Barry Schwartz, CIO and portfolio manager, Baskin Wealth Management
Focus: North American large caps
Top Picks: CCL Industries, Domino’s Pizza, Amazon
MARKET OUTLOOK:
Happy days are here again for the markets! The dark clouds that have persisted from the pandemic, as well as high inflation and restrictive interest rates, are receding. The prospect of global rate cuts combined with strong corporate earnings and the certainty of the U.S. Presidential election is a recipe for a bowl of Goldilocks’ famous porridge.
The market is trying to get ahead of what it thinks will be a flood of money put to work from cash on the sidelines. In this environment, almost all asset classes should do well: growth, dividends, value, small caps and even fixed income. But have we eaten a lot of the future returns already? There’s a good argument to be made that valuations are quite high overall, however, under the hood, many stocks are well below their 2021 levels, especially in Canada.
The best businesses in the world, the Magnificent Seven, are pushing up valuations but the world has never seen companies like this before; there is no precedent. The S&P 500 Index is trading around 20 times 2025 year’s expected earnings. That seems pricey, however, if you see decent organic revenue growth above inflation, rising profit margins, and double-digit earnings per share growth, you can’t be faulted for being excited about the future. We remain fully invested for our clients in high-quality North American companies, exclusively, with most of our allocations to U.S. companies. In fixed income, we are extending our maturities out five years or further to lock in higher rates for longer. We think a year from now, one-year GIC rates in Canada will be in the three per cent range and the only choice for investors will be more volatile assets.
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TOP PICKS:
CCL Industries (CCL.B TSX)
CCL Industries is the largest label maker in the world, with a great track record of creating value through M&A. Shares have been under pressure over the last few years due to high resin pricing and soft demand for electronics and consumer packaged goods. We think shares are now attractive at 17 times earnings with a very clean balance sheet, especially as competition from private equity for acquisitions slows down.
Domino’s Pizza (DPZ NYSE)
Domino’s has outperformed the restaurant industry this year due to its decision to hold pricing last year on its national Mix & Match deal, as well as initiatives to improve the loyalty program and sell through Uber Eats. We think this is evidence of a strong management team, and with franchisee profitability back to record levels, we expect store growth and market share gains to accelerate for Domino’s.
Amazon (AMZN NASD)
Amazon has spent the last two years fixing the cost structure for the retail business after the pandemic boom, and today has a much nimbler footprint with faster delivery speeds and better margins. We think Amazon’s strong position in both e-commerce and cloud will allow it to respond and compete effectively, whether it be in AI or against Chinese direct sellers. We think the valuation is very reasonable at 21 times EBITDA.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CCL.B TSX | Y | N | Y |
| DPZ NYSE | Y | N | Y |
| AMZN NASD | Y | Y | Y |
PAST PICKS: August 21, 2023
Constellation Software (CSU TSX)
- Then: $2682.16
- Now: $4184.2
- Return:56%
- Total Return: 56%
Berkshire Hathaway (BRK.B NYSE)
- Then: $352.09
- Now: $446.19
- Return:27%
- Total Return:27 %
Live Nation (LYV NYSE)
- Then: $83.96
- Now: $97.31
- Return:16%
- Total Return: 16%
Total Return Average: 33%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CSU TSX | Y | N | Y |
| BRK.B NYSE | Y | N | Y |
| LYV NYSE | Y | Y | Y |
