Ross Healy, chairman Strategic Analysis Corporation; portfolio manager, MacNicol & Associates Asset management

FOCUS: North American large cap stocks 

MARKET OUTLOOK:

First and foremost, there is no point in pretending that the outlook right now is all sunshine and flowers.

When we look at cash on the sidelines in the form of those short-term money market funds, and the fact that margin debt has really declined, hedge funds are being very defensive. Coupled with the apparent investor impulse to leap back into the market if, as, and when interest rates do start to tumble, we have ourselves a witches’ brew of poor fundamentals combined with a FOMO mentality.

When I look at the market today from the point of view of our own analysis, what I see is the powerful possibility of breakout on the upside, perhaps even to new highs for the S&P 500 (although probably not for the NDX 100). The S&P/TSX Composite Index itself may actually be breaking out as I speak today, in response to gold and oil prices and commodity prices in general. However, I want to see what the first quarter balance sheet changes will bring before I can be certain. For your information, the S&P breakout level is between 4,200 to 4,300 depending on first quarter balance sheets.

My personal concern is that if the market is breaking out, led by the TSX (which actually does possess strong and positive upside potential compared to the negative potential of the S&P 500 and the NDX), then a subsequent move might be fairly significant in a short period of time.

My real concern, however, is that a breakout here could carry the S&P 500 into very rarified air and expose investors to large downside risks if the slightest thing goes wrong.

If this breakout happens, my advice is to stay with defensive quality, although you may be sorely tempted to get back into garbage.

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TOP PICKS

Agnico Eagle Mines (AEM TSX)

The golds are shining again as central banks shun the U.S. dollar.AEM is a nice combination of a company with a strong balance sheet  and company with a lot of development properties to exploit.

Paramount Resources (POU TSX)

Underinvestment in energy exploration, but increasing demand both domestically as well as the developing nations, OPEC cutbacks, and slow but steady U.S. shale deposit exhaustion would point to higher oil and gas prices ahead.

iShares US Regional Banks ETF (IAT NYSEARCA)

A cautious dip into a group which is very cheap but still under considerable concern from investors (and depositors) suggests that the group is becoming cheap enough to start accumulation. I would suggest an exposure to an ETF rather than trying to pick single winners, but done slowly and deliberately. One percent now and another one percent every, say two months might be able to catch the bottom for the share prices, and bring an investor to around five per cent exposure to the group. 

PAST PICKS: April 4, 2022

Teck Resources (TECK.B TSX)

• Then: $51.09
• Now: $64.53
• Return: 26%
• Total Return: 29%

Birchcliff Energy (BIR TSX)

• Then: $8.72
• Now: $8.26
• Return: -5%
• Total Return: -0.5%

Atco (ACO.X TSX)

• Then: $43.25
• Now: $44.69
• Return: 3%
• Total Return: 8%

Total Return Average: 12%