Zach Curry, director and portfolio manager of Greenrock Capital Partners

FOCUS: North American large caps

MARKET OUTLOOK:

Stock markets in Canada and the U.S. have continued to rally in 2024, following up from a strong (and volatile) performance in 2023. While the information technology sector continues to lead the way (for now), the focus on interest rates – their direction and timing – and inflation continue to dominate the investment landscape.

While inflation has declined from peak levels reached in June 2022, headline inflation remains just below three per cent in Canada (and just above three per cent in the U.S.), higher than the two per cent target of the Bank of Canada and U.S. Federal Reserve.

As long as economic activity remains positive and unemployment remains low, we believe that central banks will wait until inflation comes down further before making any decisions to lower interest rates. We feel there is a greater risk of lowering interest rates too quickly and having inflation persist (or increase) as opposed to taking the time to wait until inflation is under control and closer to the targeted rate of two per cent.

Whether interest rates decline by 0.25 per cent or 0.50 per cent in June or July (or later in the year), we believe the trend is downward for rates, which should be beneficial for the overall economy, businesses, and consumers. That being said, we believe the more important area of focus for investors should be on high-quality, well-managed companies that can take advantage of their leading positions in their industries and adapt to changes in any macroeconomic environment. Investments in these types of companies will reward shareholders over the longer term.

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TOP PICKS:

Suncor (SU TSX)

An integrated oil company, with more than 80 per cent of its production coming from oil sands assets. Along with its legacy oil sands surface mines in Fort McMurray and Firebag in-situ operations, SU’s assets include its MacKay River project, a 58.74 per cent interest in the Syncrude oil sands joint venture, and 100 per cent ownership of Fort Hills. Suncor’s production is almost 100 per cent oil weighted. Suncor is the second-largest refiner in Canada with three refineries, and also has refining capacity in the United States. SU recently increased its dividend, and currently yields 4.8 per cent. The company is close to reaching its intermediate net debt target, at which point 75 per cent of excess funds would be allocated to shareholder returns (up from 50 per cent).

Brookfield (BN TSX)

A Canadian multinational company that is one of the world's largest alternative investment management companies. It focuses on direct control investments in real estate, renewable power, infrastructure, credit and private equity. The company invests in distressed securities through Oaktree Capital, which it bought in 2019. BN owns 75 per cent of Brookfield Asset Management, which has grown its fee-bearing capital at a 15 per cent compounded rate since 2014. BN trades at a discount to NAV, primarily due to its commercial real estate assets, which have been under pressure from the rise in interest rates and people working from home. We believe that this discount will continue to narrow as interest rates begin to decline and more people transition back to office environments.

Visa (V NYSE)

Operates the world’s largest retail electronic payments network as well as manages the world’s leading electronic payments brand. Visa serves consumers, merchants, financial institutions, and government entities. The company operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. Visa does not issue cards, extend credit or set rates and fees for consumers; rather, Visa provides financial institutions with Visa-branded payment products that they then use to offer credit, debit, prepaid and cash access programs to their customers. Visa provides a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions, and contact centre services.

PAST PICKS: AUGUST 9. 2023

Tourmaline Oil Corp. (TOU TSX)

Then: $70.45
Now: $62.60
Return: -11 per cent
Total Return: -8 per cent

Constellation Software (CSU TSX)

Then: $2725.41
Now: $3838.14
Return: 41 per cent
Total Return: 41 per cent

Bank of America (BAC NYSE)

Then: US$30.86
Now: US$34.50
Return: 12 per cent
Total Return: 14 per cent

Total Return Average: 16 per cent