Teal Linde, manager at the Linde Equity Fund
Focus: North American mid and large caps

MARKET OUTLOOK

What might move markets in 2021?

On the positive side, the economy is improving as we enter 2021. As a “shock-to-the-system” type of recession, released pent-up demand particularly for services will likely support economic growth in the second half of 2021. Central banks appear reluctant to remove monetary stimulus and interest rates on the shorter end will likely remain low.      

However, the market does face some challenges in the coming year. Possible disruption from rising COVID-19 lockdowns exists. The vaccine rollout may not go as smoothly as expected particularly if people are reluctant to receive it. These shorter-term challenges are of lesser concern than longer-term ones including higher government debt levels, potential higher taxes to pay for fiscal stimulus, rising interest rates and rising inflation resulting from enormous monetary stimulus unleashed this year.  

Extreme valuations in the IPO market and euphoric sentiment in the options market also reveal growing risks. Overvaluation does not trigger bear markets, but it does indicate significant downside when the zero interest rate/endless money printing bubble pops.

Markets are notoriously difficult to predict. In 2018, a massive U.S. tax cut boosted corporate profits, yet markets ended 2018 in the red. In 2020, the economy suffered its worst recession in decades and the market is up.  It’s key to buy companies where you have a high conviction of above average profit growth over many years. When you get this right, the share price will follow.

TOP PICKS

EQUINOX GOLD (EQX TSX)
Last purchased on July 14 at $15.

Led by Ross Beaty as chair, Equinox Gold is a multi-asset mining company and one of the only large gold producers operating entirely in the Americas. The company has seven mines in the U.S., Mexico and Brazil and is advancing three growth projects expected to significantly increase production. Equinox aims to grow annual production to one million ounces of gold within three years, up from roughly half a million ounces in 2020. Last week Equinox announced it was acquiring Premier Gold Mines and its 50 per cent ownership share of HardRock, one of Canada’s largest higher grade open pit gold mining projects. With the acquisition of Premier, Equinox will have assets equally spread across Canada, the U.S., Mexico and Brazil, including many internal growth projects, giving the company one of the fastest growth profiles among its peers.

SELECTQUOTE (SLQT NYSE)
Last purchased on Dec. 18 at $22.77.

SelectQuote, which IPO’d in May, is an insurance distributor providing unbiased comparisons of multiple, highly-rated insurance companies to consumers. The company is harnessing two major trends in the U.S.: a growing number of seniors adopting Medicare Advantage, an “all-in-one” alternative to public Medicare offered by private health insurers; and the accelerating trend of digital transformation within insurance distribution. Consumers demand greater choice, seek more transparency in pricing, and use the internet to research their insurance options. Nearly 70 per cent of SelectQuote’s business is focused on the rapidly expanding MA insurance segment. The increasing complexity and number of MA plans available each year (over 3,000 MA plans exist in the U.S. and the average beneficiary is able to choose among 28 plans) is making it more challenging for seniors to make proper health insurance decisions. By taking market share away from traditional insurance agents, SelectQuote is enjoying over a 25 per cent growth rate while trading at a relatively reasonable valuation.

ARITZIA (ATZ TSX)
Last purchased on Dec. 11 at $23.93.

Aritzia is expected to emerge from COVID stronger than most apparel thanks to its exceptional e-commerce platform, small brick and mortar footprint, unique operating model, and brand positioning. Aritzia’s e-commerce revenues grew 82 per cent in Q2. Assuming trends continue, 50 per cent of 2021 sales could end up being e-commerce revenues, up from 23 per cent the previous fiscal year.  While COVID has presented serious challenges for the retail industry, it has also created opportunities for Aritzia in real estate, talent acquisition and product expansion. E-commerce offers a broader range of merchandise than is possible in its physical stores. Aritzia has a five-year plan with 18 specific initiatives to broaden its online offering.  This includes expanding the depth sizes, lengths, colours, styles as well as new categories such as bags, beauty, swimwear and intimates.

PAST PICKS: DEC. 16, 2019

ROYAL BANK (RY TSX)

• Then: $104.80   
• Now: $102.93
• Return: -2%
• Total return: 3%

ALPHABET (GOOGL NASD)

• Then: $1360.70
• Now: $1701.27
• Return: 25%
• Total return: 25%

FACEBOOK (FB NASD) 

• Then: $197.92
• Now: $269.52
• Return: 36%
• Total return: 36%

Total return average: 21%