Ross Healy, chairman at Strategic Analysis Corporation; portfolio manager at MacNicol & Associates Asset Management

FOCUS: North American large-cap stocks 

MARKET OUTLOOK:

For the second time in this decade (June 2020 being the first), the Nasdaq 100 is signalling that a bubble in the market is in the offing and I mean here and now. That first bubble was led by the COVID-19 stocks like Peloton and Zoom which soared and collapsed down 90 per cent ignominiously. I strongly suspect that the market leaders in this bubble are going to be AI stocks. If I am correct, the coming market will be like the dot-com era. It will raise the AI stocks up to incredible valuations, and this will then likely be followed by a stunning collapse.

“Who are these companies?” I am sure that you would like to ask. I would like to single some of them out, but I can’t as many are still forming, just like the dot-coms in the late 1990s and into the market peak in early 2000. The obvious leader is, of course, Nvidia, which has just broken out to a new all-time valuation high, leading me to expect much higher prices. In the end, just like Nortel many years ago I would expect it to decline ingloriously, as it must from these and higher levels.

As for the rest of the market, the supporting values are weak as they were in the 2020-22 market when so-called “growth” outperformed “value.”

AI is largely a belief proposition, it is not a value opportunity. The bottom line is that you will not so much be “investing” in these stocks, as you will be gambling, but it may be fun while it lasts.                      

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TOP PICKS:

Laurentian Bank of Canada (LB TSX)

LB has a nice six per cent dividend yield, huge upside potential as we measure it, and is trading at a valuation level which is tied for its all-time low. If you don’t buy it here, when and where?

Suncor (SU TSX)

SU has good upside potential, a nice yield, strong balance sheet and as we are finding out oil demand is not going away even as the ESG crowd tries to shut it down, making oil availability more difficult. Furthermore, with the expanded Trans Mountain Pipeline coming on very stream shortly, the spread between WTI and Canadian oil prices is narrowing nicely to the benefit of Canadian producers.

Hudbay Minerals (HBM TSX)

HBM is at an intriguing valuation level now. Demand for electrical infrastructure is likely to rise powerfully in coming years, but supplies of copper to address that infrastructure demand is getting more expensive, harder to find and are depleting much faster than new sources can come onstream. The shares have good upside potential, have a decent balance sheet, and are trading at a 30 per cent discount to book value.

PAST PICKS: June 13, 2022

Crescent Point Energy (CPG TSX)

• Then: $12.51
• Now: $9.26
• Return: -26%
• Total Return: -23%

Agnico Eagle Mines (AEM TSX)

• Then: $65.17
• Now: $69.30
• Return: 6%
• Total Return: 10%

Canadian Western Bank (CWB TSX)

• Then: $27.99
• Now: $24.76
• Return: -12%
• Total Return: -7%

Total Return Average: -7%