Peter Hodson's Top Picks
Peter Hodson, founder and head of research at 5i Research
Focus: North American stocks
They say the market climbs a wall of worry. If you didn't believe this before, you sure have to believe it now. So many things to worry about and yet here we are, with the Dow Jones at a record high.
Pessimism is rampant, and that is one factor that leaves us on the bullish side. Investors moved to cash, got scared in March and are now faced with a dilemma: Buy into the market at highs or accept zero percent interest rates? We bet it's the former.
Let's look at what happened: The entire world closed up this year and yet business found a way to carry on. Some companies reported strong growth, some companies reported exceptional growth. Let's repeat that: the world closed down and yet companies still found a way to make money. Investors who stayed the course have ended up with a decent year. Next year, we have the Fed practically guaranteeing low interest rates, a vaccine on the way, lots of cash around and year-over-year earnings comparisons which should be very easy for companies to show good growth. We will have a new, more stable president in the White House, yet with a split Congress investors and companies will likely keep all the tax breaks they have come to know and love. Sure, high debt and high taxes are going to be a problem down the road, but next year could be fine as consumers leave their houses, open their wallets and get their lives back together again.
Palantir Technologies (PLTR NYSE) last purchase price $15.
We are generally quite cautious on IPOs, but we like how the company is setting up long-term growth. It has never made money in 17 years, yet still did not need money on its listing and chose a direct listing instead (no cash raised). It is a misunderstood company, but in essence it is in data analytics, a very fast growing field. It has high customer retention and its earnings leverage is big: margins will increase as it overlays its software solutions on a growing customer base. It is not going to be a company that focuses on quarterly results; it has a long-term game plan in mind here. Forty per cent revenue growth is expected next year.
Nvidia (NVDA NASD) last purchase at $206.
Nvidia reports tomorrow, so there is some short-term risk. However, its chips are simply better and faster than the competition. Data centres are now a bigger customer than gaming, but it is the “other” sectors that are more interesting. Nvidia is at the forefront of more than half a dozen high growth industries: Virtual reality, automation, autonomous driving, robotics and augmented reality. Its core businesses are solid, with additional upside potential as these other sectors grow. It’s still run by its founder. We think it is one of those companies you just buy and hold forever. When the robots take over the world, they will probably be running on Nvidia chips.
Pinterest (PINS NYSE) last purchase at $15.
This was bought as a short-term trade in March, but then the company reported very strong growth, strong customer additions and higher margins than peers. More work was done, and we like it better now even at a higher price. We all know about the growth of online shopping, and Pinterest essentially enhances the experience. Its audience can be very targeted by advertisers. Unlike some peers, it is going to be highly profitable soon, with per-share earnings expected to triple next year. We also think it would make a solid acquisition candidate for a larger media company. It has $1.6 billion cash and revenue is expected to double from 2019 to 2021 estimates.
PAST PICKS: JAN. 23, 2020
Kinaxis (KXS TSX)
- Then: $114.46
- Now: $162.81
- Return: +46%
- Total Return: +46%
Lightspeed (LSPD TSX)
- Then: $45.60
- Now: $51.95
- Return: +14%
- Total Return: +14%
CAE Inc. (CAE TSX)
- Then: $38.48
- Now: $29.68
- Return: -23%
- Total Return: -23%
Total Return Average: +12%