Alex Ruus, portfolio manager, Arrow Capital Management

FOCUS: North American stocks

MARKET OUTLOOK:

After several years of monetary policy tightening from the central banks with interest rates rising to roughly five per cent, it appears they are now done with the majority of their tightening. Inflation looks like it has stabilized and is starting to fall, but the bad news is economic growth has also started to slow and some economies appear to be in recession.

With a slower economy, 2024 will be a tougher year for profits and as the stock market level is a product of profits times a multiple, the general market is in for a choppy year. The vast majority of market gains in 2023 came from a handful of mega-caps that rose on stronger profits and a lot of expansion of the multiple applied by the market to those earnings.

With current interest rates, we are not going to see multiple expansions for these mega-caps in 2024. We find it likely that many of these 2023 winners are going to trade down or sideways this year and given their large weighting in the stock market indices, the indices are likely in for a tougher year. With those cautionary comments said, the market remains a collection of many companies, many of which have their own business dynamics, and each of which is recognized or not recognized by the market. The market has overlooked many of these companies and their stocks will thrive in the year to come.

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TOP PICKS:

Polaris Renewable Energy (PIF TSX)

An undervalued green power producer trading at just 15 times earnings and a 6.4 per cent dividend.

Pfizer (PFE NYSE)

A global leader in Pharmaceuticals trading at only 12 times earnings and a 6.1 per cent dividend. 

Keyera (KEY TSX)

A leading operator of key energy infrastructure throughout Western Canada trading at just 15 times earnings and a six per cent dividend yield.

PAST PICKS: FEBRUARY 13, 2023

Freehold Royalties (FRU TSX)

• Then: $15.87
• Now: $13.84
• Return: -13%
• Total Return: -6%

Enbridge (ENB TSX)

• Then: $54.54
• Now: $48.04
• Return: -12%
• Total Return: -5%

Element Fleet (EFN TSX)

• Then: $18.90
• Now: $22.85
• Return: 21%
• Total Return: 23%

Total Return Average: 4%