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Five investing strategies that could pay off over the next 18 months.
Every year, our company participates in the Toronto MoneyShow. This year, of course, it had to be a virtual conference, but it still gave us a chance to talk to investors and present our views. The big question from investors, of course, is, ‘Why is the market rallying?’. We’ve discussed possible reasons for this in an earlier column, so today we will focus instead on five possible investment themes you can consider for the next 12 to 18 months in the market. This was our main focus to investors at the Virtual Conference this week.
Look for companies for which the global shutdown really just doesn’t matter
Many companies were experiencing very fast growth earlier this year, when COVID-19 was just a problem overseas. Now, these companies are perhaps seeing a slowdown, but the slowdown is just a change in the rate of growth. They are still growing quickly, but maybe ‘only’ at 50 per cent instead of 70 per cent. Companies such as CrowdStrike (CRWD), Alteryx (AYX), Docusign (DOCU), Adobe (ADBE), Kinaxis (KXS), Goeasy (GSY), Real Matters (REAL) and Aritzia (ATZ) are examples for this theme.
Look for companies that actually benefit from the shutdown
The list of companies here is surprisingly long. Most of these trade on Nasdaq, and some have seen an absolute surge of business from the workat-home crowd. Companies such as Zoom Video Communications (ZM), Veeva (VEEV), Fastly (FSLY), Teladoc Health (TDOC), Avalara (AVLR) are among some of the lesser-known names, in addition to the widely-held companies that have benefited, such as Amazon (AMZN), Netflix (NFLX) and Shopify (SHOP).
Be prepared to buy companies that may prosper in a full reopening of the economy
Stocks in this category include companies whose businesses just completely stopped, but will (one day) see customers lining up again. Companies such as Great Canadian Gaming (GC on TSX), whose casinos are now slowly starting to reopen. Companies such as MTY Food Group (MTY on TSX), whose food court outlets are awaiting the return of millions of office workers, or Air Canada (AC on TSX) which, despite travel fears now, will likely have full planes again in a couple of years (or less). These stocks may not do much in the interim, but one day they may prosper again as customers return.
Look for companies that may restart their cancelled dividends
A&W Royalties (AW.UN on TSX) had a nice pop this week as it restarted its distribution, which was cancelled in April. Sure, the new payment was lower than it was before, but investors were happy to start getting an income stream again. Guess what? It turns out that consumers were actually missing hamburgers and the company’s famous root beer. Other companies that cancelled or reduced dividends, and that one day may start them back again, include CAE Inc. (CAE), Alaris Royalty (AD), Methanex Inc. (MX), Evertz Tech (ET), or Inter-Pipeline (IPL).
Look for companies with strong balance sheets that simply need to put in their time until the world returns to normal
In an uncertain world, there is nothing like a clean balance sheet to give investors comfort. Look for companies that are debt-free, with lots of cash, such as Sylogist (SYZ), Knight Therapeutics (GUD), Photon (PHO) or Franco-Nevada (FNV) in this category. In addition, many of the companies we have mentioned in the categories above also have cash-rich balance sheets, particularly most of the tech companies.
Focusing on these themes, of course, is not going to guarantee investment success. But we think, at least, it will give you a leg up on your investments versus just buying a ‘basket’ of random stocks, or buying a market index ETF.
Peter Hodson, CFA, is Founder and Head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals.