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Top picks for new money for 2024

We had our office Christmas party at Dahlia recently. Everyone was there: Steve NyvikRob Bisbicis, David Martin (compliance) and Veronika Moore (marketing) were present.  This was Veronika’s last year with us, we wish her well with her career and life. We enjoyed the nice food and drinks, talked about a lot of things, but just like last year, we talked about what each one one of us is buying for 2024 and beyond.

David Martin (Compliance – not a registered adviser)

S&P500 through ETFs like the Vanguard S&P500 ETF, (TSX:VFV). Large cap US stocks. With a recession coming likely in 2024, a very good place to invest should be large capitalization US / global equities, like the ones included in the S&P500 Index.  If we do get  a recession large cap stocks should fare better than small cap stocks. The US stock market should also do better than the Canadian market as it is better diversified and less economically sensitive than the Canadian market. As always, there is nothing better for a core general investment position than an investment in the S&P500 Index.

Rob Bisbicis (Associate Portfolio Manager)

Exactly the same as last year: My top picks are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Meta (NYSE:META). I call these the Fantastic Five.  They are big part of the S&P500 Index and every investor that buys the index through a mutual fund and ETF ends up buying these stocks.  The Fantastic Five are amongst the best businesses we have ever seen in history!  They also have massive balance sheets and lots of cash. They are not the tech businesses of the .com bubble.

It’s been an amazing year for the all five of these stocks.  While the shares are priced at higher prices that I would want to pay to initiate positions in these stocks, they are not high enough for me to want to sell either. While short term rates are relatively high still from the recent rate raises by the central banks, all of these companies have a lot of cash on their balance sheet and they are earning more in interest than they would normally do.

All five companies will benefit from a declining rate environment as soon as the Federal Reserve pivots which is expected to be in a few months. These five companies all faced currency headwinds from a strong USD.  As the USD reverts to a more normal relationship with other currencies, the five companies will have a currency tailwind that will produce even stronger financial performance. For investors with money already invested, it would be a mistake to sell these shares.

Steve Nyvik (Senior Portfolio Manager)

My top pick is Athabasca Oil Corporation (ATH). It has a low P/E of 5.30; long oil properties reserve life; has net cash ($370 Million cash and debt of $157 Million USD); committed to using 100% of free cashflow to buying back shares.

My second one is Eli Lilly and Company (LLY). It has a weight loss drug called, Zepbound which is more effective than Ozempic/Wegovy, has less side effects, is expected to be cheaper, and available in pill form.  Lilly also has a number of other promising drugs in its pipeline including its Alzheimer’s drug, donanemab.

My last pick is Brookfield Pty Partners Ser 3 (BPYPN) is a preferred share of Brookfield Property Partners.  This wholly owned subsidiary is one of the world’s premier real estate companies that owns and operates iconic properties in the world’s major markets.  The preferred pays a fixed cumulative dividend of $1.43750 resulting in a dividend yield of 12.36%.  Preferred shares have been hurt with rising interest rates, but as interest rates look to be near their top and may decline in 2024, this bodes well for preferred shares in general.

Constantine Lycos (Senior Portfolio Manager)

The returns for 2023 for the benchmark and my picks exceeded my expectations. In fact, I was only expecting single digit returns and my picks were generally a little bit more conservative throughout the year. That did not materialize. The markets have had a good year especially the U.S. market and international markets, less so the Canadian market. “Growth” outperformed “value” by quite a large margin. I believe the reason for that is the massive deficit spending, especially by the U.S. government. They had deficit spending somewhere in the region of 8% of GDP. With their nominal GDP growing around 5.5% (real, inflation adjusted 2.5%), all of that growth and more was attributed to the their deficit spending. That kept both the economy and the markets afloat in the U.S. and globally as well.

Recession Ahead?

Looking head for the next 12 months, at some point that kind of spending will subside, especially after the U.S. elections if the Republicans get voted in… Then the economy will have to stand on its own two legs. If this is going to be the case, the outlook will be a little bit gloomy, just like our weather here in Vancouver this time of the year, it’s all cloudy and dark! The Conference Board are forecasting negative real GDP growth for the US economy for the first and second quarter of 2024, which technically will be a recession, we’ll see.

With a possible recession in 2024, I am going to be conservative with my stock picks. Two consumer staples stocks, in case we have a recession in the U.S. or the rest of the world, and one that could be considered an attacking play, in case we don’t, in line with my assessment of the probability of a recession being around 60%.

My Top Three Picks

Koninklijke Ahold Delhaize NV

My first pick is one that I’ve picked before, a grocery store chain operating in many different countries but primarily in the US even though they’re headquartered in Holland. Koninklijke Ahold Delhaize, (OTC:ADRNY). Their grocery chains are all over Europe and the US. It’s a really big company. And the idea with that sort of company is that their profitability doesn’t really change much depending on economic conditions. People need groceries no matter what. Whether inflation is high or low, the economy is good or bad, business is fairly stable. The main issue there is what price you have to pay for the stock. Is the price good or is the price not so good. As it so happens, in the last three or four months , the stock underperformed the market. This is a good thing because we want to buy it at a lower price.  Investors are currently mostly focusing on growth. They’re very optimistic at the moment. So that gives us an opportunity to buy a consumer staple company at the at a good price, which doesn’t happen very often. That’s stock pick number one.

Imperial Brands

Stock pick number two is Imperial Brands (OTC:IMBBY), the fourth largest international tobacco company. Again, a very stable business. As a mature business, there is no growth there. But still, the company generated revenue in the last 12 months of approximately $200 billion, from tobacco. As bad as it is, people are still buying it and this company is making very good and stable profits. Return on equity for the last 12 years was consistently over 20%.

While the stock is not necessarily cheap, it is cheap enough for us to be interested in it. It has a very good dividend with a yield of 7.1%. Because there is no real growth in these businesses, they’re buying back stock. They’re buying back an additional 5% as net buyback yield on top of the dividends. It’s quite possible that we could get a 12% return longer term from the stock and we don’t have to worry about the economy being good or bad for the next year or so. This is not a long term hold. We will get out of it at some point, ideally after a market selloff as other stocks could go down way more than this one.

Komatsu Ltd

The next pick is an industrial company, the attacking pick. A Japanese equipment manufacturer by the name of Komatsu, symbol KMTUY. They make construction equipment to be used primarily in the construction, mining and utility businesses. The mining business in particular is experiencing secular growth. That’s due to the demand for electric vehicles, batteries, a lot of minerals required for for these batteries and the mining business is expected to grow tremendously over the next 10 plus years. So they’re gonna need the equipment to use and this company can make this sort of the equipment.

The profitability of this company is reasonable, although it is not as good as that of the tobacco company: its return on equity is around 10 to 12%. The valuation is obviously lower, but surprisingly enough even though this is an industrial sort of business, the company’s profitability has been very stable through recessions in the past, which is why it is my stock pick number three.

Give Us a Call

So, if you have any questions please don’t hesitate to give us a call. We can help you decide whether these or other investments are suitable for your already well-diversified portfolio. Thank you and have a happy and prosperous New Year!!!

Constantine Lycos
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