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It’s time to move cash into securities

Portfolio manager Mike Vinokur picks an oil and gas stock and a cargo and passenger air transportation services provider as his current ‘best buy’ stocks.

best_buy

Portfolio manager Mike Vinokur picks his two current “best buy” stocks.

Taking a short breather after a “fantastic” 2020 fourth quarter, MV Wealth Partners of Aligned Capital Partners Inc. co-founder and portfolio manager Mike Vinokur says that as of the end of January, he and his clients were deploying cash in securities anew.

“I’m an optimist and I believe that over time, the GDP and growth rate will come back to pre-COVID levels and exceed those levels,” in part because of rapid improvements in efficiency and productivity since the pandemic began, he told Investor’s Digest in a Feb. 1 telephone interview.

Mr. Vinokur had predicted that a divided US Congress would stave off anxieties about a sharp shift to the left in the event of Joe Biden’s election last November. Nevertheless, he expresses confidence in the new president’s moderate leadership despite Democrats holding both legislative chambers.

Manager looks beyond COVID-19 to long term

The portfolio manager adds that he has not accounted for any hiccups with administering the COVID vaccine. He says his focus is on long-term cash flow over a five-year period or longer, so a few tough quarters are “not that big a deal”.

Mr. Vinokur says he increased his clients’ holdings to between 25 per cent and 30 per cent cash since the beginning of 2021, reasoning that the market was overheated and “needed time to pause and refresh” even before GameStop Corp.’s news-making rapid rise (and fall). Reflecting on GameStop as well as similar investments countering short sellers and tied to the WallStreetBets Reddit forum, the portfolio manager says: “The fads will disappear and normality will come back to market valuation.”

He describes those WallStreetBets rushes as a grassroots backlash to the exuberance of the broader capital markets, itself contrasting starkly with real-world economic woe. “The divide between the haves and have-nots is so great,” Mr. Vinokur says, noting that even as businesses are going under and more people find themselves unemployed, there has been a surge in high-paying jobs in Canada and the US in prosperous fields such as technology.

Cash liquidity driving stocks up

Accommodating central banks and governments as well as very low interest rates is behind the mainstay investors’ upward valuations of companies, the portfolio manager says. These have resulted in low cost of capital, relative stability and high liquidity.

“This is the liquidity that I believe is driving the markets.”

After retail investors bought generally neglected stocks like GameStop and BlackBerry Ltd., Mr. Vinokur says long-short hedge fund managers needed to access massive amounts of liquidity to shore up their losses. This led them to sell out of major market winners such as Apple Inc. and Netflix Inc.

While the portfolio manager concedes that the little guy got one over on big finance, he says in the longer run: “I worry a little about this phenomenon.”

The portfolio manager remarks: “If I was a manager that shorted securities, I would probably no longer short individual securities and short broad-market indices.” Pension fund directors may similarly become reluctant to allocate capital to such securities, especially knowing that small retail investors can organize swiftly and forcefully in response. However, short sellers benefit market efficiency in terms of determining fair prices since they are willing to dispose of shares even when they are in-demand (and thus rising). Without their presence, that efficiency may be lost, leaving only volatility based on speculation.

Finally, Mr. Vinokur says he wishes the Reddit posters had chosen “excellent” companies that were merely poorly valued, rather than struggling firms trying to hang on. “Where’s the value if there’s no growth?” he asks.

Manager names his two “best-buy” stocks

The portfolio manager says his latest “best buy” stocks, Enbridge Inc. (TSX—ENB; NYSE—ENB) and Atlas Air Worldwide Holdings Inc. (NASDAQ—AAWW), fit the bill nicely.

Air transportation services stock Atlas offers outsourced aviation through its fleet of 117 aircraft, either including aircraft, crew, maintenance, and insurance (ACMI), or only the latter three (CMI).

Because it serves customers such as the US military, freight forwarders, sports teams and other charter customers, Atlas is a way to participate in the growth of e-commerce and cargo delivery without direct exposure to airlines, says Mr. Vinokur.

The company’s business is very flexible with few upfront costs, its reputation is growing around the world, and it has further benefited from fewer passenger airlines carrying cargo in their bellies.

Meanwhile, he says blue chip stock Enbridge Inc., an energy generation, distribution, and transportation company, is a “not-sexy, old economy, plain type of business” but one that has continually rewarded investors who trust strong fundamentals, namely size, scale and diversification, including into renewable energy. Following its latest increase, the oil and gas stock’s dividend yields about 7.7 per cent annually.

This is an edited version of an article that was originally published for subscribers in the February 19, 2021, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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