Market Call

Andrew Pyle's Top Picks: December 5, 2023

Andrew Pyle, senior portfolio manager and senior investment advisor, CIBC Wood Gundy

FOCUS: North American equities  


MARKET OUTLOOK:

The double-digit gains in stocks and a five per cent lift in North American bond aggregates will likely move us into a period of consolidation, at least in the early part of December. This would be similar to the pattern we saw in 2022 when a six-week push higher ran into a temporary wall. The fundamental narrative, however, probably won’t shift much in the coming weeks and I see the consensus view of inflation moderating, no major economic shock and a gradual easing back in official rates. Based on this, any weakness in either market in December should probably be viewed as a buying opportunity.

The caveat on the fixed-income side would be Canada, where economic indicators are pointing to an earlier shift in policy at the Bank of Canada than at the U.S. Federal Reserve. I don’t expect the Bank to provide any guidance of a near-term move on rates at this week’s meeting. However, if the trend of economic malaise continues into the first quarter, then rate cuts before the halfway mark in 2024 cannot be ruled out in my opinion. At the same time, the U.S. Fed is going to be guided by two main factors. First, the gap between current inflation and what the Fed ultimately wants is still too wide to start thinking of a pivot and real yields, while higher, are closer to historically normal levels versus being overly restrictive. Second, 2024 is a U.S. election year and the Fed will want to avoid any shift in policy unless absolutely necessary. In my view, that takes any cuts off the table at least until the fourth quarter.

In terms of sectors, I still think tech can lead again in 2024, but I still like the banks at current levels. Technical resistance for the TSX bank group is about 40 points from the 3,700 area today. I think consumer durables are vulnerable after the recent spike, given the weaker labour market and high borrowing costs.

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TOP PICKS:

 

Pfizer (PFE NYSE)

This is a value and contrarian call. The stock has clearly been hit hard by a reduced revenue pipe from COVID-19 vaccines and failure to get in on the obesity drug bandwagon. I actually think this segment is not going to bear as much fruit as people think so Pfizer is not really disadvantaged by not having a major stake. Its $43 billion acquisition of Seagen should boost its place in the oncology segment. Stock is trading only $3 above the lows we saw at the trough of the pandemic and 2016 and a P/E of 12 is attractive.

Microsoft (MSFT NASD)

The company has already proved itself as a frontrunner in the AI space and we expect this will continue in our opinion, with an even closer tie to OpenAI, with a non-voting seat on the board. The company expects seven million will be using co-pilot which is also going to start a new subscription stream, similar to the success we have seen with Adobe’s introduction of Firefly.

Tourmaline Oil (TOU TSX)

Tourmaline had decent third-quarter earnings and its acquisition of Bonavista should further boost its free cash flow in 2024. We would expect this to show up in increased share buybacks next year. We are cautious on an entry point on the stock as it has broke and closed below $65, but remains above its 200-day moving average ($63.85).   

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
Pfizer (PFE NYSE) N N N
Microsoft (MSFT NASD) N N N
Tourmaline Oil (TOU TSX) N N N

 

 PAST PICKS: December 6, 2022

Andrew Pyle's Past Picks

Andrew Pyle, senior investment advisor and portfolio manager at CIBC Wood Gundy, discusses his past picks: Open Text, Boardwalk REIT, and Northland Power.

Open Text (OTEX TSX)

  • Then: $38.08
  • Now: $54.28
  • Return: 42%
  • Total Return: 46%

Boardwalk REIT (BEI.UN TSX)

  • Then: $49.64
  • Now: $69.03
  • Return: 39%
  • Total Return: 42%

Northland Power (NPI TSX)

  • Then: $37.33
  • Now: $22.49
  • Return: -40%
  • Total Return: -37%

Total Return Average: 17%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
OTEX TSX N N N
BEI.UN TSX N N N
NPI TSX N N Y