Jun 22, 2018

Jaime Carrasco's Top Picks: June 22, 2018

BNN Bloomberg

Jaime Carrasco , BNN Bloomberg

Jaime Carrasco, portfolio manager at Canaccord Genuity
Focus: North American equities

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MARKET OUTLOOK

I recommend that investors consider having some allocation in one of the cheapest sectors, the precious metals, as rising levels of inflation are making it highly likely that the price suppression mechanisms will soon fail. Like in the ‘70s, rising levels of global stagflation attract many new global buyers of physical.

Inflation is the problem, as Alan Greenspan warned a few months ago, because debt levels will recreate the economic conditions of the ‘70s. He believes that, if these conditions repeat, it’ll move profitability as inflation rises, but then continue rising at a much faster pace than growth, eroding any possible profitability and resulting in stagflation. To that warning I add an inevitable truth: Unlike the ‘70s, we measure inflation today in ways that fully minimize its calculation and global debts are exponentially higher.

I believe that this process has already begun and that stagflation is already here. It’ll continue building because of various factors that are negatively affecting the global economy such as the global de-dollarization, the end of the central banks’ quantitative policies, the global populist shift, and greater financial systematic risk. These factors are being accelerated by President Donald Trump’s isolationist policies and all the new populist political parties such as the ones in Italy.

Continue to enjoy the remaining thrust behind this market, but understand that eventually it will reverse. Therefore, it’d be wise to start to hedge for that reality. Standard money management prudence advises that, in normal times, investors hedge their portfolio with at least a 5 per cent allocation in the precious metals sector. These aren’t normal times.

Canaccord’s precious metal analysts have done stellar work at isolating the best-in-class choices in this sector. Furthermore, my Special Opportunities Portfolio has been running since January 2015 and is structured as a standalone solution to give high net worth clients and family offices quick access to this sector through a proven disciplined portfolio. A review of this sector will surprise investors, as currently the shares are trading at attractive discounts to our target prices and with many of these showing great results since gold bottomed at $1,050 in December 2015. Please note that the bottom coincided with the week the U.S. Fed began rising rates. Coincidence or forewarning?

I manage three segregated portfolios designed to help our clients with their cash management needs, capital growth and dividend income generation. Portfolios are tailored to meet each client’s risk-return profile based on their individual investment needs and aren’t suitable for everyone. The Special Opportunities Portfolio is meant for those looking to get participation in the precious metals market, a sector long forgotten by most investment advisors. The Equity Income Portfolio is designed for growth and income through a top-down industry-specific approach. The Cash Management Portfolio is designed for short-term money management needs. All portfolios require an investment account size of $300,000.

TOP PICKS

FRANCO-NEVADA (FNV.TO)

We have a $122 target for Franco-Nevada with a “buy” rating. I continue to recommend it as a great choice for more conservative and lower-risk-oriented clients. Franco-Nevada is one of the most solid streamers in the business due to its diversified exposure.

DETOUR GOLD (DGC.TO)

We have a $22 target for Detour Gold with a “buy” rating. I think the company is currently offering a very attractive entry point due to the recent price decline. Detour Gold is poised to deliver continued earnings growth with great leverage to production, reserves on the ground and rising gold prices.

AMERICAS SILVER CORPORATION (USA.TO)