MARKET OUTLOOK:

Recent quarterly results haven’t been as vibrant as many market analysts had expected or hoped for. That’s because higher inflation, supply chain interruptions and labour costs have hurt operating margins and reduced profit growth.

As a result, the stock market should be choppy through the year with multiple corrections depending on earnings, interest rates, COVID, economic re-openings, labour availability and geo-political risks. Tech stocks and small-caps, especially U.S. names, have been the weak sisters and the rotation to more value names with real revenues and profits have held up better.

I believe 2022 could be a year where investors really have to focus on risk management: Diversify across regions and industries, maintain equal weightings and enjoy rising dividends, using cash to buy more of what is owned if markets break down and go lower or if individual stocks suffer after a poor quarter.

Don’t feel like you have to do something for the sake of doing it. Share prices are irrelevant except the day you buy a stock and the day you sell it. Everything in between is irrelevant. Invest in businesses with the expectation of getting a piece of the profits each year in the form of a rising dividend. Remember, two-thirds of all performance comes from rising dividends and the re-investment of those dividends, not stock price movement.

Risk-adjusted returns are more important than nominal returns and short-term mentality should be replaced by a focus on long-term time and compounding.

TOP PICKS:

Metro (MRU TSX)
Last bought in Jan. 31 at $68.10 
Metro is a grocery and pharmacy retailer in Ontario and Quebec. The stock is relatively cheap at 18x earnings with 10 per cent expected growth in profits and dividends. It’s an inelastic business that means whether or not the economy is strong or weak, people still have to buy food and get their prescriptions filled. We own it in clients’ Tax-Free Savings Accounts (TFSAs). 

Alfa Laval (ALFA Swedish SS)
Last bought in Feb. 1 at 316.60SEK 
Alfa Laval manufactures equipment and systems for heating, cooling, separation and transportation of products such as oil, water, chemicals, beverages, starch, foodstuffs and pharmaceuticals. Think valves, centrifuges and heat exchangers. The main growth driver is the increasing demand for sustainability solutions for energy efficiency and de-carbonization. The stock is down over 20 per cent from its high and we believe it offers decent value. 

Chubb (CB NYSE)
Last bought in Jan. 31 at $195.80
Chubb operates as a property and casualty insurance company. It has among the lowest combined ratio (84.8 per cent) among the larger insurance firms when excluding catastrophe losses. It’s a good time to own an insurance company as annual price hikes are expected to exceed 10 per cent in the coming years. The bigger attraction is Chubb’s fixed income investment portfolio. Every 1 per cent rise in U.S. interest rates produces about $1.2 billion of additional investment income.

PAST PICKS: February 10, 2021

Nutrien (NTR TSX) 

• Then: $70.13
• Now: $91.83
• Return: 31%
• Total Return: 34%

Thermo Fisher Scientific (TMO NYSE)

• Then: $484.88
• Now: $592.97
• Return: 22%
• Total Return: 23%

Novo Nordisk NV (NVO NYSE)

• Then: $71.18
• Now: $101.60
• Return: 43%
• Total Return: 46%

Total Return Average: 34%