Today, The Panic-Proof Portfolio (Stockchase Research) and Gordon Reid commented about whether LZB-N, CVX-N, ADBE-Q, CVS-N, COST-Q, SYK-N, INTC-Q, WAFD-Q, META-Q, ELV-N, CRM-N, MDT-N, MMM-N, URI-N, RTX-N, LMT-N, BRK.A-N, HD-N, ELD-T, DPZ-N, LOW-N, BMO-T, MSFT-Q, TRGP-N, RY-T, MAN-N, ADI-Q, ABNB-Q, AKE-T, ARX-T, NTR-T are stocks to buy or sell.
He's been quite pleased and surprised that equities have held up as well as they have. We've had a few fairly hot inflation numbers, with CPI and retail sales and PPI. Equity markets are telling us that the economy is just fine with a little higher interest rates. This is the digestion process that the market has to go through. Low interest rates were the anomaly, not the norm, and all of us have to get used to more normalized rates that will approach 5% on an ongoing basis. It will favour good quality companies with an ability to manage the debt load, and maintain high profitability metrics such as ROIC and ROE, in higher interest rate environments. That plays right into what his firm does, so he's not unhappy.
He does think rates will stay elevated. There's a huge swath of investors and professionals who've never experienced rates in the mid-single digits. But some of them, like him, have. Markets, economies, and corporations can handle these levels. We last saw higher rates in the late 1990s, which were halcyon days for equity markets. Don't be fearful of them, but build them into your screens to look for companies with enough firepower to do well with interest rates that are a bit higher.
We're in a tight labour market, and this leads to higher wages because there are fewer workers than there are job positions. Even though the Fed is trying to slow the economy down, labour employment has been very sticky. That's probably the last nail in the coffin of inflation that the Fed will get to, but it's not proving easy. Since Covid, the whole employment picture has changed. You can have a tight labour market that's not inflationary, but only if productivity increases. So prices don't have to go up, because companies are producing more with less. It's doable, because technology will enable us to do more with less, and it has for the last number of decades. Productivity is the key, watch this carefully. If we can create a magic situation where workers get paid more, profit margins are maintained, and inflation is kept in the bottle, wouldn't that be a wonderful world? In some ways it's doable, but it's a big ask.
Healthcare notoriously left out of most recent high-beta rally. Don't give up. Don't chase low-quality, high-beta companies just because they're going up for 6 weeks. Go with good quality companies, and you will be rewarded. He's sticking with it. Demographic tailwind, 6% FCF yield, expects $33 EPS in 2023 which is a 15x PE.
Our PAST TOP PICK with DPZ is progressing well. To remain disciplined, we recommend trailing up the stop to $340 at this time.