Ross Healy, chairman at Strategic Analysis Corporation and portfolio manager at MacNicol & Associates Asset Management
Focus: North American Large Cap Stocks

MARKET OUTLOOK 

I feel like a stranger in a strange land in this market environment. Having come through the “Nifty Fifty” and “dot-com” eras, I thought in my 55 years in this business I would have seen it all. Yet, an economy and stock market the fiscal and monetary authorities seek to keep afloat by endless stimulus is more reminiscent of many other economies in the past that have failed to reign in spending and paid the price. Unlike many optimists, I expect whatever recovery we do get will be weak and sub-par as, from our solvency point of view, the U.S. economy is trapped under the dead weight of unproductive debt. Luckily, the current Fed chairman, the election of Joe Biden (who now has control of the Senate) and the probable elevation of Janet Yellen to Treasury Secretary do not suggest the stimulus pedal is coming off the metal anytime soon. We have seen the U.S. 10-year yield rise above 1 per cent for the first time since before the COVID-19 pandemic, which we are keeping an eye on. 

With that as a background and using our analytical methodology, the S&P 500 has made a technical breakout very recently which, if it holds in the near term, could carry an additional 25 per cent up from here, supporting values be damned. But it must hold: a failure to do so could signal a false breakout, which can often lead to an uncomfortable correction. 

I am sure stunning volatility lies ahead as many of the current market values are unsustainable. But short term? Holding above an S&P 500 Index price of $3,750 promises more in the next little while.

TOP PICKS

Manulife (MFC TSX)
Manulife is both historically cheap and should benefit from rising interest rates, which will help their investment margins. Earnings forecast levels barely registered any change during the entire COVID-19 down swing.

Fortuna Silver (FVI TSX)
Fortuna is a silver producer with a modest, decent gold component. The shares trade at about two times book and historically have been much higher when gold and silver have been on the move, which is the situation today.

Aecon (ARE TSX)
Aecon trades at about its book value and is relatively cheap historically. The fair market value would suggest higher prices ahead, the company has a good balance sheet, and I would suspect that with infrastructure spending coming down the pipe, this company will be well-situated to benefit.

PAST PICKS: JAN. 7, 2020

Imperial Oil (IMO TSX)

• Then: $34.52
• Now: $27.49
• Return: -20%
• Total Return: -17%

Barrick Gold (ABX TSX)

• Then: $24.01
• Now: $30.19
• Return: 26%
• Total Return: 27%

Manulife Financial (MFC TSX)

• Then:  $26.84
• Now: $23.91
• Return: -11%
• Total Return: -6%
• Total Return Average: 1%

Company Twitter: @svaInsights 
Company Website: Strategicanalysis.ca