Gordon Reid, president and CEO, Goodreid Investment Counsel
FOCUS: U.S. equities
Top Picks: Booking Holdings, McKesson, Uber
MARKET OUTLOOK:
After two outstanding years of performance, the equity markets are faced with the inevitable “brave faces,” who cite all the reasons a third year of outsized performance is likely. At Goodreid our approach is somewhat different. The spectacular returns of 2023 and 2024, while welcomed, resulted in valuations moving to the higher boundaries of historical levels. While not alarming, they are uncomfortably elevated. What solves this discomfort? A strong economic backdrop which yields healthy corporate profits and an average year of market performance. To state the obvious, you can’t have an average equity return of eight to 10 per cent, with every year above that average.
But just because our desired outcome is for an average market performance, don’t get the idea that we’re not aiming to outperform the averages. As has been well documented, a narrow group of tech stocks, often called the “Magnificent Seven” have been behind the great performance of the last couple of years. The other 493 stocks in the S&P 500 Index have lagged, and on the flip side, they also trade more cheaply: in fact, three to four times below the market in terms of price to earnings multiple. In 2025, this is where the opportunity lies. Not that we suggest abandoning those great companies that comprise the Magnificent Seven, just underweight them. At Goodreid we are already positioned in that way.
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TOP PICKS:
Booking Holdings (BKNG NASD) Latest Purchase Nov 2024 at $4953
Booking’s earnings will likely push through $200 per share in 2025, amazing growth for a company that 15 years ago made less than $10/share in a good year. The valuation on this growth company has expanded the mid 20s price to earnings, in our opinion deserved by their relentless drive to excellence. Generative AI is now being adopted and should improve margins.
McKesson Corp. (MCK NYSE) Latest Purchase Dec 2024 at $588
McKesson’s earnings predictability and reasonable valuation make it a stable and productive component of any portfolio. Double digit percentage annual growth in revenues, cash flow and earnings more than support a price to earnings multiple that rests at a 20 per cent discount to the general market. Growth in scripts is being fueled by GLP-1 drugs and the aging demographic profile in America. Finally, as a domestically focussed company they avoid the burden of a strong dollar.
Uber (UBER NYSE) Latest Purchase Dec 2024 at $61
The market is fixated on autonomous vehicles and the disruptive effect they may have on UBER’s model. Historical evidence suggests that disruption and change fuels companies with foundational strength. When you have 160 million subscribers and a software model that the public trusts there is opportunity. Use the recent selloff to initiate or add to your position.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BKNG | Y | N | Y |
| MCK | Y | N | Y |
| UBER | Y | N | Y |
PAST PICKS: December 14, 2023
Elevance Health (ELV NYSE)
- Then: $479.87
- Now: $369.87
- Return: -23%
- Total Return: -22%
Merck & Co. (MRK NYSE)
- Then: $105.88
- Now: $99.53
- Return: -6%
- Total Return: -3%
RTX (RTX NYSE)
- Then: $81.86
- Now: $117.62
- Return: 44%
- Total Return: 47%
Total Return Average: 7%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| EVL | Y | N | Y |
| MRK | Y | N | Y |
| RTX | Y | N | Y |