Gordon Reid, president and CEO, Goodreid Investment Counsel
FOCUS: U.S. equities
Top Picks: Goldman Sachs, PulteGroup, Merck
MARKET OUTLOOK:
The post-election hangover lasted right through the new year celebrations, leading to an atypical ending to the year, the worst performing final week of the year in decades. That has led to an oversold market entering 2025, surprising given the outstanding yearly performance in 2024. It will be a “show me” economy and equity market in 2025. Any tailwinds of valuation expansion have died off. Stock prices will respond to more factor-based stimuli, likely earnings surprises, positive revisions, and quality characteristics. We expect the broadening of the market that began mid 2024 to continue in 2025, and as a result have modestly trimmed our exposure to the Magnificent Seven. One area that has led, namely momentum names, should be avoided and will inflict huge financial pain when they crack. This is not a year to add risk, rather it’s time to lower expectations and watch the economic backdrop and individual sectors carefully.
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TOP PICKS:
Goldman Sachs (GS NYSE)
Latest Purchase January 2025 at $592
Goldman ticks all the boxes for 2025. First, the economy continues to hold up well and interest rates are trending downward, creating a positively sloped yield curve. Secondly, capital markets are primed to do well in a regulatory-light environment. Finally, valuations are undemanding.
PulteGroup (PHM NYSE)
Latest Purchase October 2024 at $129
Homebuilders have been slammed in the last 30 days, as the market has been surprised that interest rate cuts will be more tepid than thought. Even more surprising, as the short-term U.S. Federal Reserve funds rate has fallen, the 30-year mortgage rate has risen. While a headwind for homebuilders there is too much pressure to create housing solutions for this to be a long-term issue. Buy and be patient.
Merck (MRK NYSE)
Latest Purchase December 2024 at $101
Merck continues to be one of the powerhouse drug franchises in the world. Healthcare stocks lagged again in 2024, but strong fundamentals will eventually win the day. At just 10 times 2025 earnings estimates, worries about policy disruptions, patent cliffs etc. are built in. We expect MRK to take advantage of a weak pricing environment and be active in the mergers and acquisitions space, especially amongst biotech candidates.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GS NYSE | Y | Y | Y |
| PHM NYSE | N | Y | Y |
| MRK NYSE | Y | N | Y |
Past Picks: February 7, 2024
Adobe (ADBE NASD) – sold in August 2024
- Then: US$615.85
- Now: US$419.58
- Return: -32%
- Total Return: -32%
Lennar Corp. (LEN NYSE)
- Then: US$152.69
- Now: US$133.54
- Return: -13%
- Total Return: -12%
U.S. Foods Holding Corp. (USFD NYSE)
- Then: US$46.44
- Now: US$68.22
- Return: 47%
- Total Return: 47%
Total Return Average: 0.6%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ABDE NASD | N | N | N |
| LEN NYSE | N | Y | Y |
| USFD NYSE | N | Y | Y |