Darren Sissons, partner and portfolio manager, Campbell, Lee & Ross Investment Management
FOCUS: Global and technology stocks
Top Picks: CSX, JPMorgan Chase, Mettler-Toledo International
MARKET OUTLOOK:
Typically, politics is a benign risk and often a buy catalyst. However, in the fourth quarter political risk spiked in Canada and in the U.S. from a Canadian perspective. A 25 per cent tariff on U.S. exports would be a major economic headwind as would a trade war with the U.S. Former Finance Minister Chrystia Freeland’s departure drove further political uncertainty. Equally so, the poor financial health of the Canadian economy drove multiple interest rate cuts in 2024 adversely impacting the Canadian Dollar. While Canadian exporters benefit from a weak currency consumers and corporates will suffer an extended period of economic pain.
Home bias has been costly. The Swiss Franc appreciated 23 per cent versus the loonie since 2019, the Euro is up 14 per cent since 2022 and versus the U.S. Dollar since 1971 only during the period 1998 – 2003 has the Canadian dollar been weaker. Consequently, Canadians with Euro, Swiss Franc and U.S. dollar exposure were well reward in 2024.
A plethora of investment opportunities abound for those looking beyond the handful of names currently driving indexes. Given the magnetism of the Magnificent Seven to capital flows, many other quality names now trade at sizable discounts to their historical valuation metrics. Donald Trump’s second term as U.S. president will rejuvenate the U.S. corporate landscape via tax cuts and targeted investment. Robert Kennedy’s “Make America Healthy Again” drove sizable discounts for healthcare names while Trump’s “drill baby drill” thematic has implications for global energy.
In non-registered accounts, on a tax adjusted basis, given declining Canadian interest rates and the net post tax yield received, equities should be favoured over fixed income.
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TOP PICKS:
CSX (CSX NASD)
A progressive dividend, with an annualized growth rate of 7.4 per cent since 2019, currently yielding 1.5 per cent. Its earnings per share will benefit from the Trump administration’s tax cuts in the six to eight per cent annualized range. A natural beneficiary of economic strength of the densely populated eastern seaboard and Make America Great Again (MAGA) driven investment across its network footprint. A declining pension liability. A serial share buyback program that has reduced shares outstanding by 35 per cent since 2014
JPMorgan Chase (JPM NYSE)
A progressive dividend yielding 2.1 per cent, which grew at an annualized rate of 6.9 per cent since 2019. A buoyant U.S. economy will likely see only modest further interest rate declines near term, which will benefit its interest rate sensitive businesses. A best-in-class credit profile for its customers, so during economic weakness the bank weathers storms well. CEO Jamie Dimon has excellent relations with regulators and politicians, which often drives outsized and beneficial opportunities when the banking sector experiences major challenges.
Mettler-Toledo International (MTD NYSE)
Global leader in scales, which are used by the pharmaceutical industry for drug development through truck scales on highways. An attractive recurring revenue business model and a replacement cycle for its scales currently in operation. No dividend so the company’s share price demonstrates somewhat higher volatility, but that challenge is offset by an annual buyback program that has reduced the share count by 25 per cent since 2014. Earnings per share in Canadian dollars have risen by 17 times since 2003. The company will be a net beneficiary of MAGA thematics and tax cuts under the second Trump administration.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CSX NASD | Y | Y | Y |
| JPM NYSE | Y | Y | Y |
| MTD NYSE | Y | Y | Y |
PAST PICKS: DECEMBER 15, 2023
Franco-Nevada (FNV TSX)
- Then: $148.48
- Now: $167.21
- Return: 13%
- Total Return: 14%
Royal Bank of Canada (RY TSX)
- Then: $131.39
- Now: $172.87
- Return: 31%
- Total Return: 37%
LVMH Moet Hennessy Louis Vuitton SE (LVMH PA) Paris Exchange
- Then: €748.40
- Now: €627.40
- Return: -16%
- Total Return: -15%
Total Return Average: 12%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| FNC TSX | Y | Y | Y |
| RY TSX | Y | Y | Y |
| LVMH PA | Y | Y | Y |