John Zechner's Top Picks: October 4, 2021
BNN Bloomberg
Top picks from John Zechner, chairman and founder, J. Zechner Associates
MARKET OUTLOOK: The September fall in stocks was not caused as much by typical worries about an economic slowdown or the long-awaited end of massive bond buying (quantitative easing) from central banks, but from worries about corporate earnings, which have been the backbone of the stock market’s strength over the past year.
The upcoming third-quarter earnings reports are taking on more importance after some major industrial and consumer companies all pointed to the supply chain disruptions and the negative impact of rising material and labour costs on profit margins.
While making short-term predictions about stock market movements is always risky, what worries us now is that investors have become accustomed to massive earnings beats in the past four quarters, and we don’t see the same level of outperformance ahead.
Meanwhile, investors are already ‘all in’ on equities, as stock fund assets as a percentage of investments in the U.S. are at their highest level in 70 years! However, we remain invested since the issue are supply side driven while consumer demand is strong and we still have fiscal and monetary tailwinds to support growth.
In our funds, we favour cyclical groups such as energy, industrials, financials and autos, where we see strong earnings recoveries and much lower valuations than in the ‘growth sectors’ of the market such as technology. The S&P Growth Index is at a premium to the Value Index not seen since the end of the ‘tech bubble’ in 2000, at which point the Value Index outperformed for the following decade, albeit during a period of strong global economic growth.TOP PICKS:
North American Construction (NOA TSX) Last bought $18.00 Sept/21 NOA is a lesser-known name in the engineering and infrastructure space since it has been so closely associated with oil and gas in the Fort McMurray area only. But the firm has diversified by resource and geography and has been adding new contracts and raising operating profit margins.
