John Zechner’s Top Picks: October 25, 2022 – BNN Bloomberg

John Zechner, President and Founder, J. Zechner Associates

FOCUS: North American Large Cap Equities

MARKET OUTLOOK:

Since last fall, our strategy has been to hold slightly underweight positions in equities and bonds and a higher than normal cash balance in order to take advantage of market volatility. September’s sell-off in stocks and bonds provided a good opportunity to add to both. We are now slightly overweight equities as we believe they already reflect a somewhat marked economic slowdown and valuations are now at an attractive level, especially as we believe we are getting closer to the end of the the period of tightening interest rate policies by most central banks.

Stocks will still face headwinds during what could be a tough third-quarter earnings season, but we believe most companies are well positioned for an economic downturn and will experience better corporate earnings performance than during previous downturns. We added to stocks in the technology, telecommunications, base metals and consumer discretionary sectors.

After two years of maintaining minimal bond exposure, we increased bond weightings by around 5% last month, drawing on cash. Long-term government bonds finally have an attractive real yield now and also offer a hedge against the possibility of a weaker-than-expected economic recession as well as the possibility that a tightening of monetary policy will trigger a financial event that could trigger a financial event. stoking systemic fears.

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TOP CHOICES:

Paypal Holdings (PYPL NASD)

Last purchase US$78 – September 2022.

PayPal is a technology platform that enables digital payments that connects merchants and consumers with 426 million active accounts in over 200 markets. Its brands include PayPal, Braintree and Venmo, among others. It’s a great bet on electronic payments growth, generates significant free cash flow, and trades at less than 20 times future earnings. Additionally, management is once again focusing on profitability, supported by new activist investor Elliott Management. A sell-off in the high-growth sector this year has, in our view, created an excellent long-term buying opportunity.

Rogers Communications (RCI.B TSX)

Last purchase $53 – September 2022.

Rogers has fallen sharply in recent months due to a reassessment of the industry in general, the costs of the one-day outage in July and concerns about its ability to fund and complete the planned acquisition of Shaw Communications. . Business fundamentals continue to improve, with ROAM revenue adding to strong wireless results and the consolidation of phone, wireless, internet, TV and home security all helping to solidify the customer experience. Streaming also adds to the demand for its services, which have proven themselves in all economic scenarios. The stock trades at just seven times the expected operating cash flow, generates strong free cash flow and continues to grow.

Walt Disney Company (DIS NYSE)

Last purchase US$95 – September 2022.

Disney is down more than 50% from its 2021 peak, but most of its core businesses are in better shape and benefiting from the ongoing reopening of the global economy. The number of parks has been huge although not yet fully open in Europe or China. Acquisitions of Marvel, Pixar, Lucas Film and Fox have all added to the industry-leading media library, which is being rolled out to Disney Plus. Disney also sells its movie properties to parks, merchandise, TV and games better than anyone in the industry. Although the PE valuation is at the high end of the relative range, this is solely due to investments in the streaming business to bring it to critical mass. The valuation of the “sum of the parts” is at historic lows.