Barry Schwartz, chief investment officer, portfolio manager, Baskin Wealth Management
FOCUS: North American large cap stocks
Top Picks: Watsco, TransDigm, Garmin
MARKET OUTLOOK:
If I told you in 2019 that in the next five years we would have a global pandemic, a Russia-Ukraine war, intense conflicts in the Middle East, the highest inflation since 1980, and non-stop interest rate hikes, you would have never believed that the S&P 500 Index would double on a total return basis from 2019-2024.
The resilience of North American markets in the face of so much uncertainty in the world is remarkable. The all-time high levels of stock markets are rational in our opinion given record earnings, falling inflation, falling interest rates on the short-end and growing economies. The recent move up in long bonds proves that the U.S. Federal Reserve has engineered a perfect response to the supply chain driven inflation crisis.
Record market levels bring high expectations for earnings and the big techs driving the S&P 500 are pressured to deliver. At the same time, these companies are investing heavily in AI for what they believe will be an even bigger boom than the internet. Our long-term investment approach is unchanged, and we are focusing our research on companies that carry the same mindset.
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TOP PICKS:
Watsco (WSO NYSE)
Watsco is the largest distributor of heating and air-conditioning equipment in the U.S. It should benefit tremendously from new regulations on emissions and refrigerants which will force new buyers to upgrade to more expensive units. It is a well-run business: has invested in technology for contractors, has no debt, and maintains a unique culture where managers get stock that only vests when they retire. Watsco has a long runway to acquire local independents.
TransDigm Group (TDG NYSE)
TransDigm is a provider of replacement parts for commercial and defense aviation industries. It sells irreplaceable parts that are qualified into the design of the plane. As a result, the company generates predictable high margin revenues. TransDigm’s strategy is to acquire part’s providers and optimize operations by streamlining production and raising prices. It has an outstanding track record of compounding with mergers and acquisitions.
Garmin (GRMN NYSE)
Garmin has transitioned from an auto GPS maker to a leader in fitness watches, outdoor trackers, boating sound systems and fishfinders, private jet flight decks, etc. Its strategy is to focus on engineering quality and targeted distribution to best serve each niche end market. Garmin is another example of a very well-run business. It has historically bought back stock at low prices, maintains no debt on the balance sheet, and is active on mergers and acquisitions.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| WSO NYSE | Y | N | Y |
| TDG NYSE | Y | N | Y |
| GRMN NYSE | Y | N | Y |
PAST PICKS: AUGUST 21, 2023
Constellation Software (CSU TSX)
- Then: $2652.16
- Now: $4347.00
- Return: 62%
- Total Return: 63%
Berkshire Hathaway (BRK.B NYSE)
- Then: US$352.09
- Now: US$457.68
- Return: 30%
- Total Return: 30%
Live Nation (LYV NYSE)
- Then: US$83.96
- Now: US$115.45
- Return: 37%
- Total Return: 37%
Total Return Average: 43%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CSU TSX | Y | N | Y |
| BRK.B NYSE | Y | N | Y |
| LYV NYSE | Y | Y | Y |