Brett Girard, chief financial officer and portfolio manager at Liberty International Investment Management
Top Picks: Great-West Life, Steris PLC, Kelly Partners
MARKET OUTLOOK:
Currently, in Canada and outside the U.S. the general decline in interest rates continues to act as a stimulus, although the overall economic picture is less clear. South of the border, the wealthy, emboldened by the wealth effect, will continue to mask the struggles of lower-income households and prop up consumer spending. This, combined with observations of slowed inflation, receding interest rates (though not as quickly as initially expected), and strength in the job market, creates a positive outlook for the U.S. economy.
At the same rate, the economy is not the stock market. Investors are reminded that over the long term, generating free cash flow and shareholder yield (through dividends, share buybacks, and debt reduction) are key drivers of returns. Investing in competent management teams that “control what they can control” via pricing power, appropriate capital structure, efficient marketing and measured research and development should be the focus as opposed to predicting the headlines around economic factors.
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
- Listen to the Market Call podcast on iHeart, or wherever you get your podcasts
TOP PICKS:
Great-West Life (GWO TSX)
Operates a diversified business model with multiple revenue streams across life insurance, health benefits, retirement services and asset management. In particular, Empower Retirement, the U.S. retirement business, has grown organically and through acquisition to become one of the largest retirement services providers in the country. With a dividend growth rate averaging around eight per cent over the last one, five and 10 years and a payout ratio fluctuating between 50-70 per cent, this is a safe dividend grower with bright growth prospects.
Steris PLC (STE NYSE)
Steris a stable market leader in infection prevention and sterilization that happens to generate a significant portion of revenue from recurring sources (including sterilization services, and maintenance and repair of sterilization equipment). Shares have recovered from the COVID-19 overhang of 2020-23 as growth has driven earnings per share (EPS) back to the 2021 peak. Dividend growth rate over the last one, five and 10 years has been 10 per cent, 11 per cent and 15 per cent respectively.
Kelly Partners (KPG ASX)
Since 2006 they have been quietly rolling up accounting firms serving small and medium size business in Australia and more recently the U.S. The overall industry is in consolidation mode as aging practitioners are retiring without a new crop of students replacing them. Revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) have grown by around 22 per cent CAGR over the last five years and plans to cross list on a US exchange are currently being evaluated.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GWO TSX | Y | Y | Y |
| STE NYSE | Y | Y | Y |
| KPG ASX | Y | Y | Y |
PAST PICKS: NOVEMBER 13, 2023
Fairfax (FFH TSX)
- Then: $1239.50
- Now: $1891.38
- Return: 52%
- Total Return: 55%
TC Energy (TRP TSX)
- Then: $45.12
- Now: $67.65
- Return: 50%
- Total Return: 61%
Danaher (DHR NYSE)
- Then: US$195.98
- Now: US$241.37
- Return: 23%
- Total Return: 24%
Total Return Average: 47%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| FFH TSX | Y | Y | Y |
| TRP TSX | Y | Y | Y |
| DHR NYSE | Y | Y | Y |