Jamie Murray, portfolio manager and head of research, The Murray Wealth Group
FOCUS: North American equities
Top Picks: Lululemon, Airbus SE, Northwest Healthcare REIT
MARKET OUTLOOK:
Markets continue to churn higher with inflation and interest rates heading lower. With the U.S. Federal Reserve poised to cut interest rates, we see accelerating financial conditions helping interest rate sectors like real estate, financials, and durable goods. We also believe lower interest rates will spur mergers and acquisition activity generating a higher transaction revenue in pockets of the economy like professional services. Hiring has slowed tremendously with unemployment creeping higher in North America along with some weakening data points in discretionary sectors like new housing, travel and retail. We believe the central banks will closely monitor labour conditions to guide upcoming policy decisions.
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TOP PICKS:
Lululemon (LULU NASD)
Lululemon shares have been impacted by concerns around competitive pressure in the United States and its runway for future growth. We think the company remains best in class when it comes to technical performance that drives strong brand loyalty and repeat purchase intention. Internationally, the company remains very under-penetrated with LULU generating 35 per cent revenue growth outside North America. Earnings per share should grow 10 per cent with upside potential from product innovation. The company has a strong balance sheet with $2 billion in net cash and healthy free cash flow.
Airbus SE (EADSY OTC)
The global aerospace cycle should continue with record backlogs at airframers. New planes like the Airbus A321 NEO are much more efficient than previous models which is driving strong fleet renewals globally. The shares have sold off recently on concerns around its production rate as supply chain challenges have hampered as its ability to increase its rate to a target level 75 airplanes per month. The company also incurred provisions for losses on space and defense programs, which is disappointing but minor to the firm overall. We expect supply chains to improve going forward and provide Airbus with higher earnings and cash flow. The company has a very strong balance sheet to manage through these challenges.
Northwest Healthcare REIT (NWH.UN TSX)
NWH is an owner of medical office buildings and hospitals in North America, Europe and Brazil. The company was caught flatfooted as interest rates rose with an over-levered balance sheet and too much-floating rate exposure. Last summer, the CEO was replaced and distribution was cut with an eye on rightsizing the balance sheet. One year and $1.6 billion of asset sales later, we think the REIT has comfortable breathing space to continue with select asset sales and balance sheet improvements. Most importantly, the remaining assets are of high quality with long-term leases and low economic sensitivity with a focus on the healthcare service market. We think the payout ratio should decline to 80 per cent and lower market interest rates will further support cash flow improvements.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| LULU NASD | Y | Y | Y |
| EADSY OTC | Y | Y | Y |
| NWH.UN TSX | Y | Y | Y |
PAST PICKS: JULY 7, 2023
Thermo Fisher (TMO NYSE)
- Then: US$513.73
- Now: US$606.01
- Return:18%
- Total Return: 18%
Broadcom (AVGO NASD) (10 for 1 stock split 7/15/2024)
- Then: US$84.54
- Now: US$160.41
- Return:89%
- Total Return: 93%
Air Canada (AC TSX)
- Then: $24.81
- Now: $15.77
- Return:-36%
- Total Return: -36%
Total Return Average: 25%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TMO NYSE | Y | Y | Y |
| AVGO NASD | Y | Y | Y |
| AC TSX | Y | Y | Y |