David Fingold, vice president and senior portfolio manager, Dynamic Funds
FOCUS: U.S. and global stocks
MARKET OUTLOOK:
Given the recent volatility in equity and fixed income markets, we recommend investors approach markets with a focus on quality companies — that is, companies with a superior balance sheet, above-average profitability and consistent profitability. Given the upward sloping three-month/10-year yield curve, we believe the probability of recession is below average in the next 12 months.
Central bankers intend to tighten financial conditions through interest rate increases and tapering/quantitative tightening. We expect that should lead to high-quality securities outperforming low-quality securities. Pent-up demand exists in capital goods and financial institutions will benefit from higher interest rates. While consumers may face headwinds, one would expect the leadership role in the economic expansion will be assumed by business investment as usually occurs when the economy passes through the mid-cycle. Defensive industries such as healthcare are attractive given their long-term performance and defensiveness as volatility tends to rise from this point in the cycle.
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TOP PICKS:
Based in Indianapolis, Indiana, Eli Lilly and Company (LLY US) discovers, develops, manufactures, and sells pharmaceutical products for humans and animals. The company’s products are sold in countries around the world. Eli Lilly products include neuroscience, endocrine, anti-infectives, cardiovascular agents and oncology. Their leadership position in therapeutics for diabetes provides a significant engine for growth.
Chevron Corporation (CVX NYSE)
Chevron is a San Ramon, California-based integrated energy company with operations in countries located around the world. The company produces and transports crude oil and natural gas. Chevron also refines, markets, and distributes fuels. One unique aspect of Chevron is its exposure to the Eastern Mediterranean where it is the leading energy producer in Israel. Recently, the company announced an initiative to export natural gas from Israel to Europe.
Elbit is a Haifa, Israel-based manufacturer of military hardware. Its product lines include unmanned systems, electronics including fire control, software defined radios and radars, cyber, night vision, precision guidance and underwater warfare. Generally, electronics spending grows at twice the rate of the growth of defence budgets. The recent acquisitions including Harris Night Vision and Sparton significantly increase their total addressable market. An industry leading book to bill drove backlog to a level of $13.7 billion.
PAST PICKS: April 14, 2021
Hoya Corporation (7741 TYO)
- Then: JPY 13,745.00
- Now: JPY 12,850.00
- Return: -7%
- Total Return: -6%
Berkshire Hathaway (BRK/B NYSE)
- Then: $267.53
- Now: $330.83
- Return: 24%
- Total Return: 24%
Sika AG (SIKA SWX)
- Then: CHF 263.20
- Now: CHF 300.50
- Return: 14%
- Total Return: 16%
Total Return Average: 11%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| 7741 TYO | Y | Y | Y |
| BRK/B NYSE | Y | Y | Y |
| SIKA SWX | N | N | N |
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