Grant White, Portfolio Manager and Investment Advisor, iA Private Wealth
FOCUS: North American large caps, Canadian financials, technology
Top Picks: Block, Fairfax, CNX Recourses Corp.
MARKET OUTLOOK:
Over the past month, the financial markets in Canada and the United States have been marked by heightened volatility, driven by a confluence of factors including inflation concerns, central bank actions and global geopolitical events, not to mention the reversal of the carry trade in Japan and the threat of U.S. recession.
In Canada, the TSX has experienced fluctuations primarily due to shifts in commodity prices, particularly in the energy sector. Meanwhile, in the United States, tech stocks have been under significant pressure, contributing to swings in the major indices like the S&P 500 and NASDAQ. This recent turbulence reflects a broader uncertainty in the markets, as investors grapple with the implications of ongoing interest rate hikes and a potential economic slowdown, especially in the U.S.
Looking ahead to the next six to 12 months, investors can expect continued volatility as central banks in both Canada and the United States navigate the delicate balance between controlling inflation and sustaining economic growth.
It is my opinion that one of the greatest risks we face in the markets right now is the probability of mistakes being made by central banks. In particular, it is likely that the U.S. Federal Reserve has waited too long to cut interest rates and I think it’s likely that their economy slows down more than intended. This is far from a catastrophic event, but for the short-term markets I see this as being the biggest risk.
Additionally, the tech sector’s performance, which has been a bellwether for the broader market, will be closely watched as companies adjust to a more challenging economic environment. That being said, I believe that there are opportunities here and the selloff will likely be overdone as well.
For disciplined investors, this period of uncertainty can offer opportunities to buy into high-quality companies at attractive valuations. However, the next several months will require a strong commitment to a well-defined investment strategy. Investors should be prepared for potential short-term losses and avoid the temptation to make impulsive decisions based on market noise.
By maintaining a long-term perspective and sticking to core investment principles, investors can position themselves to capitalize on the opportunities that arise from this period of market volatility. These markets are predatory and will feast on the undisciplined. Don’t get caught in the trap!
Top Picks:
Block has been one of our top holdings for more than a year now because we believe strongly in the platform they have built and in their strong track record of execution, especially against difficult competition including Amazon. Block is a leader in the small-to-medium business payments and consumer fintech sectors, with strong growth potential driven by its innovative technology and focus on underserved markets. The company has a solid track record of profitability and is well-positioned to capitalize on the increasing demand for digital payments. Additionally, Block’s recent decision to invest in Bitcoin and its strategic use of AI to serve small businesses further enhance its growth prospects. Despite recent stock underperformance, we see significant upside potential as the company continues to execute its strategy.
We favor Fairfax for its strong underwriting performance, which has consistently outpaced peers, and its enhanced earnings potential due to higher interest rates. Additionally, Fairfax’s investments in non-insurance subsidiaries offer promising growth opportunities. Despite a critical short-seller report from Muddy Waters, we found Fairfax undervalued and took advantage of the temporary dip in its stock price. With its recovery and continued positive momentum, we believe Fairfax is well-positioned for sustained earnings growth over the next five years and we believe strongly that we are getting a great price right now.
CNX Resources Corp. (CNX NYSE)
We believe in CNX Resources Corporation because it is a low-cost natural gas producer with significant cost advantages, including owning its midstream pipeline assets and rights to both the Utica and Marcellus Shale resources. Despite natural gas prices being near historic lows, CNX’s efficient operations and strong capital allocation, including hedging strategies and stock buybacks, position it to weather price fluctuations and capitalize on potential future price increases. This makes CNX an attractive opportunity for growth in share price over the next few years.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| SQ NYSE | Y | Y | Y |
| FFH TSX | Y | Y | Y |
| CNX NYSE | Y | Y | Y |
