Christine Poole, chief executive officer and managing director, GlobeInvest Capital Management

FOCUS: North American large caps

MARKET OUTLOOK:

Hindsight is 20/20. The fiscal and monetary policy responses to the pandemic imparted outsized imbalances to many economies. The resurgence in demand for goods and services in conjunction with constrained supply caused inflation in many countries to spike to multi-decade highs, with many central banks underestimating its enduring impact.

Central banks have embarked on a rapid pace to raise interest rates to ensure that elevated inflation does not become entrenched. The trade-off between inflation reduction and excessive tightening could lead to a recession that overhangs financial markets.

The U.S. Federal Reserve’s dual mandates of price stability and maximum employment will be tested next year. Fed Chair Jerome Powell has emphasized numerous times that a strong labour market cannot be sustained without price stability, suggesting a willingness to accept higher unemployment and tighter financial conditions to restore price stability. The labour market remains stubbornly robust and requires additional restrictive policy measures to weaken it. That said, it appears increasingly likely that we are closer to the end of this hiking cycle. However, an outright pivot to monetary easing remains farther off and is dependent on how quickly inflation recedes back toward two per cent and how much economic pain is induced during the process.

Higher interest rates are achieving the desired impact of slowing economic growth whilst the full impact is yet to be fully felt. History has proven that the ability to accurately forecast the timing, depth and duration of a slowdown is low. 

Instead, we focus on analyzing incoming data, interpreting their potential impacts on companies, assessing the extent to which they are reflected in stock prices and responding only if there will be long-term consequences. Owning a diversified portfolio of quality income and growth stocks equipped to withstand economic cycles will create wealth over the long term.

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TOP PICKS:

Dollar Tree (DLTR NASD)

Dollar Tree is an operator of discount variety retail stores under two banners: Dollar Tree and Family Dollar. Its growth prospects are enhanced with the move to a multi-price point strategy at the Dollar Tree stores and initiatives to drive traffic and productivity at the Family Dollar banner. 

Royal Bank of Canada (RY TSX)

Royal Bank’s diversified business mix consists of personal and commercial lending (40 per cent of earnings), capital markets (19 per cent), wealth management and insurance (37 per cent) as well as investor and treasury services (four per cent). Geographically, Canada accounts for 58 per cent of revenues, the U.S. 25 per cent and international 17 per cent. The stock provides investors with a current dividend yield of 4.1 per cent.

S&P Global (SPGI NYSE)

SPGI is a diversified financial information services company and operates in five business segments. Including market intelligence (34 per cent of revenues), ratings (25 per cent), commodity insights (15 per cent), mobility (11 per cent) and indices (11 per cent). Its businesses are leading players within each respective industry, provide proprietary “need to have” information with attractive organic growth opportunities, highly profitable and scalable. Due to the subscription-based nature of many of its services, 72 per cent of SPGI’s revenue base is recurring. SPGI provides a dividend yield of one per cent.

PAST PICKS: December 14, 2021

Mondelez (MDLZ NASD)

• Then: $63.39
• Now: $65.61
• Return: 4%
• Total Return: 6%

Otis Worldwide (OTIS NYSE)

• Then: $84.81
• Now: $78.18
• Return: -8%
• Total Return: -6%

Scotiabank (BNS TSX)

• Then: $86.15
• Now: $65.27
• Return: -24%
• Total Return: -20%

Total Return Average: -7%