In this year-end investment newsletter, we at Tall Oak Private Wealth, would like to share a summary of 2020 and explain how we have positioned portfolios for a different environment in 2021.
We will also take the opportunity to highlight some individual holdings and share the rationale as to why we hold them.
While the newsletter is technical and detailed, it does share our current market beliefs and corresponding positioning.
To summarize some of the key points:
- Markets rebounded very strongly from the March lows to near all-time highs. What makes these returns spectacular is that this occurred while the environment remains one with high unemployment, struggling small businesses, and increasing COVID-19 cases in many countries.
- We explore the rational of how stimulus (monetary as well as fiscal) and low interest rates allow the always forward-looking markets to see beyond today’s challenges and focus on improving conditions.
- The markets can currently be categorized as expensive when considering the forward price to earnings measure (forward P/E) from a historical perspective. This is especially true for some of the mega cap US technology stocks.
- While we do expect improving economic conditions led by a historically high consumer savings rate, pent up demand, extremely low interest rates and significantly more fiscal stimulus, one must question how much of that growth has already been priced into the markets at current level.
- It is our belief that some but not all of this good news is priced in.
- Leadership in 2020 was clearly with US technology companies that benefited from the stay-at-home theme as well as health-care companies. We believe that 2021 may bring about a change in this market leadership.
- With the ability to take advantage of this rotation, this is a stock picker’s environment.
- Positioning and balance in key sectors and geographies will be key to a successful year in 2021.
Portfolio Positioning and Risk Management
- We are positioning the portfolio to minimize exposure to the high-valuation momentum names and to reposition for cyclical improvement and better prospects for companies with healthier valuations and risk profiles.
- Furthermore, we believe that global growth will improve substantially this year, leading to foreign markets potentially outperforming our North American home markets. Adding international exposure will reduce concentration risk and better diversify profit streams for the portfolio.
- Our focus when selecting companies is on relative valuations, free cash flow, moats, and management teams.
- Risks we are currently watching include the behavior of Western governments and how they manage lockdowns and vaccine delivery. We are also attentive to inflation pressures.
Stocks and Themes
- Specifically, some key themes that we are focused on are:
- Industrial cyclicals with wide moats
- The 5G build-out and broadband infrastructure
- Cyber security
- In the last section of the newsletter, we highlight some individual companies that we have added to the portfolio to take advantage of these themes in 2021. The companies discussed are:
- Canadian Pacific
- Waste Connections
- Charter Communications
- Palo Alto Networks
We welcome those of you who would like a more in-depth view into these comments and stocks to read the attached detailed newsletter.
This newsletter has been prepared by (FA name) Statistics and factual data and other information in this newsletter are from sources Raymond James (RJL) believes to be reliable but their accuracy cannot be guaranteed. This newsletter is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. RJL and its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. This newsletter is intended for distribution only in those jurisdictions where RJL is registered as a dealer in securities. Any distribution or dissemination of this report in any other jurisdiction is strictly prohibited. This report is not intended for nor should it be distributed to any person residing in the USA. RJL is a member of the Canadian Investor Protection Fund.<