Gordon Reid, president and CEO, Goodreid Investment Counsel
FOCUS: U.S. equities
Top Picks: Citigroup, Griffon, Microsoft
MARKET OUTLOOK:
What are the chances that the U.S. Federal Reserve can pull off a soft landing? That is the current question financial markets are contemplating. Although equity markets are wrestling with the question there is little doubt that the betting money says that they can. The evidence is simply that markets are close to record highs and corporate earnings estimates for 2025 are buoyant. That leaves us with the elevated short-term risk that the economy slips into a recession that is not priced into the market. While concerning to some people, seasoned investors know that long-term success comes from weathering a variety of environments. Recessions are a normal stage in an economic cycle and if one were to occur in the short-term, investors who are well positioned in quality, financially sound companies will, as they always do, outperform on a relative basis and enter a new economic expansion in good shape.
One of the wild cards in this cycle is the technology revolution, which has strong secular drivers and could be a mitigating influence on any damage to the market if a recession were to occur. For that reason, many analysts think that if a recession were to take hold, it would be mild and roll through some vulnerable sectors rather than engulf the entire equity market.
But let’s not give up on the idea of a soft landing. Economic indicators, most notably the job market, have remained constructive and companies for the most part continue to be optimistic.
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TOP PICKS:
Citigroup (C NYSE)
Citigroup’s stock price is inexpensive. The argument for the past number of years has been that it’s cheap for a reason. However, under CEO Jane Fraser’s leadership, this large money center bank is turning things around. It has pared its foreign exposure and improved its financial metrics, leading to an expectation of rapidly improving earnings. At a 36 per cent discount to tangible book value, this issue is poised to outperform.
Griffon Corp (GFF NYSE)
Griffon is a manufacturer of home and building products, including residential and commercial garage doors and landscaping tools. This company has a long history, dating back to 1774. It exhibits superior growth and profitability with a discount to the market’s price-to-earnings (P/E). Finally, as a kicker, it has paid a special dividend of $2 per share in each of the past two years, and while not guaranteed, is a possibility.
Microsoft (MSFT NASD)
At Goodreid, we have long admired MSFT for its industry-leading role, especially within the nascent AI revolution. The recent tech-led selloff presented an opportunity to purchase this issue at 30 times fiscal 2025 expected earnings, a discount to what has been available historically. With earnings expectations in the range of 15 per cent annually for the next few years and revisions trending higher, we believe this is an attractive opportunity.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| C NYSE | Y | N | Y |
| GFF NYSE | N | Y | Y |
| MSFT NASD | Y | N | Y |
PAST PICKS: SEPTEMBER 22, 2023
Alphabet (GOOGL NASD)
- Then: US$130.25
- Now: US$159.70
- Return:23%
- Total Return: 23%
Jacobs Solutions (J NYSE)
- Then: US$132.22
- Now: US$144.90
- Return:9%
- Total Return: 10%
Visa (V NYSE)
- Then: US$235.08
- Now: US$292.78
- Return:24%
- Total Return: 25%
Total Return Average: 19%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GOOGL NASD | Y | N | Y |
| J NYSE | N | N | N |
| V NYSE | Y | N | Y |