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Credit Suisse global strategist Andrew Garthwaite is voicing “clear-cut stagflationary concerns” affecting portfolios and advised clients to hide out in stocks representing strong pricing power until a delayed post-pandemic economic recovery resumes.

The strategist believes that global supply chain issues are peaking. Delivery times for goods and prices paid for manufacturing inputs have stopped climbing and the companies benefitting most from supply issues – automotive semiconductors and freight-related stocks for example – have underperformed significantly in recent weeks.

However, Mr. Garthwaite expects that global logistics chains won’t get back to full capacity until 2023 and thus inflation pressure from scarcities will continue. This, combined with rapidly rising energy costs worldwide, constitutes an inflationary backdrop for companies and investors through next year, one that is likely to depress profit margins.

Mr. Garthwaite recommends stocks where companies can most easily pass rising costs on to consumers to preserve profitability. He pointed to eight outperform-rated companies at Credit Suisse: Diageo PLC, Relx PLC, Kingfisher PLC, Swedish Match AB, Walt Disney Co., Moody’s Corp., Coca-Cola Corp. and Chinese oil producer CNOOC.

Perhaps most importantly for Canadian investors, Credit Suisse is now suggesting underweight positions in cyclical sectors outside of energy and financials (the latter benefits from rising long-term yields that inflation may cause). This includes the mining, agriculture and industrial stocks that form a significant portion of the S&P/TSX Composite Index. This, however, is only a temporary caution until the global recovery reaccelerates.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Emera Inc. (EMA-T) Our dividend growth investor, John Heinzl, has owned the stock for many years and it’s been a solid performer, returning 10.7 per cent annualized when factoring in dividends. He considers it a long-term hold for investors seeking income and modest growth. Here’s why.

Copper Mountain Mining Corp. (CMMC-T) Year-to-date, the share price of this copper producer has more than doubled in value; however, analysts see much more upside for this stock. It has a unanimous buy recommendation from 10 analysts and an average one-year forecast return of 36 per cent. Jennifer Dowty profiles the investment case.

The Rundown

Bond investors gauge convexity hedging risk as U.S. yields rise

Bond market investors see increased risk that surging benchmark U.S. Treasury yields could hit or exceed March highs, which could fuel a wave of government debt selling by mortgage portfolio managers and cause rates to spike even further. Gertrude Chavez-Dreyfuss reports.

Wall Street banks set to profit again when Fed withdraws pandemic stimulus

Wall Street banks have been among the biggest beneficiaries of the pandemic-era trading boom, fueled by the Federal Reserve’s massive injection of cash into financial markets. With the central bank nearing the time when it will start winding down its asset purchases, banks are set to profit again as increased volatility encourages clients to buy and sell more stocks and bonds. Matt Scuffham reports.

Also see: Eyeing higher inflation and volatility, investors turn more selective: fund managers

Others (for subscribers)

The most oversold and overbought stocks on the TSX

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Selling activity outweighs buying action with these trades by company leaders

Globe Advisor

Rising inflation pierces investor complacency

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What’s up in the days ahead

Rob Carrick takes a look at fractional real estate investing. It gives the little guy access to property ownership, while also contributing to the financialization of housing and higher house prices.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff

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