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In a U.S. mid-term election year, stocks typically have a bad first half of the year, followed by a good second half, say advisors.Seth Wenig/The Associated Press

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Rising interest rates, surging inflation and recession fears have pummeled stock markets this year and spooked investors.

Technology stocks have been roiled amid higher rates, while energy plays – the recent market darlings – have sold off on worries about an economic slowdown.

Despite the volatility, three veteran financial experts from The Globe and Mail and SHOOK Research’s ranking of Canada’s Top Wealth Advisors are seeing buying opportunities, but disagree on whether to own Canadian banks.

Charlie Spiring, chairman and founder of Wellington-Altus Financial Inc.; senior wealth advisor, Wellington-Altus Private Wealth Inc. in Winnipeg

North American stocks could face more headwinds, but it pays to start picking up some bargains now among high-quality names, says Mr. Spiring.

“I am cautious but…I think that we are within a couple of months of seeing some sunshine.”

He is relying on strategies gleaned from his history of facing stock markets that were down 20 per cent or more – it’s his eighth this year.

“I call myself a bear-market baby because I started out [as an advisor] in 1981″ when it was a bear market, and interest rates were sky-high, he says.

“I learned that if you get close to the bottom, and are a buyer when stocks are weak, you are a winner if your view is medium term [two to five years].”

Because this is a U.S. mid-term election year when stocks typically have a “bad front of the year and good back-half,” he raised 15 to 20 per cent in cash for client portfolios to be reinvested over the summer in anticipation of a fall rally.

He advised clients to invest one-third of that cash now, another third in the summer, and the rest in September. Unlike the V-shaped market bottom in March 2020, this is a U-shaped bottom, so it’s a slower and more painful recovery, he adds.

The stock market has priced in a mild recession, but the bond market is signaling a possible 75 basis-point hike in July by the U.S. central bank, and a likely pause in tightening to assess data, he says. “I think…the Fed can navigate a soft-landing.”

Right now, “I am buying Canadian banks,” he says. “If we have a recession, they have a big reserve to cover enough surprises…Their dividends look strong and will grow. And their net interest margins…are going to go through the roof.”

He also likes energy stocks, including Canadian Natural Resources Ltd. CNQ-T, and Whitecap Resources Inc. WCP-T, but for short-term trades.

“I think the price of oil is going to be over US$80-to-US$120 per-barrel for two to three years.”

He is also buying big-cap, U.S. technology stocks, such as Microsoft Corp. MSFT-Q, Apple Inc. AAPL-Q and Alphabet Inc. GOOGL-Q, as well as financials such as JPMorgan Chase & Co. JPM-N and Goldman Sachs Group Inc. GS-N

Walt Disney Co. DIS-N shares, which have plunged to about US$93 a share from a 52-week high of US$187, is on his buy list too.

“Betting on Disney for the medium term has been a wonderful, winning trade for me,” he says. “I have done this about 20 times in my career.”

Jay Smith, portfolio manager and investment advisor, CIBC Private Wealth in Toronto

Canadian banks, high-yielding dividend payers and some technology companies are among the beaten-down stocks that look compelling now, says Mr. Smith, who is cautiously optimistic.

“I have been buying the dips aggressively…I have been through so many corrections,” he says. “I only know one thing that is for certain – the market will make a new high. It always does and will – possibly by next year.”

The market appears to have priced in a recession which may or may not be happening, and – if there isn’t one – it means that inflation is abating, he says.

“I am more optimistic than most that inflation will turn down by end of the year.”

Commodity prices for everything from lumber to copper and oil have fallen sharply, but there is “lagging effect until it shows up in the inflation number,” he says. “In Toronto, house prices have been dropping in the last three months.”

Retailers, such as Walmart Inc. WMT-N and Costco Wholesale Corp. COST-Q, face a glut of inventory so they will have to do a lot of discounting, he says.

Using money from dividends, new client funds and a bit of cash in portfolios, he has been shifting more to value stocks to make up 65 per cent of portfolios.

He is upbeat on Canadian banks – particularly, Royal Bank of Canada RY-T, Toronto-Dominion Bank TD-T and Canadian Imperial Bank of Commerce CM-T. They had good quarterly earnings, raised dividends, will benefit from rising net interest income, while having “plenty of fuel against future loan losses,” says Mr. Smith.

He has taken some profits in energy names but hesitates to put new money into this volatile, cyclical sector. He prefers high-yielding stocks, such as Enbridge Inc. ENB-T, a pipeline and gas-utility company, as well as BCE Inc. BCE-T, Telus Corp. T-T, Capital Power Corp. CPX-T and Pembina Pipeline Corp. PPL-T.

Among growth stocks, he still likes Amazon.com Inc. AMZN-Q and Apple, as well as smaller name such as Qualcomm Inc. QCOM-Q and Nvidia Corp. NVDA-Q, which “represent really good value here,” he says.

Premium Brands Holding Corp. PBH-T is also on his buy list.

“It is the largest deli supplier in western Canada, and has huge U.S. business,” he says. “They keep buying companies to add scale and reduce costs.”

David LePoidevin, senior portfolio manager and senior investment advisor at LePoidevin Group with Canaccord Genuity Wealth Management in Vancouver

Investing in stocks – except in Canadian banks – is a lot less risky now than six months ago because the market has already priced in a recession, says Mr. LePoidevin. “I think there are a lot of bargains.”

A recession is “baked in” for Canada versus a slowdown or mild recession in the U.S., he says.

“I see a real problem in Canada based on housing, and the fact that a high number of Canadians have floating-rate mortgages,” he says. “By fall we are going to see a small number of foreclosures that is enough to spook the market.”

He is avoiding exposure to mortgages, mortgage investment corporations and Canadian lenders including the banks. Provisions for credit losses on bad loans are “going to go up dramatically,” Mr. LePoidevin says.

His client portfolios, which didn’t own large-cap tech stock or bonds, are down mid-single digits this year.

“We were positioned for higher inflation and higher interest rates. I wasn’t bearish enough…but we are happy with where we are,” he says.

Last November, he told clients the market faced headwinds in 2022 given that the U.S. Federal Reserve Board would likely raise rates, and because it’s a U.S. mid-term election year, “which [historically] is a problem for the markets.”

His outlook now is that the Fed could pause on hiking rates before year-end. If that occurs, the market should rally between September and end of the year, he says. Markets tend to be strong after mid-term elections.

Right now, he finds Canadian rate-reset preferred shares compelling. These investments pay a fixed dividend until its reset date, typically in five years. The new payout is a spread above a five-year Government of Canada bond.

In a rising-rate environment, “dividends are getting raised dramatically,” he says.

Enbridge Inc. Preferred Series D ENB-PR-D-T, whose rate resets next March, should then be yielding “well over 7 per cent on the dividend raise.”

And Fairfax Financial Holdings Ltd. Cumulative Floating Rate Preferred Series J FFH-PR-J-T, whose dividend is reset quarterly based on the three-month Government of Canada Treasury Bill rate, is also seeing its payout rise, he adds.

Travel, industrial and Canadian auto-parts stocks also look attractive, he says. Shares of cruise operator Carnival Corp. CCL-N are off more than 75 per cent from US$40 a share in February 2020, he says.

“There is insider buying on Carnival…and their advance bookings are at record.”

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