FOCUS: Global value stocks and high-yield bonds
MARKET OUTLOOK:
Delta variant. Rising inflation. Fed tapering. Political dysfunction. Debt ceiling. Microchip shortage. Supply chain problems. China Evergrande. There is no shortage of negative headlines, yet the stock market is at a record high.
Against this backdrop, one might expect investors would be pessimistic. However, such is not the case.
The negative headlines tell part of the story, but they omit a few important things. This bull market has been underpinned by historically low interest rates and the assumption that we have seen the worst of the pandemic.
Regarding rates, the U.S. Fed has announced that it will reduce its monthly bond purchases, as the economy is now on a sustainable recovery path. Assuming that the recovery continues, rate increases will probably start in 2023.
There has been some concern about the recent uptick in inflation to the highest level in quite some time, but the Fed believes this increase to be transitory, which is why they see no need to raise rates at present. COVID shutdowns had a significant impact on supply chains and labour availability, resulting in shortages of many critical items, such as microchips. The relatively quick economic rebound has exacerbated these problems. While inflation may remain at elevated levels as we head into 2022, we expect supply chains will adjust over the next year and be back in balance by 2023.
The economic rebound has been accompanied by a sharp increase in corporate profits, and there remain opportunities, though markets in general are no longer cheap.
TOP PICKS:
ING Groep NV (ING NYSE)
Most recent purchase: Sep. 27, 2021 at $14.625
ING is extremely well positioned as it has a strong financial position, exposure to the improving retail segment in Europe, and is embarking on a shareholder-friendly capital allocation strategy. ING has started paying an attractive dividend and will use additional capital for share buybacks. The loan book is in excellent shape, and the shares are trading at a P/E of less than 10. At the current price, the shares are a real bargain.
Reckitt Benckiser Group PLC (RKT LON)
Most recent purchase: Nov. 2, 2021 at British Pounds 60.78
This consumer products company has a number of top brands in hygiene (Lysol, Finish), health (Strepsil) and nutrition (Enfa). The shares have been weak due to several management mistakes that have now been rectified, and the company is poised for increased revenues, margins and earnings. At the current valuation the shares offer significant upside.
Walt Disney Company (DIS NYSE)
Most recent purchase: Sep. 27, 2021 at $178.49
Disney shares have declined recently - offering an excellent entry point for this unique company. The reason for the drop in share price is due to a slowdown in subscriber growth at Disney+. However, this appears to be a temporary hiccup, as the company will be releasing a slew of potential blockbuster films from several of its franchises including Marvel, Pixar and Star Wars. Theme parks and theatre attendance are ramping up, while we expect Disney+ to resume its aggressive growth trajectory.
PAST PICKS: December 22, 2020
Intel (INTC NASD)
- Then: $46.17
- Now: $50.73
- Return: 10%
- Total Return: 13%
Johnson Matthey PLC (JMAT LON)
- Then: £2,514.00
- Now: £2,238.00
- Return: -11%
- Total Return: -9%
Viatris (VTRS NASD)
- Then: $17.74
- Now: $14.56
- Return: -18%
- Total Return: -17%
Total Return Average: -4%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| INTC NASD | N | N | N |
| JMAT LON | Y | Y | Y |
| VRTS NASD | Y | Y | Y |
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