David Driscoll’s Top Picks for December 27, 2024 – BNN Bloomberg

David Driscoll, President & CEO, Liberty Worldwide Funding Administration

FOCUS: World shares

Prime Picks: Brookfield, CME Group, Novo Nordisk

MARKET OUTLOOK:

It’s necessary for fairness traders to concentrate to the bond markets as a result of fairness valuations are primarily based on the current worth of future money flows. When rates of interest rise, the low cost price rises and, due to this fact, these current worth money flows fall.

Presently, the bond market is worried about rising authorities deficits and inflation on either side of the border. On common, skilled bond traders should not going out any additional than three-year maturities as a result of the chance isn’t definitely worth the reward of proudly owning longer-dated bonds.

How does this affect fairness traders? I’ll reply that with one query: “The place have been you in 2022?” Simply two years in the past, rates of interest rose 4.75 per cent, the very best one-year improve since 1982, and the fairness returns ranged from down eight per cent for the TSX (Canada) to down 33 per cent for the Nasdaq (U.S. tech shares). The Magnificent Seven mega-cap tech names have been down a median of 46 per cent.

Returns for the S&P 500 are greater than its friends in 2024 as a result of 30 per cent of the index is tech-based and a lot of the return has come from simply 10 firms. That’s a motive to be cautious.

The teachings to be realized listed below are:

When rates of interest rise, fairness markets usually right.

Tech shares are twice as dangerous as the general inventory market. In case you double your cash, promote half to make sure you don’t get caught in a downdraft if this present bubble bursts.

The present threat to synthetic intelligence (AI) is quantum computing which can be 5-10 years away. Quantum computing chips calculate hundreds of thousands of occasions quicker than AI which might finish the domination of AI shares.

Solely 10 per cent of semi-conductor chips are situated in the US. If China invades Taiwan, the place will U.S. AI corporations get their chips from?

Firms which are serial acquirers – whereby they allocate capital to personal acquisitions and their dividends develop at a higher-than-average price – are the true winners within the long-run, with half the chance of tech shares.

When feelings run excessive, funding errors are made.

All the time keep in mind this axiom: “Bulls earn cash, bears earn cash, and pigs get slaughtered.” Don’t be a pig.

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TOP PICKS:

BROOKFIELD (BN TSX)

Brookfield invests in long-life, high-quality belongings and companies. It additionally focuses on actual property, infrastructure and renewable energy sectors worldwide. If 2025 turns into the yr of M&A offers, Brookfield shall be in the course of all of it. It’s additionally a technique to entry personal fairness and personal credit score with out investing in a fund which might be riskier and with greater charges.

CME GROUP (CME NASD)

CME Group operates a derivatives trade that trades futures and choices contracts together with rates of interest, inventory indexes, currencies and commodities. As a substitute of proudly owning commodity shares, we personal CME to offset volatility of commodities and earn a variety on each choices or futures contract written from each counterparties. The end result is double the long-term returns of commodity shares with one-third the chance. And if 2025 seems to be chaotic with heightened volatility, CME must be a benefactor. Lastly, the money flows are so sturdy that if there’s cash left over after their capex is invested, they’ve a historical past of paying out a particular dividend on high of an annual rising dividend.

NOVO NORDISK (NOVO.B CPH)

Novo Nordisk is a pharmaceutical agency that focuses on diabetes care and weight reduction. The inventory is down 51 per cent from its June peak. Whereas competitor Eli Lilly has 60 per cent of revenues inside the US, Novo Nordisk has 60 per cent of its revenues around the globe. Current research from the subsequent era of GLP-1 formulation (CagriSema) fell wanting anticipated weight-loss (22 per cent in comparison with an anticipated 25 per cent) and the inventory cratered. It now trades at simply 16 occasions 2026 earnings, the most affordable it’s been in a decade.

PAST PICKS: DECEMBER 19, 2023

Cogeco Communications (CCA TSX)

• Then: $55.77
• Now: $67.10
• Return: 20%
• Whole Return: 27%

Atrion (ATRI NASD)

• Then: US$350.53
• Now: US$459.92
• Return: 31%
• Whole Return: 32%

Jardine Matheson Holdings (J36 Singapore)

• Then: S$39.78
• Now: S$41.43
• Return: 4%
• Whole Return: 10%

Whole Return Common: 23%