Robert Gill, senior vice president and portfolio manager, Goodreid Investment Counsel

FOCUS: Canadian large caps

MARKET OUTLOOK:

The stock market is volatile right now as it faces a number of challenges. At Goodreid, we see the markets as having three key risks:

The war in Ukraine has upended global trade flows and increased inflation. Russia and Ukraine produce many commodities and they are a breadbasket of the world. This is not a good situation for the global supply chain as many of these commodities are not making their way out of the region. Reduced global supply results in inflationary pressure.

We are currently seeing the highest inflation levels that we have seen in decades. We are seeing higher prices everywhere, gas pumps, grocery stores, and car prices, for example. Inflation has recently been at ~8-9 per cent, the highest since 1981. Unfortunately, there really is nowhere to hide from inflation. But fortunately, central banks are taking action by rapidly increasing interest rates. So inflation is being taken seriously, but these higher interest rates lead to a slowdown in economic growth.

And the COVID-19 pandemic is not over. While local case counts are down from highs, globally, COVID cases continue to remain near their long-term run-rate. Just look at certain regions of the world and you can see that some countries are still dealing with the pandemic. This too is also causing disruptions to the supply chain. COVID continues to be very much present and remains a threat to the market.

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TOP PICKS:

Richelieu Hardware (RCH TSX)

$37.40 last purchase price

Richelieu is a high-quality company that imports and distributes components for kitchen cabinets. During the COVID lockdown, travel was not permitted. So people stayed home and did many home renovations. Coming out of COVID, discretionary income is being spent on travel so Richelieu earnings are temporarily depressed and shares have traded down. This presents a buying opportunity for a high-quality company.

BCE (BCE TSX)

$61.49 last purchase price

BCE is a household name providing cable, internet, wireless and wireline phone communication. Shares have traded down on the back of interest rate increases offering a rare opportunity to buy BCE with a yield near six per cent.

Bank of Nova Scotia (BNS TSX)

$54.50 last purchase price

One of Canada’s big banks, BNS is unique in that 45 per cent of its revenue is sourced from Central and South America. Shares have traded down due to softness in these markets, presenting a buying opportunity. A new chief executive officer will be installed soon with a mandate to restore growth. This is a reversion to the mean investment opportunity. We do not need the bank to grow at a tremendous growth rate; we expect shares to reflate to their prior trading levels. In the meantime, investors will enjoy a juicy six per cent dividend yield.

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