Gordon Reid, president and chief executive officer, Goodreid Investment Counsel   

FOCUS: U.S. equities  

MARKET OUTLOOK:

Investors worldwide were bloodied in 2022, the result of central bankers raising interest rates in an effort to tame inflation. This medicine kills the disease (inflation), but also can severely weaken the patient (economies and stock markets). The good news is that the patient always recovers. The bad news is that a recession is often a by-product of achieving the desired result. Inflation is rolling over and almost certainly will continue to fall. However, central bankers have specific inflation targets and it is likely that accelerated job losses and muted wage growth will be required to achieve those targets. These effects will be particularly hard felt within economies and everyday life.

So, given all that, what can we expect from equity markets in 2023? We are optimistic but cautious. Here’s why:

• Only four times in history have equity markets had back-to-back negative years.
• As we outlined in our commentary last quarter, after bear markets, stocks rise a high percentage of the time.
• Central bankers are signalling that the bulk of rate hikes are behind us.
• The last two years of a presidential cycle are statistically very strong.
• Much of the corrective action has been achieved within companies. Valuations have dropped dramatically but a deeper dive into the valuation illustrates that the average stock is trading at an attractive valuation of less than 15 times earnings.
• Historically, the market reaches a bottom well before a recession ends.

Of course, just because the calendar turns doesn’t mean the “all clear” will be sounded. We expect the process to unfold, with inevitable bumps in the road. One thing is clear to us, in 2022 the medicine was administered and we expect 2023 will be a recovery year.

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TOP PICKS:

Amgen (AMGN NASD) Latest Purchase January 2023 at $272

The biotech sector has suffered over the past few years, as evidenced by a flat performance in AMGN. This granddaddy of biotech offers financial strength and earnings predictability, a solid three per cent plus dividend and enhanced growth prospects with its $27 billion acquisition of Horizon Therapeutics. At less than 16 times earnings AMGN is attractive.

Deere & Co. (DE NYSE) Latest Purchase January 2023 at $431

Deere is the largest manufacturer of farm equipment in the world. In addition, it has a large presence in construction and forestry equipment. Productivity gains, fueled by precision farming will add to margins. DE trades at an inexpensive 14 times earnings and is expected to grow briskly over the next few years.

United Rentals (URI NYSE) Latest Purchase April 2022 at $344

United Rentals is the largest equipment rental company in the world, positioned well for the infrastructure theme that is gaining traction in the U.S. Earnings projections are $39 per share making this an attractive offering, at less than 10 times earnings.

PAST PICKS: January 6, 2022

Amazon (AMZN NASD)

• Then: $3,265.08
• Now: $92.71 (After 20-for-1 stock split on June 6th 2022)
• Return: -43%
• Total Return: -43%

Hanover Insurance Group (THG NYSE)

• Then: $133.95
• Now: $136.69
• Return: 2%
• Total Return: 4%

Raytheon Technologies (RTX NYSE)

• Then: $90.06
• Now: $99.83
• Return: 11%
• Total Return: 13%

Total Return Average: -9%