MARKET OUTLOOK:

The equity market’s start to the new year has been a jolt; not a surprising one necessarily after 3 years of out-sized performance, but nonetheless it always hurts, regardless of whether you think you are ready or not. Emotionally, all of us who are “long the market” want it to advance all the time. 

Intellectually though, we know that too much froth, or put another way, the pricing of the market dislocating from the fundamentals, is a dangerous condition. Just think back to 2007, or 2000, or way back to 1987. 

Corrections are as normal as snow and cold in the winter, we may not love them, but they are natural occurrences. On average, the equity markets correct by 10 per cent or greater every two years or so. 

Our challenge as investors is to not suffer as much in these poor times, because adding value to averages in good markets and bad will leave us in a very good spot. The danger of a bear market, almost always the result of a recession, is not on the horizon, in our opinion. Conditions are simply too stimulative. The current correction is doing its job. Low quality, momentum-led stocks are getting hurt badly, as they should. 

We have been shaking our head at the so-called meme stocks for some time, knowing they would get their comeuppance, just not knowing when. So, stay the course with quality holdings, watch your sector exposures and your weightings, and the sun will shine on the market again soon enough.

TOP PICKS:

Anthem (ANTM NYSE)
Latest Purchase Feb 2022 @ $445
Anthem is a managed care operator with 43 million members. With the tailwind of an aging population and a desperate need to provide health insurance solutions, ANTM will be in the mix. Goodreid expects earnings of $29 per share in 2022, yielding a P/E of just over 15x and a free cash flow yield of 6 per cent.

Meta Platforms (FB NASD)
Latest Purchase Feb 2022 @ $299
FB’s most recent earnings report highlighted slowing user growth, increased competitive pressures and greater privacy issues due to Apple’s app policies. But at 18X earnings and a likelihood that many of the issues can be mitigated, this issue has promise.

Washington Federal (WAFD NASD)
Latest Purchase Jan 2022 @ $35
Loan originations are exploding at WAFD, up 32 per cent in 2021 from a year earlier. Coupled with solid cash management, we expect earnings to grow briskly in 2022, to a record $2.80 per share. This yields a current P/E ratio of just 12X, and with the stock trading at book value and sporting a dividend yield close to 3 per cent, this is an attractive opportunity.

PAST PICKS: February 18, 2021

Jacobs Engineering Group (J NYSE) 

• Then: $112.51
• Now: $129.11
• Return: 15%
• Total Return: 16%

JPMorgan Chase & Co. (JPM NYSE) 

• Then: $145.59
• Now: $156.00
• Return: 7%
• Total Return: 10%

Qualcomm, Inc. (QCOM NASD) 

• Then: $143.91
• Now: $175.87
• Return: 22%
• Total Return: 24%

Total Return Average: 17%