Ross Healy, chairman of Strategic Analysis Corporation and portfolio manager at MacNicol and Associates Asset Management

FOCUS: North American large cap stocks

MARKET OUTLOOK:

On February 17, I stated on BNN Bloomberg that we had no indication at all that we were in anything but an ongoing bull market. And this particularly pertained to Canada, where all the signs pointed to a higher TSX index in the months ahead. What I saw then was that the NASDAQ 100 in particular was correcting, but the TSX — and value stocks in general — were holding in like a rock.

Since then, the NASDAQ 100 and the S&P 500 fell precisely to extremely strong technical support and both markets have rebounded strongly from those measured lows. In other words, we got two market buy signals at the March 14 lows.

Why does the TSX look so good? First, the fair market value of the TSX is positive, being 33 per cent higher than its current price. The NASDAQ 100, even after its setback, remains 35 per cent over-valued, while the S&P is about 10.8 per cent over-valued, although if I eliminate the FANGs from the S&P 500 weightings, the FMV potential of the S&P 500 is a modest but positive +0.2 per cent. I believe that there are still good value opportunities in that index.

Second, the TSX is a commodity index, and during inflation and shortages, this is where one should be. Third, the pendulum swings between the U.S. and the Canadian stock markets in terms of the best place to be. After 12 years of underperformance, it is swinging back to Canada, as the country is far cheaper and less risky that the general U.S. markets.

Going forward, Canada will remain an investment market and the U.S. a trading market. There will be lots of opportunities to play rebounds in the U.S. although you will need to be nimble – which is the sort of information that our SVA service provides our clients.

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TOP PICKS:

Teck Resources (TECK.B TSX)

We have to have one commodity stock that has exposure to a number of metals commodities as well as coal. In a commodity boom, historically the stock has been valued a lot higher than it is today. It is also breaking out technically, from my point of view, and I suspect that it could still go a long way.

Birchcliff Energy Ltd (BIR TSX)

I like the energy stocks in general. It’s in both the oil and gas business, with some emphasis on gas- which I suspect will be in hot demand for some time to come.

Atco Limited (ACO.X TSX)

A cheaper way into Canadian utilities, it has a smaller dividend yield but has grown faster over the years. The stock is close to its very long-term low valuation at its book value.

PAST PICKS: July 5, 2021

Alamos Gold (AGI TSE)

• Then: $9.71
• Now: $10.89
• Return: 12.15%
• Total Return: 13.13%

ARC Resources (ARX TSE)

• Then: $10.69
• Now: $17.42
• Return:  62.95%
• Total Return: 65.44%

Alibaba Group Holding Ltd - ADR (BABA NYSE) *date used - July 2 - U.S. markets closed on July 5*

• Then: $217.75
• Now: $114.96
• Return: -47.20%
• Total Return: -47.20%

Total Return Average: 31.37%