worrisome and an opportunity. Equally so, the market is bifurcated in its view of future inflation. The dovish suggests it is a storm in a teacup and will soon pass. The hawkish outlook sees central banks under estimating inflation and then initiating corrective policy changes too late to stave off significant price inflation. Commodity prices are also a risk but price declines are likely heavily reliant on the stickiness of supply chain bottlenecks. Currencies are in flux. Most major currencies have weakened versus the Canadian Dollar. However, I do wonder whether the Canadian Central Bank’s efforts to talk up interest rates and therefore our dollar is sufficient to offset more hawkish inflation outlooks in other nations.  

Bearing the above in mind, we continue to see opportunities in a number of pockets. China and broader Asia are still on sale due to the continuing political tensions noted above. Subsectors in the technology and med-technology sectors remain attractive as are financials assuming a gradual interest rate normalization. Promising opportunities also lie in the recovery thematic for companies that were wounded by COVID lockdowns but which will experience significant earnings growth once commercial operations re-accelerate.

TOP PICKS:

Algonquin Power (AQN TSX)

i) A progressive dividend currently yielding 4.40 per cent. ii) Earnings catalyst looking forward provided by 1,400 megawatts of additional renewable capacity and by supportive government renewable energy policies across North America. iii) An attractive entry level as Algonquin has seen its share price decline by 13 per cent in 2021, which is on the lighter side of the recent global renewables sell-off. iv) Equity funds are flowing into ESG friendly renewables names. v) Revenue, net income and the dividend have grown at average annual rates of 28 per cent, 38 per cent and 13 per cent, respectively over the last ten years.   

Illumina Inc. (ILMN NASD)

i) The undisputed global leader in DNA sequencing with 70 per cent market share. ii) Highly cash generative business with +20 per cent net margins. iii) Strong net cash balance sheet i.e. substantially more cash than debt. iv) Acquisitions are a catalyst. The pending Grail acquisition, which Illumina owns 20 per cent of, targets cancer detection via blood samples. It should pass regulatory opposition but if not expect other acquisitions looking forward. 

Thai Beverage (TBEV SGX)

i) A progressive dividend currently yielding 3.2 per cent. ii) Historically, a high growth pan South-East Asian conglomerate active in whiskey, beer and fast food verticals. iii) A natural COVID recovery trade as Thailand is a major tourism destination. It is also a direct beneficiary of efforts to develop manufacturer bases outside China or to augment Chinese manufacturing capacity in South East Asia. iv) Revenue, net income and the dividend have grown at an annual average of 10.50 per cent, 11.00 per cent and 4.40 per cent, respectively over the last ten years.  Thai Beverage common shares can be purchased in the U.S. via ticker TBVPF.

PAST PICKS: June 18, 2020

Accenture PLC (ACN NYSE)

• Then: $202.93
• Now: $285.34
• Return: 41%
• Total Return: 43%

Atco LTD (ACO/X TSX)

• Then: $37.69
• Now: $45.64
• Return: 21%
• Total Return: 27%

Auckland International Airport (AIA NZX)

• Then: NZD$6.55
• Now: NZD$7.54
• Return: 15%
• Total Return: 15%

Total Return Average: 28%

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