David Burrows, president & chief investment strategist, Barometer Capital Management 
FOCUS: North American large cap stocks

MARKET OUTLOOK:

While there continues to be concern by market commentators surrounding a potential delayed re-opening due to Delta, the Barometer team believes that improving breadth within Financials, Industrials, Basic Materials and some areas of Consumer Discretionary supports a more bullish case. Relative weakness in Tech (Nasdaq), concept stocks and biotech along with consumer staples suggests that rotation toward value continues and may still be in early stages. This may be confusing to investors following the daily news-flow but continuing easy financial conditions, cycle high upward earnings revisions trends, very low inventory levels and improving employment are supportive in countering more near term and backward-looking concerns. 

Given the long run low levels of industrial and agricultural capital investment, low inventory levels and the newer focus on public investment in infrastructure, industrials and basic materials pricing (margins) are likely to very resilient going forward. This should continue to attract new investors as the re-opening progresses.

For financials, the slowly rising longer term rates and gradual clarity on financial risks will likely allow for additional improvement in margins… meaning increased capital returns to shareholders by way of share buybacks and more importantly, dividend growth for income-starved investors.


TOP PICKS:

Zoetis (ZTS NYSE) 
Zoetis is an eight-billion dollar animal health company. The secular growth in demand for veterinary services for both companion pets and livestock is driving mid-teens earnings growth. Two thirds of the business comes from the companion animal business where new products are gaining significant share in a growing overall market. A strong innovation pipeline and EU expansion provides additional upside.

Morgan Stanley (MS NYSE) 
Among the U.S. Banks, we are focusing today on Morgan Stanley given their outsized growth in wealth management and their dominant position in capital markets. At US$2.6 trillion in assets under management, their fee-based wealth management business is both winning due to new inflows as well as through organic market returns across all asset classes. Investors like the predictable nature of ongoing fee revenue and dividend growth.

ATS Automation Tooling Systems Inc. (ATA TSX) 
ATS Automation is a custom engineer and producer of industrial automated manufacturing systems (robotics). With a strong backdrop for automation due to their customers rising input costs, tight labor market and supply chain disruptions, companies are looking for ways to drive efficiencies and ATA can assist with this. On top of their long history in the transportation sector, ATA has moved into industries such as life sciences and food & beverage fueling 28 per cent organic revenue growth. In the most recent quarter, new order bookings were up 74 per cent year-over-year.

PAST PICKS: May 14, 2020 

Air Canada (AC TSX) last sold on January 19th, 2021 @ $23.14

• Then: $15.22
• Now: $23.88
• Return: 57%
• Total Return: 57%

CP Rail (CP TSX) last sold on August 16th, 2021 @ $89.85

• Then: $62.33
• Now: $89.77
• Return: 44%
• Total Return: 46%

Honeywell International (HON NYSE) last sold on October 11, 2019 

• Then: $127.05
• Now: $228.01
• Return: 79%
• Total Return: 83%

Total Return Average: 62%