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Msg  66648 of 66825  at  1/17/2020 8:41:09 PM  by

carswell


Market Call

MARKET CALL NEWSLETTER
January 17, 2020


Jason Mann's Top Picks: Whitecap Resources, Great Canadian Gaming and Linamar

BNN Bloomberg

MARKET OUTLOOK

We’re seeing a rotation from defensive stocks to more cyclical “value” stocks. However, high-priced growth stocks in sectors like technology have led the market higher again. Even in the face of a steepening yield curve, investors remain in love with “growth-at-any-price” stocks.

The overall U.S. market is back to dot-com peak valuation on measures like EV/EBITDA and price-to-sales. Historically from these levels, returns over the next decade are in the single digits or even negative. Buying “beta” might not be the best approach.

The highest-risk stocks to own are the most expensive growth stocks, particularly U.S. tech stocks. If we have an economic growth recovery, these stocks are likely to lag more value-oriented sectors. If we roll into a recession (not our base case), growth stocks will get hammered.

We find the most defensive stocks like utilities to be expensive, as are high-priced growth stocks. The very cheapest cyclical sectors like energy and materials appear to be turning the corner and we’re adding to them here. Our highest conviction sectors are where we find decent valuation and decent price trends: financials, industrials and consumer discretionary.




 
 
 

Paul MacDonald's Top Picks: UnitedHealth, Stryker and Pfizer

BNN Bloomberg

MARKET OUTLOOK

The healthcare sector is a direct beneficiary of one of the only secular, non-cyclical and permanent investment themes: the global aging population. Moreover, as wealth increases in developing economies, there’s a disproportionate increase in the amount of spending on healthcare which will likely result in significantly increased demand for healthcare products and services over time. Finally, technological innovations coupled with regulatory advancements pave the way forward for catalysts across healthcare subsectors.

Political discussions on how to deal with the rising healthcare costs over recent years have caused volatility in the sector to increase and valuation multiples to contract. This was on display during the first nine months of 2019 as investor sentiment towards the sector worsened. Ahead of third-quarter earnings, however, there was an apparent tone shift. More positive commentary and overall sentiment towards the sector also coincided with a softening of extreme political rhetoric. This caused the sector to regain strength through the end of the year. This is poised to continue through 2020.

Still, healthcare is expected to be a key topic during the 2020 U.S. presidential election. Even intra-party views on potential policies are divergent, resulting in the advancement of even basic healthcare proposals proving to be difficult. We view any further volatility as an opportunity, as fundamentals for the underlying businesses remain intact. We continue to advocate diversity across subsectors to minimize individual binary risks.

Lastly, the increase in the implied volatility levels has resulted in attractive income derived from covered call strategies such as the one used in the Healthcare Leaders Income Fund.




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