Jennifer Radman, head of investments and senior portfolio manager at Caldwell Investment Management

FOCUS: North American large cap stocks

MARKET OUTLOOK:

This past year has been a very macro-driven market. Indeed, one can argue that one big duration trade, driven by bond yields and inflation expectations, has dominated equity markets over the past decade. The year’s-long out-performance of Technology and other growth companies coincided with a sustained period of declining bond yields. If an investor was long duration – stocks with high multiples and where corporate cash flows were expected to occur further out in the future – they performed very well. With the bottoming in bond yields last year, market leadership has seen a dramatic shift. Shorter-duration value stocks and commodities have dominated performance, since that time, as a way to position against rising inflation. We expect company-specific catalysts to become more important drivers of stock returns as bond yields and inflation expectations settle, but it’s important to stay mindful of the macro environment to ensure one is swimming with (and not against) the current.

TOP PICKS:

Boston Scientific (BSX NYSE) is a leading, diversified medical device company that specializes in interventional medical products used to treat cardiovascular, pelvic, neurological and other conditions. Boston Scientific is in a strong position in terms of non-deferrable procedures, with approximately 85 per cent of its revenue mix generated from procedures that should be done within six months, among the highest of medical device peers.  Multiples on medical device stocks have re-rated lower and we believe provide a good entry point given underlying growth rates. Boston Scientific also has company specific tailwinds as it comes out of a period of operational challenges; we expect it to return to its history of strong execution and above industry growth rates.

Tricon Residential (TCN TSX) is a rental housing company operating over 31,000 single-family and multi-family rental properties in 21 markets across the United States and Canada. The stock has recently broken out of a multi-year trading range. The company’s single-family portfolio is attractively positioned in the U.S. Sunbelt, which is seeing favorable demographic tailwinds. Rental rates and increasing, utilization is strong and the company is seeing good operating leverage across the business model. It also continues to attract assets from institutional investors, which increasingly provide it with an additional management fee revenue stream.

Linamar (LNR TSX) has exposure to auto, agriculture and industrial end markets, all of which are benefitting from early cycle investment. The stock is also benefitting from the rotation into value stocks.

PAST PICKS: October 7, 2020

Richelieu Hardware (RCH TSX)

• Then: $37.17
• Now: $42.23
• Return: 14%
• Total Return: 14%

Maxar Technologies (MAXR TSX)

• Then: $28.69
• Now: $36.35
• Return: 27%
• Total Return: 27%

Tetra Tech (TTEK NASD)

• Then: $101.44
• Now: $125.21
• Return: 23%
• Total Return: 24%

Total Return Average: 22%