FOCUS: Global and technology stocks
MARKET OUTLOOK:
The peak annual volatility season of September through October is almost finished. Markets should stabilize through year end. The key challenges for higher market levels are rising interest rates and our strong petro-currency. While consensus calls for between two and eight interest rate hikes through 2023, we lean more towards modestly higher interest rates. The strong Canadian dollar will dampen export demand thereby dragging on economic performance.
Equally so, given 51 per cent of mortgages are now variable, substantially higher interest rates would slow economic performance as home owners increasingly divert a higher portion of their income to interest payments. Relative performance is the third consideration. Two central banks, Norway and New Zealand, raised interest rates in 2021. More will follow by 2023. Global fund flows, triggered by rising rates will then also impact interest rates in Canada.
Inflation remains a substantial and highly politicized risk. While central bankers are publicly stating inflationary pressure is temporary, their agency conflict is hard to ignore. Should they admit their large scale money printing caused inflation, they lose credibility. However, failure to contain the obvious inflation we are all experiencing will create further problems.
Carbon energy has been a clear winner in 2021. That is unsurprising as the Russian – Saudi excessive production commitments in March 2020 to counter U.S. shale was the initial Black Swan catalyst of the March 2020 sell-off. Energy names have rallied substantially since the deep March 2020 declines. Oil companies likely move still higher as ill-timed, widespread roll-out of anti-oil ESG policies severely curtailed supply making oil companies unable to respond to rising demand.
Looking forward, Canadians should actively take advantage of the strong Canadian dollar. Asian, European and U.S. companies are all on sale in relative terms. Europe for example trades at a steep 10 per cent currency discount versus its normalized trading range. Adding investments in high quality global best-of-breed corporations from foreign jurisdiction now will lock in mean revision gains in the future. Additionally, should oil rally higher, the Canadian dollar will strength further thereby making foreign equities increasingly attractive.
TOP PICKS:
Accenture Plc (ACN NYSE)
Last bought at $354.58
A serial dividend growing currently yielding 1.0 per cent. 2) Well positioned to benefit from new and digital work post-COVID-19 with a diversified portfolio, which mitigates downside risk and provides upside optionality. 3) Continued tuck-in acquisitions, which have historically provided additional upside. 4) Revenue and dividends have grown at an annualized rate of 11 per cent and 17 per cent, respectively over the last decade with annual share buybacks averaging 0.7 per cent over the same period.
Linde Plc (LIN NYSE)
Last bought at $48.90
A serial dividend grower for 28 consecutive years currently yielding 1.40 per cent. 2) A well-diversified portfolio covering all major gases for use in food & beverage, healthcare, refinery and general industries. 3) A growing hydrogen franchise is attractive to ESG investors. 4) a defensive business model as a substantial portion of annual revenue is contracted on a multi-year take-or-pay basis. 5) A safe and steady operator in structural growth markets, which has driven net profit and dividends by an annual average rate of 14 per cent and 12 per cent, respectively since 2011. 6) Share buybacks annualize at 6 per cent over the last decade.
Thai Beverage (Y92 SGX)
Last bought at SG 0.71
A dividend grower currently yielding 3.2 per cent. 2) Post-COVID recovery optionality as its beer, spirits and fast food restaurant chains have exposure to high growth Asian nations. 3) Attractive entry level as China – U.S. infighting and COVID lockdowns have depressed its valuation thereby ignoring the annualized 15 per cent total Canadian dollar return over the ten years prior to the onset of COVID lockdowns.
PAST PICKS: November 6, 2020
Visa (V NYSE)
- Then: $198.47
- Now: $221.67
- Return: 12%
- Total Return: 12%
Atco (ACO/X TSX)
- Then: $37.06
- Now: $40.53
- Return: 9%
- Total Return: 14%
Novartis AG (NVS NYSE)
- Then: $84.72
- Now: $83.89
- Return: -1%
- Total Return: 3%
Total Return Average: 10%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| V NYSE | Y | Y | Y |
| ACO/X TSX | Y | Y | Y |
| NVS NYSE | Y | Y | Y |
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