David Baskin, president of Baskin Wealth Management

Focus: North American large caps

MARKET OUTLOOK

Macroeconomic data is very confused right now. The strong positives are the very low unemployment levels in North America and the very strong ratio of open jobs to job seekers. On the downside, Purchasing Manager Indexes appear to be weakening, with the New York State being the latest to report declining business conditions. Expected economic growth worldwide has been downgraded and the yield curve (five-year U.S. Treasury minus 90-day U.S. Treasury) has now been inverted for more than 90 days. On top of this, the Trump administration trade policies remain very uncertain and potentially extremely destructive. If the U.S. Federal Reserve lowers interest rates this week, as expected by some, it will indicate a lack of confidence in future economic growth, but it may be taken as a short-term positive by the stock market.

TOP PICKS

AMAZON (AMZN.O)

Despite being worth nearly $1 trillion, Amazon is still in the early innings for its core retail and cloud service businesses. Amazon’s share of U.S. retail sales is only around five per cent and less than one per cent globally. Although Amazon tries to reinvest all of its profits into future growth, profitability is growing from its asset-light revenue streams such as advertising, third-party seller services and Prime memberships. Amazon Web Services, their cloud computing platform, has a valuable scale, first-mover advantage and will continue to benefit from the trillions of dollars of enterprise IT spending that will migrate to the cloud over time.

STELLA-JONES (SJ.TO)

Stella-Jones is one of the largest providers of railway ties and utility poles in North America. Despite going through some input cost pressures over the last two years, Stella-Jones will benefit from the growing need for infrastructure to be replaced. Industry inventory levels of railway ties are now very low, which should help Stella-Jones’s margins in the near-run. The management has also done a terrific job at making acquisitions to grow their network. This is an extremely recession resistant business providing necessary products that must be replaced regularly.

BROOKFIELD ASSET MANAGEMENT (BAMa.TO)

Brookfield Asset Management is one of the largest investment managers of alternatives and real assets in the world with $365-billion of assets under management. As global interest rates remain low, BAM will benefit from the continued growth of allocations to alternatives and real assets by pension funds, endowments and insurance companies which are seeking long-term assets with reasonable yields.  Highly indebted governments are increasing utilization of third party capital to fund infrastructure projects and the global scope of potential business is measured in the trillions. The company’s global scale gives it a sourcing advantage to acquire truly large-scale assets such as $15 billion for General Growth Properties. Over the next few years, BAM should also realize significant capital gains from its carried interest in managed funds as it begins to monetize investments.

PAST PICKS: June 12, 2018

ENERCARE (ECI.TO)

Acquired by Brookfield Infrastructure on Oct. 18, 2018.

• Then: $18.52
• Oct. 17, 2018: $29.00
• Return: 57%
• Total return: 60%

GENERAL MOTORS (GM.N)

Sold in August 2018 at $37.

• Then: $44.18
• Now: $36.70
• Return: -17%
• Total return: -13%

POWER CORPORATION (POW.TO)

• Then: $30.54
• Now: $28.19
• Return: -8%
• Total return: -2%

Total return average: 15%