Teal Linde, manager of the Linde Equity Fund
FOCUS: Mid- and large-cap US stocks
MARKET OUTLOOK:
Our outlook for the end of 2021 indicated some reasons why we doubted that the S&P 500 could deliver a fourth consecutive year of returns above 15 percent in 2022. We began by acknowledging that a bullish market was unlikely to double. historical yields continue. such a strong performance. We observed that this good performance had led to very high market valuations (a price-to-earnings ratio of more than 23 at the beginning of the year) and that with central bank asset purchases nearing completion and interest rates potentially rising interest, valuations would be difficult. advancing further from the opening year levels. We also observed that earnings growth was expected to be 9% in 2022, driven by higher profit margins, which could also be difficult to achieve.
Since its peak on the second trading day in January, the S&P 500 has lost about a quarter of its value. Interestingly, most of this decline comes from a drop in valuations. As a result, the S&P 500’s price-to-earnings ratio is below 17, roughly the average of recent decades. The recent fall in prices has largely solved the valuation problems.
Revenue sustainability is now the key issue. Will interest rate hikes, which central banks are instituting to fight inflation, provoke a recession? And if so, to what extent can the gains be made? At the moment, analysts do not expect any decline in earnings, with the S&P 500 earnings estimates for 2022 about 2 percent higher than now for the start of the year.
A recession-induced fall in profits has become the key potential risk for the market. Valuations are now less worrisome. With 2022 on track to deliver the worst performance in the first half of the S&P 500 since 1962, downward pressure on the market may ease during the second half, with fluctuations focused on the economic outlook.
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BEST SELECTIONS:
Teal Linde’s best choices
Teal Linde, manager of the Linde Equity Fund, talks about her best options: National Bank of Canada, Air Canada and Ensign Energy Services.
NATIONAL BANK OF CANADA (NA TSX)
Last purchase on April 20, 2022 for $ 94.75
The National Bank may not be one of Canada’s top five banks, but its actions have been the first to be implemented in the last 10, 12 and 15 years, depending on a calendar year, both depending on the year. appreciation of prices as of prices and dividends. . The bank enjoys ample strength in all its lines of business. With its overweight position in Quebec, the bank also has less exposure relative to a potentially overheated real estate market in Ontario. Part of the bank’s advantage of being smaller than the big five is its valuation discount that allows it to enjoy a higher relative dividend yield and the ability to buy proportionally more shares than its larger counterparts, usually more expensive. The National Bank also consistently holds one of the highest ROEs among Canadian banks. Its shares are now trading at the lower end of its historical valuation range at nine times earnings.
AIR CANADA (AC TSX)
Last purchase on November 23, 2020 at $ 21.56
Air Canada’s booking data up to the end of May show that net passenger revenue in Q2 / 22 is 8.8% below the same period in 2019. US demand is leading the recovery, followed by Atlantic and then Asian markets. Still, despite enjoying the strongest revenue improvements since the pandemic began, Air Canada shares recently returned to 2020 price levels as part of the recent stock market crash. Benefiting from a combination of reduced capacity and repressed demand, Air Canada’s shares appear to be oversold and well positioned to recover after stabilizing market sentiment.
ENSIGN ENERGY SERVICES (ESI TSX)
Last purchase on February 7, 2022 for $ 2.25
With higher oil and gas prices, Ensign expects more equipment to be used in its Canadian and US operations, which is expected to drive up daily prices. Management continues to focus on increasing market share margins. The company is also focusing on reducing debt while taking advantage of improved price dynamics with its current relatively short-term price contracts. With oil and gas prices hovering around eight and 14 years, respectively, Ensign is still well below its $ 6 bargain price of just over three years ago. With energy security back in the spotlight, Ensign’s prospects are favorable.
PAST SELECTIONS: June 21, 2021
Teal Linde’s previous election
Teal Linde, manager of the Linde Equity Fund, talks about his previous election: Bank of Nova Scotia, Meta Platforms Inc and Linamar.
Bank of Nova Scotia (NBS TSX)
- Then: $ 79.85
- Now: $ 79.97
- Yield: 1%
- Total return: 6%
Meta (FB NASD)
- Then: $ 332.29
- Now: $ 163.74
- Yield: -51%
- Total return: -51%
Linamar (TSR LNR)
- Then: $ 79.18
- Now: $ 54.52
- Yield: -31%
- Total return: -30%
Average total return: -25%
BNS TSX III FB NASD III LNR TSX III