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The beginning of a new year of investing often brings about the question as to where to invest new funds. In Beware the Obvious Trade, Dan Suzuki, deputy CIO of RB Advisors (a firm founded by former Merrill Lynch chief quantitative strategist Richard Bernstein), suggests that investors should look towards areas where bravery might be required.

Mr. Suzuki notes that rising borrowing costs have uncovered and punished stocks that previously attracted investment based solely on good growth stories and hope rather than cash flow generation and valuation levels. These re-rated companies have been most commonly found in U.S. technology, communications and consumer discretionary sectors.

RB Advisors, unlike many North American investors, is not looking for a recovery in these sectors any time soon. Mr. Suzuki suggests that the set-up is somewhat similar to the year 2000, when the U.S. was completing a decade of market leadership based on technological innovation while the emerging markets lagged.

Brave investors in 2000 were rewarded for the next decade, when developing world profit growth was six times the rate of the S&P 500. The cumulative emerging markets return of 210 per cent for the 10-year period (in U.S.$ terms) easily outdistanced the U.S. market’s 5 per cent.

RB Advisors has been reallocating resources towards long-term Treasury bonds, and to stocks from the U.K., Europe, Japan and emerging markets in recent quarters. These equity markets have more favourable valuation levels and cash flow growth prospects in its estimation. Mr. Suzuki also believes non-U.S. markets will benefit from a depreciating U.S. dollar in future years.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Cenovus Energy Inc. (CVE-T) Canadian energy stocks have retreated since early November, weighed down by stumbling crude oil prices and economic uncertainty. But there’s good news for dividend-focused investors here: The hefty distributions that have flowed from the energy sector in 2022 should continue to delight shareholders next year as well, even if the price of oil fails to embark upon a fresh winning streak. For instance, Cenovus could be looking at a dividend hike of 50 per cent to 75 per cent. David Berman reports.

Exchange Income Corp. (EIF-T) This stock has rewarded shareholders with both price appreciation and regular monthly income with its attractive 5-per-cent dividend yield. Management is firmly committed to its dividend policy, and increased its dividend by 5 per cent twice this year. Year-to-date, the share price has rallied 18 per cent, and the stock still has a unanimous buy recommendation from 11 analysts, with robust earnings growth forecast. Jennifer Dowty looks at the investment case.

Quarterhill Inc. (QTHR-T) In a period of declining GDP growth, where can an investor take cover? It makes sense to look for a sector where projects tend to be long-term in nature, and less prone to cyclical effects. A place where the tailwinds are noteworthy and recession-resistant. According to the current chief executive of Quarterhill, a small Canadian tech company, intelligent transportation systems are the ticket. The company provides products and services, such as red light and speed-enforcement systems, automated truck-weighing stations, toll-road systems and equipment, traffic management and safety systems. The opportunities are there, especially now that Congress has passed President Joe Biden’s Infrastructure Investment and Jobs Act. The Contra Guys tell us why they think the stock could be a good bet.

The Rundown

No-fee trading platforms dominate new brokerage account growth in Canada

No-fee trading platforms are attracting a wave of do-it-yourself investors in Canada, accounting for almost half of all new account openings and almost a third of all trading activity, reports Clare O’Hara.

The Smaller Stable Dividend portfolio offers a less volatile way to earn dividends

When large stocks sneeze small stocks catch colds. But a select group of smaller stocks are resistant to downturns because they are less volatile than their peers and pay dividends along the way. Norman Rothery recently used a combined injection of low-volatility and dividends on large stocks to form the Stable Dividend portfolio. Now, he’s back and using a similar approach to inoculate smaller stocks to form the, imaginatively named, Smaller Stable Dividend portfolio. The result is index-beating returns.

Also see: The Dividend Monster Portfolio and other updates from Norman Rothery

Yield is important for income investors, but it can be illusionary

Income investors are fixated on yield – sometimes excessively so. Yes, yield is important if you’re relying on investment income to maintain your lifestyle. But it can be illusionary at times, especially with exchange-traded funds. You need to look beyond the raw numbers to understand what’s really going on. Gordon Pape provides some examples.

Recession, rate hikes seen jamming brakes on global 2023 earnings growth

Corporate earnings growth is expected to slow in the year ahead in many countries as higher inflation and rising interest rates take an even bigger toll and companies brace for the likelihood of a global economic downturn. U.S. companies are forecast to have the slowest full-year profit growth since 2020 and the start of the coronavirus pandemic. Some top equity strategists predict no profit growth or even a decline in earnings. It adds up to a challenging environment ahead for equity investors.

Cryptocurrencies at crossroads after annus horribilis

To borrow from Britain’s Queen Elizabeth, 2022 is not a year on which the cryptocurrency world shall look back with undiluted pleasure. Crashes, contagion, collapses came in such quick succession that investors were, toward the end of the year, asking serious existential questions. After all, the largest cryptocurrency, bitcoin, has not kept its head above water for more than a week at a time, and is down about three-quarters from last November’s US$69,000 peak. Unlike in 2017, when bitcoin crashed just as spectacularly, there are far fewer diehard crypto buffs predicting a bounce this time.

Financial and economic forecasts become a vortex of guesswork

It’s the time of year for financial and economic forecasting - but you may do as well ignoring them all. An ordinary year assessing the ebb and flow of the business cycle is often tricky enough. Inherent uncertainty about the future sees to that - there’s no crystal ball. But adding fractious geopolitics and related energy or global public health shocks and it becomes a crap shoot - as 2022 displayed in technicolour. Few if any financial forecasters soothsaying this time last year got the big calls right, as Mike Dolan of Reuters tells us.

Others (for subscribers)

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Desjardins Securities reveals its top TSX stock picks for the next year

Number Cruncher: How to find attractive, resilient companies – and not overpay for them

Globe Advisor

Use of model portfolios grows alongside demand for comprehensive financial planning

Advisors welcome scrutiny on ESG funds but say there are still many challenges facing investors

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What’s up in the days ahead

BMO’s chief market strategist, Brian Belski, will provide his predictions for the year ahead. Plus, this weekend John Heinzl and Tim Shufelt present the Stars and Dogs of 2022.

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

Happy holidays from Globe Investor staff

The Globe Investor newsletter will take a pause next week. But we’ll be back in the first week of January with a bevy of investment ideas to start the new year.

Compiled by Globe Investor Staff