Zachary Curry, director and portfolio manager, Greenrock Capital Partners

FOCUS: North American large caps

MARKET OUTLOOK:

There has definitely been no shortage of doom and gloom headlines over the past six months. While we agree that the overall market performance has been negative – for virtually all asset classes – we believe that it is important to remember that nobody can predict the short-term direction of markets with any consistency and accuracy.

History tells us, however, that over the long-term, stock markets overall have many more years of positive returns than negative ones – and that the overall return is positive. Over the past 50 years, the S&P 500 index has generated an average annualized return of approximately 9.4 per cent. In certain years returns are higher and in certain years returns are lower, but in the past 50 years, the S&P 500 index has gained value in 40 of those 50 years. What we do know, is that after periods of market declines, returns for periods going forward become that much more attractive.

With the decline in markets so far, the prospects for a number of companies and sectors look that much better. Bank stocks are yielding more than four per cent in most cases (in Canada), and unemployment levels are at historic lows (which bodes well for debt repayment – even with interest rates rising). Even though oil and natural gas prices are off their highs for the year, they remain more than 45 per cent higher than they were at the start of 2022. As a result, energy companies have been generating record amounts of cash flow and have been returning this cash to shareholders. Technology companies have some of the best balance sheets and offer products and services that are best-in-class and remain high in demand. These attractive prospects for companies in three different sectors also highlight the importance of a well-diversified portfolio.

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TOP PICKS:

Tourmaline Oil (TOU TSX)

Tourmaline Oil is a Canadian energy company engaged in the exploration, development and extraction of crude oil and natural gas. It became the largest natural gas producer in Canada in 2021. The shares currently yield 1.4 per cent, however, this is supplemented by special dividends ($1.50/share over the last three quarters) with two more expected to follow in 2022. TOU has one of the best balance sheets in the industry and a proven management team that has experience and significant equity ownership in the business.

American Tower (AMT NYSE)

American Tower is an American real estate investment trust and an owner and operator of wireless and broadcast communications infrastructure in several countries worldwide. The rollout of 5G (primarily in the U.S. and Europe) should result in continued ARPU growth and the need for additional services to fill in any coverage gaps. AMT has inflation-linked escalators in a number of countries, which are normally based on a trailing 12-month average. Management remains focused on organic growth and reducing leverage in 2023.

Merck & Co. (MRK NYSE)

Merck & Co. is a global healthcare company that delivers innovative health solutions through its prescription medicines, vaccines, biological therapies and animal health products. Merck has a robust pipeline, with a wide range of product candidates across each phase of development. MRK recently completed the acquisition of Acceleron Pharma Inc., which will allow the company to continue growing its cardiovascular portfolio. Management raised its revenue and earnings guidance in the first quarter of 2022. MRK shares currently yield 2.9 per cent. 

PAST PICKS: April 16, 2020

Visa (V NYSE)

• Then: $162.42
• Now: $210.01
• Return: 29%
• Total Return: 31%

Microsoft (MSFT NASD)

• Then: $177.04
• Now: $258.27
• Return: 46%
• Total Return: 49%

Amazon.com (AMZN NASD)

• Then: $2408.19
• Now: $114.59 (20-for-1 stock split June 6)
• Return: -5%
• Total Return: -5%

Total Return Average: 25%