Darren Sissons, vice-president and partner at Campbell, Lee & Ross
Focus: Global and technology stocks
MARKET OUTLOOK
Near term, the markets are approaching a period of heightened uncertainty. The politics surrounding the replacement of Supreme Court Justice Ruth Bader Ginsburg, the likely underwhelming third quarter earnings season and the U.S. election are collectively creating a perfect storm. Markets do not like uncertainty; consequently, cash levels are high as investors position defensively but hope for market dips to add new names to their portfolio.
From a trading perspective, the market outlook remains clouded and is likely to trade in a relatively tight range. Using a shorting or similar strategy, which worked extremely well during peak COVID pessimism in March 2020, is unlikely to be as successful over the next 12 months as the bad economic news is widely understood. Equally so, achieving portfolio growth through continued market highs in expensive U.S. technology and medtech equities is an increasingly risky bet. That strategy largely revolves around further fiscal and monetary injections from the now financially-stressed governments and central banks. Given the near-term uncertainty and an expectation of limited trading ranges, viewers are encouraged to consider lagging sectors. Viewers should also look internationally, especially outside the U.S., to gain exposure to world-class investments at attractive valuations.
A second major thematic impacting the markets are all things COVID and the broader healthcare sector. While in the near term a successful vaccine will drive a sizable market uptick, longer term governments and investors now appreciate the sanctity of good health. Moving forward, investors would be well advised to increase healthcare exposure. Post-COVID, governments across the globe will target decreased single-sourcing initiatives, improved national medicine cabinets and better diagnostic capabilities.
The absence of a fixed income yield of any significance is a third thematic. Low fixed income returns, which have been with us since the global financial crisis, will continue driving cash into equities and real estate. Coupling that dynamic with the substantial COVID-related fiscal and monetary stimulus should provide a supportive backdrop for equities.
TOP PICKS
Johnson & Johnson (JNJ NYSE)
Johnson & Johnson is a healthcare conglomerate with three divisions: pharmaceuticals, medical devices and consumer. Dividend has been raised for 57 consecutive years and currently yields 2.8 per cent. The company has somewhat recovered from the market overreaction to its talc powder and opioid exposures. The business model is currently unbalanced by historical standards as the pharmaceutical business is now 52 per cent of revenue. Acquisitions in medical devices and consumer moving forward will lower the relative pharma division revenue contribution. Johnson & Johnson is a longer-term beneficiary of COVID either from its drug development business and or its diagnostics division.
Saputo Inc (SAP TSX)
Saputo is a Canadian national champion with significant U.S. exposure and a growing international presence. Recent weakness from tough commodity costs and COVID fallout finally provided a deeply discounted entry level. Management’s track record of executing accretive acquisitions is a major growth catalyst and more acquisitions should be expected moving forward. The dividend yields 2 per cent and has grown at an average annual rate of 9 per cent since 2010. The Saputo family owns 32 per cent, which strongly aligns management interests with shareholders.
Samsung Electronics (SMSN LON)
Samsung Electronics was on our buy list for four year given its unique set of assets. The recent weakness of the South Korean won, weakness in semiconductor end markets and export fallout from the U.S.-China trade spat and COVID created the discounted entry opportunity. The company’s four businesses are: mobile phones, semiconductors, consumer electronics and infotainment solutions. The company trades at a discount to its recent trading history and relative to its U.S. peer group. Samsung will benefit from a recovery in global growth and funds flowing back into currently deeply-discounted Asia. The dividend yields 2.4 per cent and it has grown at an average of 27 per cent annually in Canadian dollars over the last 10 years. Samsung Electronics ordinary shares can be purchased in the U.S. under the ticker SSNLF.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| JNJ | Y | Y | Y |
| SAP | Y | Y | Y |
| SMSN | Y | Y | Y |
PAST PICKS: SEP. 6, 2019
Corning Inc (GLW NYSE) sold Sep. 15, 2020
- Then: $28.22
- Now: $30.61
- Return: 8%
- Total Return: 12%
Prudential Public Limited (PUK NYSE) sold in Oct. 21, 2019 after receiving the special dividend from the M&G spinout.
- Then: $34.47
- Now: $28.07
- Return: -19%
- Total Return: -4%
British American Tobacco (BTI NYSE)
- Then: $35.98
- Now: $35.70
- Return: -1%
- Total Return: 7%
Total Return Average: 5%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GLW | Y | N | N |
| PUK | N | N | N |
| BTI | Y | Y | Y |
Twitter: @KiwiPMI
Website: http://www.clrim.com/site/home
Blog: http://www.clrim.com/site/financial-investment-news
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