Mike Vinokur names auto components manufacturer Martinrea International Inc. and online payments processor Paysafe Ltd. as his current ‘best buys’.
The ‘rocket fuel’ of stimulus money has propelled prices for everything from lumber to stocks upward and will keep doing so for at least the next year or more, predicts Toronto portfolio manager Mike Vinokur.
Consumer goods and services deferred due to the COVID pandemic such as hotel stays, not to mention missed manufacturing and construction, portend ongoing elevated demand. At present, sharp declines in supply have led to price spikes for commodities such as grain, lumber and copper.
“You’re already seeing it at the grocery store,” notes Mr. Vinokur, co-founder of MV Wealth Partners of Aligned Capital Partners. “We will most likely break all-time records as to what we’re paying for a litre of gasoline,” he adds. Mr. Vinokur stresses that he expects inflation to ease somewhat as businesses resume normal operations and correct shortages. At the same time, central banks in the developed world have “rolled out the red carpet” in response to the latest economic crisis, pumping liquidity into economies across the board and keeping short-term borrowing costs low.
Capital is flowing; prices are rising
This has led to the best banking system health since the Great Recession, the highest liquidity in decades (if not ever), and higher savings as well because of COVID restrictions, the portfolio manager points out. Although stock valuations are not cheap per se, the public’s buying power is very high. Accordingly, capital is flowing into investment markets and driving up prices there, too, such as for bonds, real estate and stocks.
Mr. Vinokur admits: “We really don’t know how this money-multiplier effect will circulate in the economy.” Asked for his thoughts on the federal budget unveiled by the Liberal government in April, the portfolio manager sums up: “Some of them revolve around my children’s future and the amount of taxes they’re going to have to pay.” He suggests that government measures may be going “a little too far” to contain pandemic damage; as that spending lands in Canadian bank accounts, it may unleash a wave of speculative, unjustified fervour and overblown stock values.
Nevertheless, Mr. Vinokur says: “There are pockets of the market that are not that expensive. Perhaps it’s possible that because of all this new cash that people have in their possession … the money may have an influx into the lesser-valued sectors, whether on a relative or absolute basis.” Movement from overvalued parts of the market to the less expensive could keep indexes such as the S&P 500 on an upward trajectory even as their former dominant names falter, thereby bolstering confidence.
Looking ahead, the portfolio manager asserts: “I just don’t see the reason to expect much more than a typical bull market correction of five to 10 per cent, which in my opinion could happen any time, so that’s something not to fear but rather to embrace.”
2 best stocks to buy now
Mr. Vinokur names Canadian automotive parts and components manufacturer Martinrea International Inc. (TSX—MRE) and Isle of Man-headquartered online payments processor Paysafe Ltd. (NYSE—PSFE) as his ‘best buys’ under these circumstances.
Martinrea specializes in lightweight structures and propulsion systems. It operates in 10 countries at 57 locations. “Not only has the company been able to double their operating income margin from four to eight per cent, they’ve also repurchased quite a bit of stock and been able to reduce their debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) to a very reasonable 1.5 times just before the pandemic hit,” says Mr. Vinokur. Although COVID put a strain on that ratio, it is near that level again.
The portfolio manager also praises the company for its ESG (environmental, social and corporate governance) bona fides. For example, the company’s emphasis on light weight is geared toward fuel efficiency; to that end, it made a blanket order to NanoXplore Inc. for graphene to build fuel and brake lines. “Martinrea is looking to the future and to evolve its product offerings and technological prowess.” Meanwhile, it is valued at less than seven times forecast 2021 earnings and has enjoyed many insider buys over the last year. “From a steward-of-capital perspective, (they’re) symbiotic with shareholders,” Mr. Vinokur says of management.
Financial technology stock Paysafe only began trading on the New York Stock Exchange last October. However, it has been in operation for roughly two decades. At present it does business in 120 markets worldwide. It processed about US$100 billion in transactions last year, of which a large chunk was merchant e-commerce transactions.
During the pandemic, those types of transactions have fallen but Paysafe’s back-of-house services to e-gaming (that is, gambling) and e-sports betting sites as well as its digital wallet segment have boasted drastically increased business.
“I do believe the e-sports and e-gaming is going to be a huge growth driver for them and they have a huge chunk of that market,” says Mr. Vinokur.
This is an edited version of an article that was originally published for subscribers in the May 21, 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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