David Driscoll on BNN-Bloomberg’s Market Call…August 25, 2020
Market Outlook
A quick look at the TSX 60 Index shows the discrepancy between value stocks and growth stocks. To date, 32 of the 60 stocks have yields above 2.0 per cent. Their total return (dividends re-invested) are down 12.8 per cent versus the TSX 60 total performance, down 0.2 per cent. This variance between value and growth also occurred during the run-up to the bursting of the tech bubble in 2000 and carries a strong warning for tech-only investors.
After the bubble burst in March, 2000, the NASDAQ index fell 71 per cent until March 2003, while value stocks regained their footing and outperformed tech for the rest of the decade. For example, Microsoft Corp. reached a high of US$59.56 on Dec. 27, 1999 and dropped to a low of US$15.15 on March 9, 2009, a drop of 75 per cent. It didn’t return to its US$59.56 price until Sept. 27, 2016, a long 17 years to return to break-even.
Successful
investing is not about how much you make on the upside but how much you avoid
losing in the bad markets. If you have a dollar and it drops 75 per cent,
you’re left with $0.25, meaning you need to make 400 per cent to get back to
break even. In Microsoft’s case, it took almost two decades to do so – most
investors don’t have that much time to wait. In today’s market, avoid stocks
with high P/E ratios and high betas and you may still be profitable in 20
years.
Top Picks
Atrion Corp. (ATRI Nasdaq) - Last purchased
on August 10, 2020 at US$663
Atrion is a leading supplier of medical devices and components to niche markets. Atrion’s proprietary products, ranging from cardiovascular and ophthalmology products to fluid delivery devices, are sold to end-users and distributors worldwide. The stock has traded at its current price level since mid-2017 as revenues have temporarily flattened. However, the company has new products to introduce in 2021 and it just raised its dividend 13 per cent to US$7 a share on higher expectations.
Analog Devices (ADI NASD) - Last purchased on August 10, 2020 at US$116.76
Analog Devices is a global leader in the design and manufacturing of analog, mixed signal, and DSP integrated circuits to help solve the toughest engineering challenges. Some examples are to help telecoms scale their 4G and 5G networks more quickly and economically. In automotive, it makes road noise cancelling solutions. It’s also active in autonomous driving engineering. Its acquisition of Maxim helps it become a leader in digital health care and high-speed data connectivity for cameras, radars and processors. It’s the leading semiconductor company for electrification. The dividend was raised 15 per cent this year.
Steris PLC (STE NYSE) - Last purchased on August 10, 2020 at US$155.88
Steris provides infection prevention through sterilizers and washers, surgical tables, lights and equipment management systems and endoscopy accessories. Its Life Sciences subsidiary grew 21 per cent in the recent quarter because of demand for sterilization consumables and equipment. The rest of its business has slowed because of a drop in elective surgeries but once things return to normal, they should enjoy rising revenues and profits from all divisions. The company recently increased its dividend 10 per cent to US$1.60 a share.
David Driscoll,
President and CEO
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