MARKET OUTLOOK:

Despite the onset of the Omicron variant, the world has adapted to the “new normal.” This variant has resulted in governments re-instituting policies to slow the spread, which in turn will negatively impact certain sectors of the economy. 

However, due to the effectiveness of existing vaccines, the global economy remains strong and the outlook for corporate earnings is positive.

In reaction to persistently elevated inflation numbers, the Federal Reserve Board announced last week that it expects to raise interest rates sooner than originally planned. The announcement had little impact on the markets. We subscribe to the view that the current inflation rate is transitory and that supply chain issues will gradually resolve themselves over the next 18-24 months. This supports our outlook that bond yields will rise somewhat but remain at levels that are conducive to stimulating long-term growth.

As we head into 2022, we conclude that while COVID may be with us for quite some time, ongoing advancements in vaccines and treatments will support improved economic activity as we all learn to adapt to the pandemic.

TOP PICKS:

Discovery (DISCA NASD)
Discovery announced earlier this year that it will merge with WarnerMedia. The deal is expected to close in mid-2022. The new company will combine Discovery’s existing content (Discovery Channel, HGTV, Food Network and many others) with WarnerMedia’s HBO, CNN, as well as the WB film and TV studios, sports and various related operations. The company should be able to realize significant synergies and cost savings, which will drive free cash flow and create a major streaming competitor. The share price has been under pressure since the deal announcement, and at the current price, offers an outstanding entry point.

Koninklijke Philips NV (PHG NYSE)
Philips is a leading health technology company focused on personal health, diagnostics and treatment equipment as well as informatics/connected care. The company has had to recall its CPAP machines, which has resulted in a decline in the share price. Over the past several years, the company has generated solid revenue growth, while using free cash flow for share buybacks and increased dividends. We anticipate more of the same going forward, which should provide investors with above-average returns over the next 3-5 years.

Scotts Miracle-Gro (SMG NYSE)
Scotts Miracle-Gro is the market leader in consumer lawn and garden products. Its fertilizers, soils, grass seed and other related products are widely distributed throughout North America. The company is consistently profitable with above-average dividend growth. The share price soared in 2020 as homeowners increased spending on everything related to their homes but has fallen back to earth this year. At its current valuation, investors have an opportunity to buy a market leader at a compelling price.

PAST PICKS: December 22, 2020

Intel (INTC NASD) 

• Then: $46.17
• Now: $50.46
• Return: 9%
• Total Return: 12%

Johnson Matthey PLC (JMAT LON) 

• Then: £2,514.09
• Now: £1,968.50
• Return: -22%
• Total Return: -19%

Viatris (VTRS NASD) 

• Then: $17.74
• Now: $13.08
• Return: -26%
• Total Return: -24%

Total Return Average: -10%