MARKET OUTLOOK:

Markets have survived their first correction of the year, with the S&P 500 at one point down 6 per cent from its high on September 2, 2021. This was the first test for investors since the since the fall of 2020, when the market sold-off 9 per cent ahead of the U.S. Federal Election. 

As we move forward, interest rates will likely grind higher from unusually low levels (the range from 2012 to 2020 was 1.5-3.3 per cent for the U.S. 10-year bond), benefiting financials but negatively affecting long-duration growth stocks. 

Commodities are better positioned, with a muted supply response following a decade of underinvestment. Automakers and component companies should benefit from pent-up demand as supply challenges ease in 2022. The aerospace industry is on the cusp of a new aviation cycle, with growth increasingly coming from developing nations. Stay invested in market leaders with pricing power.

TOP PICKS:

Zalando SE ADR (ZLNDY OTC) 
Zalando is a leading European eCommerce apparel company in Europe with a gross market value of goods sold of EUR$14B in 2021. It boasts an active customer base of 45M Europeans -- we believe the largest fashion marketplace in Europe. Initially operating as a wholesaler of fashion apparel, as the eCommerce market evolved, brands wanted more control over their pricing, marketing and data by shifting to a direct-to-consumer model. Zalando’s flexible asset base allowed the company to pursue a new strategy, its Partner Program, that provides a valuable suite of tools and services to fashion brands. Zalando can now offer fulfilment, consignment, marketing and connected retail. As these high return on capital businesses scale, Zalando should see its EBIT triple by 2027 while revenue grows about 80 per cent.

Dollar Tree (DLTR NASD) 
Dollar Tree is committed to breaking the buck in its U.S. stores which should create opportunity for higher productivity stores and higher synergies with its Family Dollar brand. The company is struggling with higher freight costs given the tight shipping markets from China but we expect this situation will resolve over medium term and become a tailwind at some point. The successful execution of a multi-price strategy could see EPS grow at a mid-teens rate for 5-plus years, an attractive growth rate for a company trading at a 16x EPS.

Enbridge (ENB TSX) 
With the recovery in global crude markets, we believe Enbridge provides a low-risk investment with potential to 10 per cent annual returns with a 6 per cent dividend and 6 per cent cash flow growth. The company has simplified its corporate structure and strengthened its competitive position with the commissioning of Line 3 and acquisition of the largest U.S. Gulf Coast crude export facility. Returns could be enhanced with accretive tuck-in acquisitions that could provide synergies over its large portfolio or through ESG opportunities associated with hydrogen production and carbon capture.

PAST PICKS: September 4th 2020 

Aon Plc (AON NYSE) 

• Then: $202.74
• Now: $320.83
• Return: 58%
• Total Return: 59%

Tyler Tech (TYL NYSE) 

• Then: $329.81
• Now: $528.43
• Return: 60%
• Total Return: 60%

Gibson Energy (GEI TSX) 

• Then: $23.93
• Now: $24.45
• Return: 2%
• Total Return: 9%

Total Return Average: 43%