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

FOCUS: North American large-cap stocks 

MARKET OUTLOOK:

We believe this type of persistent strength we saw in October and November isn't the sign of a bear market rally, but likely the start of a new bull. That's not to say we think the market is going straight up from here. We believe it will be a choppy, volatile recovery as investors digest macro-economic data, interest rate discussions and corporate earnings results. We're in the midst of our third rebound of the year, with the S&P 500 still down double digits due to the influence of the tech sector.

All three attempts at a recovery (March, July and October) started as a result of "U.S. Federal Reserve pivot hopes." This latest one might run out of steam and consolidate soon but there are indications we have started the upswing. Fed Chair Jerome Powell all but confirmed that the Fed will pivot on rate hikes in 2023. Next week we get U.S. inflation data, an interest rate decision and Fed comments. Should we see positive results and commentary that supports his latest statements, we could see this market rally harder into the end of the year.

Ultimately, there will be two main drivers of market direction over the next 12 months. Including the degree of inflation ahead, in turn Fed policy, and how much damage will be inflicted on the economy to bring inflation under control. These two catalysts will remain the primary influences on earnings and stock prices in our view. Short-term, the markets are in overbought territory following a double-digit rally since the mid-October lows. With overbought conditions, along with expected choppiness ahead, we maintain our overall stance to refrain from chasing the rally periods and to build further exposure in the weak periods.

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TOP PICKS:

ABBOTT LABORATORIES (ABT NYSE)

Abbott Laboratories is a multinational medical device and health-care company, a sector that typically holds up well in recessionary periods. Abbott sells medical devices, diagnostics, branded generic medicines, and nutritional products. Even with the price pulling back 25 per cent this year, it has still averaged nine per cent annually over the last three years and 16 per cent annually over the last five. We expect that growth to continue longer-term as its revenue and earnings growth have been consistent and the company enjoys excellent profit margins. Fundamentally, it scores a perfect 10/10 for us and as a giant in the health care industry with a diverse business, it generates over $1 billion in revenue every quarter from multiple segments. Abbott pays a 1.7 per cent dividend which is in line with the S&P 500 but as also increased its dividend over the past 50 years in a row.

BANK OF MONTREAL (BMO TSX) Bank of Montreal

I like the Canadian banking sector right now, and BMO is one of my top three. The Canadian bank also raised its dividend by three per cent and now yields 4.6 per cent. BMO’s commercial customers are holding up well in the lending segment. The chief executive officer said that the bank will see demand drop slightly as the economy weakens, but as the economy enters a recessionary period, BMO is in a strong position. It had strong loan growth in 2022. The Canadian bank group as a whole faces headwinds of elevated consumer leverage and stretched housing affordability. BMO, on the other hand, has the least exposure to the Canadian consumer and Canadian residential mortgages.

CANADIAN NATURAL RESOURCES (CNQ TSX)

With geopolitical dynamics sparking a radical shift in the hydrocarbon energy space, we feel it’s time to consider the best natural gas stocks to buy now. Canadian Natural Resources is a senior oil and natural gas firm that has seen the price climb 48 per cent since the beginning of the year, but we believe still has more room to grow. Consensus price target is $93 which is another 25 per cent upside potential plus the dividend. CNQ provides a healthy dividend yield of 4.5 per cent with a payout ratio that sits at just under 34 per cent, making it an attractive dividend play. The company enjoys a good balance sheet with solid profit margins.

PAST PICKS: September 30, 2022

AMAZON (AMZN NASD)

• Then: $113.00
• Now: $89.68
• Return: -21%
• Total Return: -21%

TELUS (T TSX)

• Then: $27.43
• Now: $28.25
• Return: 3%
• Total Return: 4%

ENBRIDGE (ENB TSX)

• Then: $51.22
• Now: $53.66
• Return: 5%
• Total Return: 6%

Total Return Average: -4%