Brett Girard, chief financial officer and portfolio manager, Liberty International Investment Management 

FOCUS: North American and global stocks 

MARKET OUTLOOK:

The lagging effects of higher interest rates are not evenly distributed. This is causing macroeconomic data to be wide and varied. For example, the yield curve remains inverted, which is historically a precursor to recession. Meanwhile, the S&P 500 has technically entered a bull market, having risen 20 per cent from the lows of October 2022. Inflation continues to subside, but central banks have not announced an end to interest rate increases.

Ultimately, if the stock markets are to firmly move into a secular uptrend, we need to see a catalyst for earnings growth, peak interest rates and wide market breadth.

However, investors should not over-allocate to cash in expectation of a magic “all clear” signal. Portfolios should be constructed with high-quality equities, characterized by strong return on invested capital, manageable debt and dividend growth; investment grade fixed income with shorter duration and a level of cash commensurate with risk tolerance earmarked for opportunistic dollar cost averaging.

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TOP PICKS:

Fairfax Financial Holdings (FFH TSX)

Inflation and the hardening insurance market have allowed for gross premium increases. The portfolio of insurance premiums is very short duration (1.2 years) on the fixed income side and void of high beta technology names on the equity side. Higher interest rates for longer will continue to drive interest income to the bottom line.

Danaher (DHR NYSE)

Experiencing challenging comparables due to bolus of demand relating to COVID-19 falling off in 2023 (four per cent of sales versus 10 per cent of sales in the prior year). It is well positioned to earn when all drugs are manufactured – for branded drugs, machinery and processes are patent protected, while generics, using Danaher products are attempting to capture $200 billion in earnings as drug patents roll off.

Teleperformance (TEP EPA)

Global leader in outsourced customer service with activity in 170 markets. The stock price has fallen due to over earning through COVID-19 and an employment issue in Columbia. The new chief executive officer, rollout of AI throughout workflows and acquisition in the specialized recruitment/HR services space will create opportunities for increasing revenue per customer. 

PAST PICKS: November 22, 2022

Brookfield Corp (BN TSX)

• Then: $59.80
• Now: $43.19 
• Return: -11%
• Total Return: -10%

Alimentation Couche-Tard (ATD TSX)

• Then: $61.46
• Now: $65.02
• Return: 6%
• Total Return: 6%

Reckitt Benckiser (RKT LON)

• Then: 5,898.00 GBp
• Now: 6,062.00 GBp
• Return: 3%
• Total Return: 5%

Total Return Average: 0.3%