Norman Levine, managing director at Portfolio Management Corp

FOCUS: Global stocks

MARKET OUTLOOK:

It is just over a year since stock markets around the world collapsed due to panic selling brought on by the onset of the COVID-19 pandemic. For investors who only own stocks, it’s been a rollercoaster and for those who didn’t panic and sell their stocks in the spring, it’s been quite a rewarding year, first with growth stocks benefitting from ultra-low interest rates and then from value/cyclical stocks that began to reflect the coming economic recovery and reopening of the economy. However, if you’re like most investors and hold a mix of stocks and bonds, your rollercoaster has been quite different as the value of your bonds soared as interest rates collapsed while at the same time your stocks tanked. Then, once stocks started rising, so, soon after, did interest rates, and the value of your bonds began to decline.

That brings us to the present where the value of the stocks you own have gone up quite a bit and the value of the bonds you own have declined, leaving your asset mix way out of wack with too much in equities and too little in fixed income. Usually, that is an easy process of selling some stocks and buying some bonds to bring the mix back into line. However, with interest rates in a relentless drive higher (U.S. Treasuries recently recorded their worst quarter in 40 years), if you buy bonds today you are almost guaranteed to lose money. My suggestion to address this is to trim your equities to the percentage you feel comfortable with and keep the proceeds in cash. You’ll make very little holding the cash, but you’ll not lose money. Once interest rates have leveled off at some yet-to-be-known higher level, then you can begin to reinvest that extra cash in fixed.

TOP PICKS:

EssilorLuxotica (ELSOF OTC) Bought at 139 euros on February 16, 2021

EssilorLuxotica is the merger of French lens manufacturer Essilor and Italian eyeglass frame and retailer Luxotica. Both companies totally dominated their respective categories, worldwide, and together represent an eyewear powerhouse. Their merger took place in October of 2018. The merger of the two companies was expected to deliver synergies of 300-350 million euros in operating profit by 2021 and 420-600 million euros by 2023 and the company has just last month reiterated those numbers as being achievable. Besides being a merger synergy story, EssilorLuxotica is also a reopening story. People have put off visiting their optometrist or opthamologist (either by choice or by lockdown) and that meant they have not been buying new eyeglasses or getting updated lenses. As countries and economies open up, that pent-up demand will be met as consumers go to their local independent store or the LensCrafter, Pearl Vision, or Grandvision stores that the company owns. In addition, travel restrictions have impacted the company’s sunglass business which is both a retailer (Sunglass Hut) and manufacturer (Ray Ban, Oakley etc). The company hopes to return to pre-pandemic profitability by the end of 2021.

Estee Lauder (EL NYSE) Bought at US$288 on February 22, 2021.

Estee Lauder is one of the world’s largest manufacturers of prestige makeup, skincare, fragrance and haircare products. The company has many brands, targeting different price points and markets, and has grown largely through acquisitions. Estee Lauder is also a reopening story. Makeup sales decreased sharply as WFH meant women didn’t care so much about their workday appearance and fragrance suffered from people staying at home. Those markets should start to rebound with economies reopening. Skincare, on the other hand, did quite well during WFH. Interestingly, the lockdowns moved a large amount of the company’s sales from department stores to specialty stores and online, bringing with it, higher margins. China’s reopening has brought strong sales gains, which bodes will for other geographies. The company does a large duty-free business, which has suffered enormously with travel restrictions, and this should bounce back strongly, as well, once travel resumes. The stock’s drop earlier this week provides an excellent entry point.

Amadeus IT Group (AMADF OTC) Bought at 58.93 Euros on November 10, 2020.

Amadeus provides search, pricing, booking, ticketing and other processing services in real-time to travel providers and travel agencies. It also offers software that automates processes such as reservations, inventory management software and departure control systems. Its clients include travel agents, airlines, cruise lines, hotels, tour operators, and rail companies. While being a technology company, Amadeus is really a travel company. As such, it is an excellent well capitalized way of investing in the eventual recovery of the travel industry over the next several years

PAST PICKS: March 12, 2020

Enbridge (ENB TSX)

• Then: $35.87
• Now: $47.69
• Return: 33%
• Total Return: 44%

Sanofi (SNY NASD)

• Then: $40.87
• Now: $51.71
• Return: 27%
• Total Return: 36%

Berkshire Hathaway (BRK/B NYSE)

• Then: $175.97
• Now: $290.13
• Return: 65%
• Total Return: 65%

Total Return Average: 48%

Twitter: @levinepmc
Email: nlevine@portfoliomanagement.ca
Website: www.portfoliomanagement.ca