Stock Picks for April 2022
Hello, today is April 15, 2022. It’s Good Friday, and it’s time for some new stock picks. As always, we’ll review the picks from this time last year and then move on to some new ideas.
Review of April 2021 Stock Picks
This time last year, the top three stock picks were Union Bankshares (NYSE: UNB), that stock returned 5.2%, including dividends, for the last year; Ternium (NYSE: TX) was up 34.3%; and an ETF that holds gold, the (TSX: KILO) ETF, Purpose Gold Bullion Fund, which was up 11.7% in US dollars, for an average of 17.1%. And that compares with 3.2% for the MSCI World Index ETF (ARCX:URTH).
Going forward from here, we are at a bit of a crossroads. Inflation was higher than we wanted before Russia invaded Ukraine. War erupted in late February and, since then, the price of oil, wheat, and other commodities has gone even higher. This sort of inflation is hard to fight with the traditional tools of monetary policy that the central banks have, like raising rates. Supply shortages in wheat for example, interest rate raises are not going to have much effect on that.
So, the Fed and other central banks have no choice but to continue raising rates as they started not too long ago. And they’ll start with the inverse of the quantitative easing, which they call “quantitative tightening”. This could happen in May or June to the tune of maybe 100 billion dollars per month. And that will remove liquidity from markets.
April 2022 Stock Picks
There’s an old adage in investing, “don’t fight the Fed.” And with that in mind, asset prices for stocks, real estate and maybe even commodities may “dis-inflate” or possibly deflate. Likely dis-inflate first. So we’ve got to be a little bit more cautious than we have been for the last couple of years.
So with that in mind, our top stock pick is a consumer diversify defensive play: Unilever (NYSE:UL). They are a large cap company. They have four brands like Knorr soups, sauces, Hellman’s, Lipton teas, Axe skin products, Dove and stuff like that. It’s going to be a boring pick. Don’t expect a big return from it going forward. However, a good stable return, if we can hit double digits for the next 12 months, is not so bad given the alternatives. That’s stock pick number one.
British American Tobacco (NYSE:BTI)
For those that don’t mind investing in tobacco stocks, (I personally don’t), there is British American Tobacco (NYSE:BTI). They are owner of the former Philip Morris and so on, is even cheaper than Unilever and should be recession-proof. I would say it’s likely either this or Unilever for most investors.
Cincinnati Financial (NASDAQ: CINF)
The next stock pick is a US insurance company called Cincinnati Financial (NASDAQ: CINF). They’re a property and casualty insurance company, including automotive insurance. Insurance companies that have shorter term liabilities, such as automotive, invest their premiums in shorter term investments. With rates going up, they’ll be able to get a higher yield on their premiums invested. Just by that fact alone, such companies should do better. Regardless, this one has the typical characteristics of companies that I look for in investing: highly profitable, a strong balance sheet, and good valuation, meaning this should be a good long term hold.
LyondellBasell Industries (NYSE: LYB)
Our last stock pick is more cyclical, and so it’s more the opposite of a defensive stock like the the first one was. LyondellBasell Industries (NYSE: LYB) is a petrochemical producer in the US and Europe. With the economy being as hot as it is right now, if things don’t deteriorate as much as everybody is expecting, companies like these should continue to do well. LyondellBasell, in particular, is highly profitable, has a strong balance sheet and the valuation is good. It’s a good idea to have some exposure to cyclicals, as well, while inflation is still high and we can participate and hedge against that.
If you have any questions regarding how these picks fit in your already hopefully diversified portfolio, give us a call. Thank you.