Barry Schwartz, chief investment officer and portfolio manager, Baskin Wealth Management

FOCUS: North American large-cap stocks 

MARKET OUTLOOK:

 We do not wish to minimize the extent of the market decline in 2022. The period to Sept. 30 has seen the largest drop in the value of bonds in history. The drop of 24 per cent for the S&P 500 is a gigantic drawdown for the most important stock index in the world. The fact that there has been almost nowhere to hide has made this bear market even worse. Those investing in alternative assets have seen redemption freezes and defaults. The brave (or foolhardy) dabblers in cryptocurrency have seen losses that in most cases dwarf those of the stock market.

A recent research study examined the behaviour of investors during and after the great financial crisis of 2007-08. It found that more than 30 per cent of investors who had sold in fear during that period never got back into the market. They missed the greatest bull market in history which saw the S&P 500 go from 667 to 4,809, a gain of 618 per cent, in a period of 12 years.

We can’t predict a similar gain in the years ahead, we simply don’t know. We certainly expect values to recover the highs of late 2021 and to exceed them over time. We do know that those who let their emotions overrule their rational sides run the risk of missing out, as did the sellers in 2009. If we could go back in time, we would have told them, “See, this too shall pass.” And it did.

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TOP PICKS:

Domino’s Pizza (DPZ NYSE)

We believe Domino’s stock is attractive going into a recession with Domino’s given its takeout and delivery options are relatively affordable. Domino’s has maintained most of its market share gains from COVID lockdowns and has offset driver shortage issues with price increases and strong carryout volumes. Longer-term, we believe Domino’s business model for fast, affordable pizza and strong franchisee returns will support store growth both in the U.S. and Internationally.

CCL Industries (CCL.B TSX)

CCL Industries is the largest producer of labels in the world for everything from beer bottles to clothing tags to stickers. CCL’s strategy is to focus on high-end labels with special features and CCL is a trusted partner for global consumer products firms to help differentiate its products and expand into emerging markets. CCL has a terrific track record of making opportunistic mergers and acquisitions including the acquisitions of Avery Dennison’s Office Products business and Checkpoint Systems at low multiples from motivated sellers. We believe CCL shares are attractive at multi-year low valuations and a clean balance sheet allowing for more acquisitions.

Ferrari (RACE NYSE)

 As one of the strongest brands in the world, Ferrari is a rare business that has nearly unlimited pricing power. Ferrari intentionally restricts production to maintain scarcity and support aftermarket values and order books for new Ferraris extend well past a year. We believe Ferrari has the opportunity to increase pricing and volumes into the next decade through electric cars and adjacent categories such as the new SUV which was sold out immediately at EUR 390,000, and expect corresponding share price performance over the long run.  

PAST PICKS: October 22, 2021

Amazon (AMZN NASD)

• Then adj. after stock split: $166.77
• Now: $112.96
• Return: -32%
• Total Return: -32%

Paypal (PYPL NASD)

• Then: $240.40
• Now: $89.16
• Return: -63%
• Total Return: -63%

Charter Communications (CHTR NASD)

• Then: $730.93
• Now: $362.32
• Return: -50%
• Total Return: -50%

Total Return Average: -48%