August 2020 Stock Picks

CONSTANTINE LYCOS, FOUNDER AND CEO AT LYCOS ASSET MANAGEMENT

It’s been a very unusual year, to say the least. Very, very different, as everybody knows. We’ve come to a point, now, where the markets have come back since the crash of March and the big questions on every investor’s mind would be,

“What do we do now?” “Where do we go from here?”

My Advice

Own long-term assets. That’s the main advice that I have for people. I believe the responses to the lockdowns and the pandemic by governments around the world have been forcing cash and short-term investments to be less valuable, and long-term assets to be more valuable through monetary policy easing, through fiscal stimulus. Primarily, monetary policy where central banks around the world have provided a lot of liquidity to counteract what would have been a potentially depression-like slowdown in economic activity. And they’ve also engaged in massive quantitative easing, which is a fancy term for creating new currency, to purchase government bonds or corporate bonds. They’re even doing high-yield bond purchases and other-asset purchases mortgage-backed securities, and so on.

Asset Allocation

So the theme is: assets are worth more than cash. And they’re going to be worth even more in the future than they are now despite the fact that they’re not particularly cheap, to start with. So that could be real estate. Especially residential. Office buildings, commercial buildings, malls… maybe not so much. In fact they may be hugely negatively impacted. But residential real estate is good and should continue to be good regardless of the fact that unemployment is high and mortgage deferrals are going to come to an end. Just the fact that interest rates are so much lower and new currency is being created, it just makes these assets more valuable.

Additionally, building materials such as lumber have been going up in price and cost. And cement. Lumber is up tremendously in the last few weeks. That’s the number one building material for residential real estate, single family homes. So, own real estate and continue to own real estate. Especially single family homes with home offices. That’s what everybody is looking for these days, especially in less densely populated areas so as to not be in contact with too many people.

Assets to Consider

Stocks are great long-term assets. What we use for clients right now: private equity. There have been some dislocations in the market and opportunities have come about where private equity investors have been able to pick up some investments at a very good price. Private credit: especially since March to June or so, where liquidity was not great, private lenders have been able to fill in the gap where banks were not lending and picked up some great assets, great loans with great terms. So you could join in as an investor later, or now, and participate in that through a private credit fund. Precious metals are doing great. Cash has similarly been devalued and precious metals are supposed to maintain the purchasing power of their value if you see them as currency (gold and silver).

Top Three Stock Picks

Ruger Firearms. With everything that’s happening in the US, that’s our number one pick. Protests have been going on for weeks, even months now. Black Lives Matter, economic upheaval if you will, redistribution of wealth from savers to investors and from the have-nots to the haves. Unfortunate as it is, it’s bringing about the need for people there to arm themselves more, whether we like it or not, and companies like Ruger Firearms are benefitting as a result. They have a strong balance sheet, decent profitability, and good valuation, which are things that we always look for. I could say the same thing about United Therapeutics and Garmin. Good fundamentals, good valuations, and decent prospects for the future. So those would be the top three picks: Ruger Firearms (NYSE: RGR), United Therapeutics (NASDAQ: UTHR), and Garmin (NASDAQ: GRMN).

Precious Metals

On the precious metals side, depending on the size of the investment one good way to get into the gold trade would be the Ninepoint Gold Bullion Fund (FUNDSERV: NPP226)

Private Equity

For private equity, the Kensington Global Private Equity Fund for Canadian investors (FUNDSERV: KEN115). A good private credit fund would be the Next Edge Private Debt Fund (FUNDSERV: NEC442). From then on for equities, there’s almost nothing better than the S&P 500 Index and funds that track it. In Canada, a very good fund would be the RBC US Index Fund (FUNDSERV: RBF5737) and the hedge version of that fund (FUNDSERV: RBF5911).

Picking stocks is hard. For most investors, especially with smaller amounts, when they need to add to their portfolio. It’s best to have it done in a diversified way. So that’s a good thing to add to a portfolio. Some other main hold or mainstream core investments could be balanced funds.

Balanced Funds

And our three top picks for balanced funds would be Mawer Global Balanced (FUNDSERV: MAW130), Mawer Balanced (FUNDSERV: MAW104), and something with a little bit more of a “kick” to it the Dynamic US Balanced Fund (FUNDSERV: DYN2536). This last fund is slightly riskier, as it has some of the “growthier” stocks in its portfolio with higher valuations, which we typically stay away from, but the market is really strong there in technology and healthcare and the trend seems to want to continue for a long time.

Recap

Hold long-term assets. Pay careful attention to asset allocation. That’s the number one decision for investors. Be diversified. Own stocks, some bonds, especially on the corporate side. Private credit. Gold and precious metals.

Consult with your financial advisor or give us a call to determine what the best asset mix for you is because that is crucially important. Even more so now.

Constantine Lycos
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