Gordon Reid Top Picks for August 23, 2024

Gordon Reid, president & CEO, Goodreid Investment Counsel

FOCUS: U.S. equities

Top Picks: Despegar.com, Freeport McMoran, General Motors

MARKET OUTLOOK:

The focus of the market has shifted from the U.S. Federal Reserve’s attention on inflation to the economy, specifically the jobs market; the second piece of the Fed’s dual mandate. The market wants to ascertain if a reduction of interest rates is a natural easing of tight monetary conditions in an otherwise healthy economy or a desperate, late attempt to avoid a recession that the Fed has created by keeping rates too high for too long. The July jobs report scared the market, but subsequent data may indicate that the numbers in that report were an anomaly, brought on by a shifting demographic and the effects of Hurricane Beryl. Inflation has come down to a manageable level, and while still a subject of conversation on Main Street, Wall Street has moved on.

The bond market, with all its wisdom, is showing us the future as rates on two-year, ten-year and 30-year issues have fallen close to one per cent from a level of about five to four per cent, plus or minus. So, if you’re a betting person, expect a total of 100 basis points of easing in the next few months. If the economy stays resilient, equity markets are likely to rally with the leadership group being the most profitable companies (the mega-cap tech companies). The reason for this is in the numbers; lower rates make future cash flows more valuable and the biggest cash producers of our time are the Magnificent Seven. If, however, the economy falters, the entire premise of an easing of monetary conditions changes. Equity markets will struggle, and defensive issues will lead performance on a relative basis.

Positioning is key. At Goodreid, our response is unchanged. Take a balanced approach, a long-term view and hold high-quality companies that score well on profitability and growth. Over the decades it has allowed our clients to successfully navigate in both positive and difficult times.

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TOP PICKS:

Despegar.com (DESP NYSE)

The Latin American answer to online giants Expedia and Booking.com, this is an inexpensive way to participate in a region with a young and increasingly wealthy demographic. Valuations are compelling, with P/Es (price to earnings) on estimated 2025 earnings at less than 10 times, and EV/EBIT standing at an attractive five times. The wild card is currency. A strong U.S. dollar weakens the reported results of DESP and has been a headwind. Lower U.S. rates may ease that issue but the region has a history of volatility that could affect results.

Freeport McMoran (FCX NYSE)

After pushing to all-time highs earlier this year, the price of copper and the FCX share price have retreated by about 20 per cent on economic fears, continued fretting about Chinese demand and geo-political worries. However, the company is very well positioned to take advantage of the above average demand that is likely to emerge from the increased focus on renewable energy.

General Motors (GM NYSE)

GM continues to execute well and deliver stellar financial results. Its share price is well off its late 2023 lows, but valuations are growing more and more compelling. The company is taking advantage, with a $10 billion share buyback authorization in place, representing 20 per cent of its market capitalization!

PAST PICKS: AUGUST 17, 2023

Crane NXT (CXT NYSE)

• Then: US$86.50
• Now: US$152.78
• Return:77%
• Total Return: 79%

McKesson (MCK NYSE)

• Then: US$416.95
• Now: US$557.15
• Return:33%
• Total Return: 33%

Uber Technologies (UBER NYSE)

• Then: US$43.97
• Now: US$73.39
• Return:66%
• Total Return: 66%

Total Return Average: 59%