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 yield curve, we believe the probability of recession is below average in the next twelve 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.

TOP PICKS:

Berkshire Hathaway (BRK/B NYSE)

An Omaha, Nebraska-based holding company with operations in domestic primary property and casualty insurance and global underwriting of reinsurance. Given the claims development in business interruption insurance and an elevated level of natural disaster claims, we anticipate a firm pricing environment. They also own one of the nation’s largest railroads, BNSF, and have significant industrial operations at Marmon Corporation and will benefit from a growing economy. The company has a significant cash position and can drive earnings through acquisitions and stock buybacks.

Eli Lily and Company (LLY NYSE)

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)

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 they are the leading energy producer in Israel. Recently, the company announced an initiative to export natural gas from Israel to Europe.

PAST PICKS: January 13, 2021

Sika AG (SIKA SW)

• Then: CHF 256.70
• Now: CHF 288.70
• Return:  12%
• Total Return: 13%

Keyence Corporation (6861 JP)

• Then: JPY 57,910.00
• Now: JPY 51,050.00
• Return:  -12%
• Total Return: -12%

Taiwan Semiconductor Manufacturing Company, Ltd. (2330 TT)

• Then: TWD 605.00
• Now: TWD 572.00
• Return: -5%
• Total Return: - 4%

Total Return Average: -1%