Guy Lapierre names two favourites of his, Ford and Disney, along with a company that has taken a significant hit recently, cruise operator Carnival, as his 3 best stocks to buy now.
Is COVID-19’s infection of the formerly roaring markets merely a passing case of the sniffles or something that will leave them gasping for quarters to come? Vancouver-area portfolio manager Guy Lapierre would lean toward the latter, although he is also counselling investors to focus on the long game.
In addition to his role as portfolio manager, Mr. Lapierre is a vice-president and branch manager at PI Financial. “We are in the throes of a downturn,” he told Investor’s Digest in a March interview, adding that he sees a further five per cent to 10 per cent drop as a possibility before a recovery. Nevertheless, in the long run, “We see the markets these recent days as a buying opportunity.”
From a ‘sell’ market to a ‘buy’ market
Speaking to Investor’s Digest last September, Mr. Lapierre had described market conditions at the time as more suited to selling than buying. He said record-high stock values did not leave much room to rise. Meanwhile, economies around the world were rife with potential negative catalysts and offered little news to bolster a rosy 2020 outlook.
Accordingly, the portfolio manager split the investments in his clients’ portfolios equally between equities and fixed income. As he explained to the Digest in March, this “has preserved us nicely [during the broad market sell-off at the end of February] but also allowed us to benefit from 2019’s strong markets”. He says of COVID-19’s effect: “Structurally it was weak and now we have headlines.”
As stock prices kept climbing, the portfolio manager and his team systematically raised the trailing stops he set for his clients’ holdings. They stopped increasing those levels when the stocks actually retreated to them. For example, since the beginning of 2020, Mr. Lapierre has sold off about half of the Apple Inc. (NASDAQ—AAPL) shares in his clients’ portfolios but “will probably hang on to the other half for a long time”.
For the time being, technology, oil and mid-to-luxury-level consumables are off the table as potential buys, reflecting his team’s concern even before the outbreak that consumer spending would slow down. Mr. Lapierre adds that the consumer trend is being echoed on a corporate level; companies have not been investing in their own growth and governments’ ability to stimulate spending is limited given how low interest rates already are.
Ford, Disney and Carnival named ‘best buys’
Mr. Lapierre names two perennial favourites of his as ‘best buys’, automotive manufacturing stock Ford Motor Company (NYSE—F) and consumer services stock The Walt Disney Company (NYSE—DIS), along with a travel company that has taken an especially significant hit in the recent market turmoil, cruise operator Carnival Corporation (NYSE—CCL).
He attributes his Ford pick to the “sheer profitability of the F-150 and F-350 truck lines”. As of March 2, the company had dropped 22.4 per cent in one month, lifting its dividend yield to 8.6 per cent. Mr. Lapierre points out that the decline occurred despite any projected fall in earnings, sales, or other relevant metric. “I have trouble seeing how the coronavirus affects Ford in any sort of material (way), short-to-medium-term,” he says.
Promises that parents will still have to keep
Mr. Lapierre says the other two attracted his interest specifically because their “earnings are absolutely affected” by COVID-19.
While COVID-19 may cause parents to cancel or postpone trips to Disney theme parks or Disney cruises, once the crisis has passed, the visits they promised their children will take place.
He remarks that the recent departure of CEO Bob Iger (now Disney’s executive chairman) also hurt shares, as expected, but argues the pullback seems excessive given the company’s long-term prospects. “Disney has the intellectual property, unsurpassed.” As of March 2, Disney had retreated 15 per cent in one month.
Disney’s streaming video service is a handy hedge for any tourism and film losses from COVID-19, he says, since people isolated at home are likely to turn to their devices for entertainment.
“The reinforcement for the streaming channel, especially in foreign-language markets (such as South Korea, China, and the Middle East) . . . offers growth that should further undermine Netflix.”
Cruise discounts are a Carnival ‘dividend’
As for consumer services stock Carnival, he predicts its shares will drop even further in part because it has lost its Asian and Italian routes. However, the company is nimble since it can lay off employees as necessary and only orders supplies such as food and alcohol when they have sold enough spots on a cruise to make it profitable. Otherwise it is cancelled, he explains.
The portfolio manager also highlights a unique program to attract investors; shareholders receive discounts when booking cruises. He predicts its business will take longer to pick up again because regular cruisers will be waiting for giveaways and deals before booking, given similar past offers after negative cruise-related news.
This is an edited version of an article that was originally published for subscribers in the March 20, 2020, 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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