Brianne Gardner, wealth manager and investment advisor, Velocity Investment Partners, Raymond James

FOCUS: North American large-cap stocks 

MARKET OUTLOOK: 

We have some historically unique challenges right now, but we’re also heading into a seasonally great period. For the first time since tracking began, both stocks and bonds are down double digits at the same time. What makes now difficult is that we are not yet in a recession and the economy is still growing, but equity markets are trying to price in the potential size of the next recession while interest rates are still climbing and the bond market is trying to price in how much higher they will go. This has resulted in the typical defensive investment areas like bonds, utilities and telecoms not holding up as well as they typically would in these conditions. 

It's predicted that unemployment will have to climb as high as 7.1 per cent to get inflation down to the targeted range. Realistically, we see it getting to maybe 5-6 per cent, up from the 3.5 per cent now, before the U.S. Federal Reserve feels that we’re balanced enough. We believe the Fed made a mistake last year in waiting too long to raise rates and now raising them too fast and too high, so it will have to bring them back down at least a little next year. However, the first step is to see a pause on increases. We’re looking for that pivot to happen sooner than later even though the Fed continues to state they may do another 75-point hike this year and has been quite vocal that they have no intentions of cutting rates anytime soon. It will be data-dependent of course, but unless inflation stays above seven per cent through year-end and consumer spending doesn’t continue to weaken, we feel that we’ll at least see a softening in its wording. Something markets will look favourably upon. If the Fed hints at a potential rate cut next year, stocks will rally in a major way – as they always historically have. Until then, we remain defensive, collecting dividends from high-quality businesses and holding some extra cash on the sidelines.

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TOP PICKS:

Amazon (AMZN NASD)

Most recent purchase Sept. 23, 2022– Price bought = $112.39

Amazon recently increased its spending by around 40 per cent on warehouses and transportation capacity. Amazon plays into several relevant industries and is not just e-commerce, which clearly is massive. Rather, the company delves into other segments, such as cloud computing and even streaming content. Year-to-date the stock is down over -30 per cent with the average analyst on the street having a price target of $167 presenting a nice +45 per cent potential gain opportunity for investors over the long run, although there might be some short-term volatility for the stock before that.

Telus (T TSX)

Most recent purchase June 22, 2022– Price bought = $28.64

Telus stock started the year off strong and is still holding up quite well year to date only down around four per cent. The street has a price target of $34/share with a potential upside for investors of over 20 per cent. Internet and wireless connectivity are as vital as water and power in today’s modern world. Its stable earnings make it a good defensive stock. Not to mention the five per cent dividend yield it offers investors, which is a reason to own this defensive stock alone. Fundamentally the stock ranks at an 8/10 and is a core holding in our portfolios, with the recent sell-off pushing the stock down below $30/share, this is presenting a great buying opportunity for long-term investors to pick this stock up.

Enbridge (ENB TSX)

Most recent purchase December 29, 2021– Price bought = $48.81

Talk about a dividend king! After pulling back slightly from its highs –seven per cent over the past month, Enbridge now offers a dividend yield of more than 6.6 per cent! It has a dividend-growth streak of 26 consecutive years, and its business operations are incredibly important to the North American economy. Year-to-date the stock is up ~11 per cent and ranks 8/10 on both a value and fundamental score for us. The company carries roughly 30 per cent of all the crude oil produced in North America. The energy sector is the only positive sector YTD and Enbridge is participating as well. If you’re a dividend investor, this stock is still a buy at these levels to add yield and increase your energy exposure while picking up a quality company.