Ross Healy, chairman, Strategic Analysis Corporation; portfolio manager, MacNicol & Associates Asset Management
FOCUS: North American large cap stocks

MARKET OUTLOOK:

I have been steadfast for the last few times that I have appeared on BNN Bloomberg in my “forecast” that the S&P 500 is very likely to reach up to its high valuation of the year 2000, which was 4.5 times its adjusted book value, one of our critical mathematical values. That target currently stands at roughly 5250 although it is likely to rise somewhat from here as the new balance sheets come in, during and following this earnings season. 

As the market heads higher and higher, I find it interesting to note that more and more people are becoming complacent about the stock market and are more than willing to forecast higher and higher prices into 2022, regardless of the degree of extendedness of many current valuations, and the departure of those prices from their intrinsic values. Although one can never say “never” about where prices and valuations can go, nevertheless when the market gets there – note: I didn’t say “if” – I will be watching a few key areas and stocks – my canaries in the coal mine, as it were.

One area that I will be watching, and actually have been watching closely for some time now, is/are the FANG stocks, the leaders to the upside since 2009. To me, they represent the apotheosis of everything that has worked in the stock market, and if they break, then I suspect that it is all over. Amazon in particular would be one stock – perhaps THE one stock – that would signal the beginning of the end. AMZN barely budged during the actual COVID sell-off, so I suspect that it warrants a lot of attention because it is actually such poor value, but holds in nicely anyway. 

TOP PICKS:

This time around, given that BNN Bloomberg is asking me for stocks looking one year ahead, I would almost prefer to pick three industries than individual stocks. If our analysis is more or less correct, in one year’s time, stocks in the Canadian (and probably the U.S.) banking industry should do well, the oil stocks are not done yet, and bullion and therefore the gold stocks should all do well. There could be some volatility, of course, but I expect that portfolios that are well-weighted here should prove to be winners over the next 12 months.

If you want specifics, I would choose the following individual stocks, with no comfort or guarantees that they will outperform their industry. The market – yes. Their industry, who knows?

Laurentian Bank (LB TSX)
Banking Pick
The big five are all a much-of-a-muchness and I like them all, but LB could be a winner as it is still quite cheap relative to its own history.

Crescent Point Energy (CPG TSX)
Oil Pick
CPG has an excellent balance sheet, superb fair market value potential, and has just given us a good buy signal at a really key technical market breakpoint.

Torex Gold Resources (TXG TSX)
Gold Pick 
The company has a strong balance sheet, excellent fair market value potential, and is cheap relative to itself.

PAST PICKS: November 18, 2020

Tourmaline Oil (TOU TSX) 

• Then: $17.93
• Now: $44.29
• Return: 147%
• Total Return: 155%

Alamos Gold (AGI TSX) 

• Then: $11.37
• Now: $10.23
• Return: -10%
• Total Return: -9%

Laurentian Bank (LB TSX) 

• Then: $31.01
• Now: $41.50
• Return: 34%
• Total Return: 39%

Total Return Average: 62%