Rob Lauzon, chief investment officer, Middlefield Capital Corporation

FOCUS: Global and North American equities 

MARKET OUTLOOK:

With earnings growth troughing and economic data holding up, we expect the outlook for stocks to improve through year-end. Consumers are in good shape and the labour market remains resilient. As a result, we are not expecting a recession in the short run. The most recent Job Openings and Labor Turnover Survey (JOLTS) report confirms that the U.S. labour market has become less tight, which has positive implications for inflation, specifically wage growth going forward.

We believe that incoming economic data should provide the U.S. Federal Reserve with enough cover to hold rates at current or slightly higher levels, thereby alleviating a key headwind for stocks.

In this environment, we expect that dividend growth will become increasingly attractive as rates peak and eventually turn lower. More specifically, we continue to recommend a barbell approach, with technology and medical tech providing growth exposure as well as energy and financials providing cyclical value. In addition, we would note that the more supportive rates backdrop should bode well for rate-sensitive sectors such as real estate and utilities.

While seasonality indicates that we could have a choppy market in September, we believe investors should stay the course in anticipation of a fourth-quarter rally driven by improving fundamentals and a more supportive macro backdrop.

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TOP PICKS:

Chartwell Retirement Residences (CSH.UN TSX)

Purchased at $9.80 Aug. 9, 2023

 Chartwell is the largest operator of Retirement homes in Canada. We like the setup for the stock as we enter 2024 when we should see occupancy levels return to pre-pandemic levels. This will not only drive revenue higher due to volumes but also result in margin expansion. These catalysts are expected to drive growth of over 20 per cent in cash flow from operations in 2024 (year over year).

Medtronic (MDT NYSE)

Purchased at US$83.68 on Aug. 23, 2023

Medtronic is a turnaround story, it has an exciting new product cycle that positions the company to exceed guidance over the coming year. Similar to other medtech companies, MDT is benefiting from pent-up demand for elective surgeries and procedures. Trades at 16 times forward earnings compared to many peers at 24 times forward earnings. A dividend yield over three pre cent is an added bonus.

Enbridge (ENB TSX)

Purchased at $46.86 on Aug. 25, 2023

The company recently reported in-line financial results and reaffirmed its financial outlook. We like the stock for its resilient business model and greater than seven per cent dividend yield at current prices. Long-term investors should accumulate shares at these levels to benefit from a growing dividend in 2024 in addition to share price appreciation when interest rates roll back in 2024 and 2025.