MARKET OUTLOOK:

2021 has been another strong year for equity markets with the S&P up 24 per cent, the TSX up 19 per cent and the MSCI World index up around 18 per cent YTD. This the third straight year of double-digit equity gains. 

2022 is an important year as we return to, hopefully, ‘normal’ from the last 2 years of pandemic. Supply chain issues will resolve, inventories will be replenished, and growth will de-accelerate from the high rates we saw off the bottom. 

The U.S. Fed has its hands full as it deals with core CPI hitting 4.9 per cent in November, reaching 30-yr highs and unemployment hitting 4.2 per cent. The unemployment level is still above pre-COVID levels of 3.5 per cent. 

Pricing power will be important in 2022. Brand strength will be vital if companies want to maintain margins and market share. Exposure to segments or categories with private label offerings could be a risk as customers may trade down to avoid higher prices. 

As we all know, the Fed is going to raise rates in 2022 and it is expected that global earnings will grow by about 8 per cent in 2022.  
We think the market will grow slowly and inconsistently through 2022 but ultimately could end up mid-single digits as we work to the return to ‘normal’.  

Longer term, we continue to believe the productivity will continue to improve through technological innovation. This will lead to strong and sustainable margins for industry leaders and help offset the longer-term headwinds of demographics, lower labour force participation and perhaps, de-globalization. 

TOP PICKS:

LVMH Moët Hennessy ADR (LVMUY OTC)
This is the world’s leading luxury products group. They sell wines and spirits, perfumes, cosmetics, jewelry and watches that include well-known brands such as, Louis Vuitton, Fendi, Christian Dior, Tiffany, Bulgari and the retail chain Sephora. 

These are well-known and enduring brands with pricing power, high margins and great long-term prospects for growth. The company also benefits from its scale advantages, in marketing, retail and sourcing. The management team has a long track record of success of growing the core brand portfolio and acquiring other brands, the most recent being Tiffany.  

We think they will continue to grow revenue in the high single-digit range for the near future, which will translate in low double-digit EPS growth and good upside to the stock.

Twilio (TWLO NYSE)
Twilio is the market leader of CPaaS Solutions (communications platform as a service), including text, voice, video and email. Twilio allows companies to communicate with customers on their App. Their customers include WhatsApp, Lyft, Deliveroo and Airbnb. 

Their market share is approaching 50 per cent and their CPaaS market is expected to grow at almost 30 per cent for the next 3-5 years. Twilio is expected to maintain or even grow that share.

We think the stock can trade back into the $350.00 range as they continue to grow or about 30 per cent higher over the next 18-24 months. 

Zalando SE ADR (ZLNDY OTC)
Zalando is a leading European ecommerce apparel company with 46.3 million active customer accounts and over Euro 14B in GMV (gross merchandise volume). We believe Zalando is building a department store for the online world. This includes fulfillment solutions and marketing services. 

Over the last 5 years, this GMV has been growing at a 26 per cent CAGR. Management targets over 30B Euro in GMV by 2025, this would represent a 20+ per cent CAGR for the next 4 years. We think the stock will approach $50.00 as the management team continues to successfully execute their strategy.