Hap Sneddon, founder and chief portfolio manager, CastleMoore Inc.

FOCUS: Technical analysis 

MARKET OUTLOOK:

Markets are exhibiting some bottoming behaviour or “green shoots,” particularly in technology or growth securities, as the march of interest rates has transformed many companies into value plays. Fundamentally, analysts are lowering estimates and some companies are reporting lowered revenue and earnings but their stocks are moving higher post announcements. Other growth businesses have only seen continued progress in earnings and also positive stock price action.

While near-term support on the S&P 500 at the 200-week moving average is at 3,700 and resistance at 4,125, the potential for a volatile yet brief downside below this lower band remains elevated. This is due to reaccelerating interest rates and markets that are tethered to “macros” at over 80+ per cent. For reference, this was around 45 per cent during the financial crisis.

Several factors leave the West susceptible to having inflation exported upon them by its adversaries. This includes recent OPEC and OPEC+ oil cuts, China’s recent natural gas deal with Russia and its oil deal with Saudi Arabia as well as China’s low inflation and re-opening

The 100 per cent batting average of the U.S. Federal Reserve funds historically needing to match inflation before being vanquished strongly suggests the terminal rate is between 5.75 per cent and six per cent.

Though the path may have a few bumps in the road still growth stocks offer the best prospects in what will be a new secular bull market.

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TOP PICKS:

Palo Alto Networks (PANW NASD)

Last purchased April 19, 2022, at $208.951

Palo Alto provides enterprise security, including service in advanced firewalls that allows for detailed control over activity based on application and on user context. The company recently reported earnings that showed decent revenue growth, deals that are increasing in size (increasing economies) and an SASE (meaning secure users wherever they are) field that is narrowing.

Palantir Technologies (PLTR NYSE)

Last purchased Oct. 3, 2022, at $8.22

Palantir builds and runs software platforms to crunch data for large government and commercial customers. The company has two platforms, Gotham, for governments, and Foundry, mainly for commercial customers. It recently posted its first profitable quarter in the fourth quarter of 2022 and expects larger international government and domestic commercial client penetration.

Berkshire Hathaway (BRK.B NYSE)

Last purchased Nov. 15, 2022, at $299.7615

Berkshire is a good asset manager with subsidiaries in insurance and reinsurance basis, railroad systems, utilities and energy, manufacturing, wholesale distribution of groceries and non-food items, aerospace and aviation pilot training, electronic components distribution and various retailing lines, including automobile dealerships and furniture leasing. This “second set of eyes” is valuable during periods of market volatility to help capture unknown value and opportunities. Other candidates in this space such as Apollo Global, Blackstone or Brookfield offer compelling choices as well. 

PAST PICKS: March 18, 2020\

iShares TSX Capped Consumer Staples ETF (XST TSX)

• Then: $56.14
• Now: $89.16
• Return: 59%
• Total Return: 63%

Eli Lilly (LLY NYSE)

• Then: $143.09
• Now: $355.29
• Return: 148%
• Total Return: 160%

Open Text (OTEX TSX)

• Then: $46.66
• Now: $51.79
• Return: 11%
• Total Return: 18%

Total Return Average: 80%