Darren Sissons, vice-president and partner, Campbell, Lee & Ross 

FOCUS: Global and technology stocks 

 MARKET OUTLOOK:

The markets have entered a period of heightened volatility that will continue for the foreseeable future. That volatility spike created both significant portfolio strain and attractive opportunities for new investments.

The first half of 2022 was dominated by interest rate policy announcements and commodities, which collectively drove a sizable market decline. The bear market reversal, which occurs when market direction changes in a bear market from falling to rising prices, has eliminated much of that first-half 2022 downside. However, interest rates continue to rise and September should see higher interest rates in both the U.S. and Canada. Interest rates are also rising across the globe as central banks coordinate rates higher. The commencement of quantitative tightening, which is the opposite of quantitative easing, also known as money printing, began in June 2022. It will progressively drain liquidity from markets, creating downward pressure on valuations. Equally so, the Ukraine conflict, which triggered global anxiety over energy, remains an ongoing concern. On balance, the underlying drivers of risk-off in the first half of 2022 remain elevated and a market retracement is likely. Defensive portfolio positioning is therefore key near term, as is a cash cushion

While risk remains elevated, the sell-off has generated a plethora of attractive investment opportunities. Commodities are a net beneficiary of inflation and will continue to reward investors until it is tamed. Energy, a commodity subclass, looks attractively priced at current levels especially given the continuing Russian supply constraint and the likelihood of a cold European winter. Regionally, the U.S. is expensive as is the U.S. dollar but European and Asian companies are inexpensively priced as they carry a hefty political risk discount as do their currencies. 

Given the above and as mentioned in prior appearances, investors should re-visit their risk management protocols and refine them where necessary. Prune poorly performing investments, consider taking profits on successful investments and raise cash. Investors should recognize risks are high and position accordingly. However, they should also be mindful that market sell-offs create excellent entry levels to lock-in long-term core holdings at attractive prices. Perhaps most importantly, investors should be mindful of the phrase, you make money when you buy not when you sell.

• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
• Listen to the Market Call podcast on iHeart, or wherever you get your podcasts

TOP PICKS:

Auckland Airport (AIA NZX)

1) New Zealand was fully re-opened from the COVID-19 lockdown to international markets in June 2022. 2) June passenger volumes are up 145 per cent month-over-month. 3) Revenge trade will endure. 4) Domestic and international airlines have announced a slew of new routes in and out of Auckland. 5) Operating leverage associated with higher passenger volumes will drive higher profitability via parking, retail and hotels. 6) Re-development plans largely on hiatus during the COVID-19 lockdown will re-start including a new runway and other expansion additions to support surging demand.  7) The U.S. ADR ticker is AUKNY.

Chocoladefabriken Lindt & Spruengli AG (LISP SWX)

1) A growing dividend currently yielding 1.1 per cent. 2) An asset light business model that requires little capital to grow. 3) Confectionary is a growth industry tied to rising incomes. 4) Given rising inflation and expected economic pain in 2023, small luxuries will provide consumers with affordable treats. 5) Strong balance sheet. 6) Lindt’s pension plan owns 21 per cent of the company. 7) A consistent long-term performer as Total Return in Canadian dollars has grown at an average of 12.7 per cent and 16.6 per cent per annum over the five and 10-year periods, respectively.  

Shell Plc (SHEL NYSE)

1) An attractive growth dividend currently yielding 3.7 per cent. 2) US$19 billion of share buybacks for 2022. 3) Balance sheet is rapidly de-leveraging. All else being equal, Shell will be net-debt-free by 2024. 4) A renewables pivot that provides optionality. 5) Given its strong balance sheet and high free cash flow Shell, provides a suitable platform to ride the inflation and energy political risk trades.   

PAST PICKS: September 16, 2021

Johnson & Johnson (JNJ NYSE)

• Then: $165.22
• Now: $165.44
• Return: 0.1%
• Total Return: 3%

BHP Group (BHP NYSE)

• Then: $58.11
• Now: $58.19
• Return: 12% 
• Total Return: 18%

 Visa (V NYSE)

• Then: $224.33
• Now: $206.38
• Return: -8%
• Total Return: -7%

Total Return Average: 5%