Market Call

Michael Hakes' Top Picks: December 7, 2022

Michael Hakes, senior portfolio manager, The Murray Wealth Group

FOCUS: North American and global Stocks  


MARKET OUTLOOK:

The Federal Reserve has done all the heavy lifting it needs to do, but they continue to talk a very hawkish game.  We are already seeing many signs that the most aggressive rate increases in memory are taking effect. M2 (Money Supply) growth has moderated after the massive COVID stimulus. The PMI (Purchasing Managers Index) for both Manufacturing and Services is now below 50. The CPI and Core CPI have peaked and are coming off the summer highs. Personal savings rates, which historically have been in the 5-8 per cent range spiked to 26-30 per cent over the pandemic. These have now fallen back to only 3 per cent, well below historical averages. The excess savings, or cash cushion, which amounted to almost $2.3 trillion led to a surge in demand as the economy reopened. Consumers are burning through these savings as they face higher prices across the board. Housing costs, one of inflations biggest components, are on the cusp of easing. Rent and OER (Owner Equivalent rent) which was surging over the summer will moderate into next year. 

Jobs and wages are the last pocket of strength. Job openings remains very high in the 10m range. Pre-pandemic, job openings was typically in the five million to seven million range. However, the total labour demand, minus total labour supply is coming down quickly, from the peak of six million to just over four million. It is estimated that the difference needs to be two million to slow wage growth. 

What will this mean for next year? If we do have a recession in the U.S., it will not be a surprise as economists have been predicting it since April.  Of course, it will come down to the landing, hard or soft. At Murray Wealth, we are bottom-up stock pickers, and we continue to see some very attractive buying opportunities.  

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TOP PICKS:

Andrew Pyle's Top Picks

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Aritzia (ATZ TSX)

Artizia is one of our favourite stocks. They just held a capital markets day where they outlined their three to five year plan. They have a long runway of growth in front of them. Currently, they have 68 stores in Canada, but only 44 in the U.S. 

They plan to open eight to 10 stores annually in the U.S. This will be complemented by store expansions at three to five annually. This means low double-digit annual square footage growth. Ecommerce is also expected to stay strong.  

We see sales approaching $3.8 billion by 2027 from the $2 billion expected in Feb 2023. 

We think the stock to trade up into the $65.00 range over the next 12-18 months as they continue to roll out their strategy.  

Qualcomm (QCOM  NASD)

Qualcomm’s products are found in mobile phones and other wireless devices.  

The stock has been weak because of lower consumer demand in the low- and medium-priced phone segment. Management expects this weakness to persist in the near term.  

Qualcomm is in the unique position to leverage their technology and patent portfolio they have in mobile to other markets. They are now focussing on diversifying their product portfolio into Auto’s and Industrial IoT.  

For example, the management team has identified the potential for $1,000-$2,000 in content  per vehicle as ADAS (advanced driving assistance systems) penetration increases.    

Industrial IoT connects previously unconnected things. Customers can digitally transform their business to optimize operations by mining massive amounts of data.  

This diversification will help reduce the cyclicality of the business.  

We see Qualcomm trading up into the $150 range over the next 12 months or so.  

Eli Lilly (LLY NYSE)

We are excited about the long-term outlook for Eli Lilly with the new products that will come to market in the next year or so.  

These five new products are expected to lead to potentially 40 per cent sales growth by 2025. Operating margins will also improve with the success of these.  

The biggest opportunity is within weight loss. One of Lilly’s drugs, tirzepatide (brand name Mounjaro), is currently approved for patients with type-2 diabetes to help control insulin. However, the real excitement is that the drug has also been found to be very good at helping people lose weight, as an appetite suppressant. 

They are about 1.5 years into a three-year study, but the current result are looking good.  

60 per cent of people in the study lost 20 per cent of their body weight and 40 per cent of the people lost 25 per cent.  

Almost half the U.S population is obese. This drug could help millions, but not only that, it will also help reduce obesity related complications.  

The stock is not cheap but we believe the stock will continue to perform well as these new products get launched.  

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
Aritzia (ATZ TSX) N N Y
Qualcomm (QCOM  NASD) N N Y
Eli Lilly (LLY NYSE) N N Y

 

Past Picks: December 15, 2021

Michael Hakes' Past Picks

Michael Hakes, senior portfolio manager at The Murray Wealth Group, discusses his past picks: LVMH Moet Hennessy Louis Vuitton, Twilio, and Zalando SE ADR.

LVMH Moet Hennessy Louis Vuitton (LVMUY OTC)

  • Then: $162.45
  • Now: $150.61
  • Return: -7%
  • Total Return: -6%

Twilio (TWLO NYSE)

  • Then: $261.73
  • Now: $45.86
  • Return: -82%
  • Total Return: -82%

Zalando SE ADR (ZLNDY OTC)

  • Then: $39.63
  • Now: $16.67
  • Return: -58%
  • Total Return: -58%

Total Return Average: -49%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
LVMUY OTC N N Y
TWLO NYSE N N N
ZLNDY OTC N N Y