Investment Proposal Following a Turbulent Year
By: Prof. Pierre Fournier
2020 was a year like no other on many different fronts. I am sure that we are all happy to turn the calendar page to a new year that is hopefully filled with good health and some form of return to relative normalcy. An overall theme for 2020 was initially, – earnings, the economy, and the U.S. election, given the interconnected nature of these three factors.
However, 2020 quickly turned into the "Year of the COVID-19 Pandemic," where stocks and the economy were initially devastated by lockdown measures and later staged remarkable recoveries into the end of the year.
As effective vaccines and therapeutics are now becoming available, I believe that the theme of 2021 will be "The Reopening of the Global Economy."
In this regard, below are my Investment Themes for 2021 for your review and consideration, bearing in mind that while 2021 may turn out to be less volatile than 2020, the days of heightened bouts of volatility are certainly not behind us.
Areas of COVID-19 Leadership Continue through 2021
The way in which humans and businesses operate and interact continues to evolve, and that rate of change has never been quicker than it is right now. This evolution has occurred in areas including technology, commerce, and health care. I contend that the already rapid evolution taking place combined with the force of change brought on by the COVID-19 pandemic will allow the areas of technology, commerce (notably E-commerce), and health care to continue to provide economic and market leadership for years to come.
Expect more Innovative Healthcare Solutions from Biotech
The COVID-19 pandemic served as a painful reminder of the need for innovative healthcare solutions worldwide. However, healthcare innovations were needed before the onset of COVID-19 and will likely still be required to help treat and cure rare and chronic diseases in the future. These innovative solutions typically come from smaller-cap Biotech firms and are then pursued as take-over targets by larger-cap pharmaceutical companies. I do not anticipate the rate of Biotech mergers and acquisition (M&A) activity to slow down considerably anytime soon.
Transformational Technologies for a Transforming Society
While I anticipate the gradual re-opening of the global economy throughout 2021, many pre-COVID societal norms have undergone immense transformation. Society will likely continue to communicate, work, shop, and educate more remotely than they ever have before. Technology will continue to assist with this societal transformation. Specifically, transformational or revolutionary technologies, such as artificial intelligence, robotics, blockchain, and even 5G, will be of paramount importance to individuals, corporations, and governments. The critical nature of these transformations should help provide growth potential for the stocks of well-run and well-positioned companies that provide these types of technologies.
We are learning that working from home has not impeded productivity levels but has actually improved them. This is because non-essential meetings are no longer taking place and both time and money are being saved by holding long-distance meetings virtually. There are some negatives, though, such as the corporate cultural impact from the lack of in-person collaboration, as well as the blending of work hours into personal time.
This is why I predict some form of hybrid relationship will occur with a mix of both home and office time during the week, which will have all kinds of implications for companies offering services in both markets.
More Exponential Growth for E-commerce
The transition from traditional, in-person retail sales to online sales was well underway before the COVID-19 pandemic. Due in large part to the speed and convenience of shopping online, COVID-19 has accelerated the transition from traditional brick-and-mortar shopping to online commerce further. For example, during the height of the COVID-19 associated lockdowns in April 2020, E-commerce increased by 49%. E-commerce isn’t just a short-lived trend, it is here to stay, and investment opportunities exist for companies that derive revenue from their overall E-commerce ecosystem roles.
Dividend-Paying Stocks Used for Growth and Income Objectives
Dividends accounted for 42% of the total return of the S&P 500 Index for the period of 1930-2019. Once the importance of dividends is recognized, the next step is to find companies with a history of increasing their dividends and those that are less likely to cut or suspend their dividends. This task became increasingly important yet more difficult during the COVID-19 pandemic. According to CNBC, 639 companies either cut or suspended their dividends during the peak of the shutdown orders that were implemented during the second quarter to help limit the coronavirus's spread. This marked the highest number of dividend cuts or suspensions since 2009. Looking ahead, pressure on dividends should subside in 2021 as the economy continues to recover. Also, I would anticipate investors to embrace dividend-paying stocks as an alternative to lower-yielding fixed income instruments.
As the global economy enters a new cycle and a ‘new normal’, investors should consider these investment strategies. Moving into 2021, staying on top of the six investment themes could help investors optimize potential growth opportunities.
Best wishes for a happy and healthy 2021 to everyone!
Disclaimer: This article is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making an investment based on your own personal circumstances.
Sources: BNN, Bloomberg, Les Affaires, La Presse, the Economist, Reuters.