Michael Hakes, senior portfolio manager, Murray Wealth
FOCUS: U.S. and global stocks
Top Picks: Aritzia, Airbus, Astra Zeneca
MARKET OUTLOOK:
Soft landing or no landing? It’s going to be touch and go.
We have had lots of earnings and economic data over the last week or so that supports a soft landing or no landing scenario. For the U.S., the Federal Reserve mandate of maximum employment and stable prices seems to be on track.
On the jobs front, we saw openings a little lower than expected, 7.4 million versus eight million reported. Initial jobless claims came in lower than expected, 16,000 versus 230,000 expected.
The private job creation ADP reached 233,000 versus 114,000 expected, also labour costs are under control. Consumer confidence this week came in a bit higher than expected. So, no major deterioration in the job market.
In terms of inflation, consumer price index (CPI) on Thursday came in line with expectations at 2.1 per cent year-over-year. Gross domestic product (GDP) came in just a bit weaker than estimates. 2.8 per cent versus three per cent expected.
S&P 500 Index earnings per share (EPS) for 2025 is around $260-$270. So about 10 per cent EPS growth for the market in 2025. At 5,700 on the S&P and $245 in earnings expected in 2024, that’s 23 times. Not cheap if rates don’t come down as much as expected.
The good news is, we all may becoming a lot smarter.
We are excited about prospects for generative AI and the long-term benefits it will bring many industries. We are still in “pre-season,” but we saw the early results this week with the reports from Alphabet, Microsoft, Amazon and Meta. The Murray Wealth Group Global Growth fund is well positioned to take advantage of growth generative AI.
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TOP PICKS:
Aritzia (ATZ TSX)
We met with CFO recently. While the stock is off its lows in the low $20, its well off its pre COVID-19 highs of $60. With 68 stores in Canada and 54 in the U.S., there is still a lot of room for growth. It has a long term store target of 150 in the U.S.
The current store growth plan is to open about eight to 10 stores per year in the U.S. There is a chance that it might increase this opening plan over the next year or so. The new stores in the U.S are doing very well with a payback period for new stores coming in better than plan.
With top line on the 10-15 per cent range and margin expansion, EPS could grow 20-25 per cent. EPS could reach over $3 in the next two years. And the stock could reach it old highs, $60.
Airbus (EADSY U.S.)
Airbus operates in a duopoly with Boeing in the manufacture of both narrow-body and wide-body aircraft. The barriers to entry are very high. The continued growth of the middle class around the world continues to create strong growth in demand for air travel. Also, new airplanes are more fuel efficient due to improved engine design and materials technology and this has led to an upgrade cycle amongst carriers that are looking at lowering costs and improving efficiency. Airbus is taking orders for 2030 and beyond. It has a back log of 8,600 aircraft.
Demand is set, it’s the supply that has been the challenge. It is still working through supply chain issues. It reported a strong quarter this week and kept their annual delivery target at 770 units. We like Airbus here.
Astra Zeneca (AZN NASD)
Astra is about 15 per cent off its highs reached in late August. The stock has been weak on marginal results for a targeted cancer drug that the market had high hopes for. What had been a $12 billion by 2030 opportunity has now been reset to maybe $4-$6 billion.
The second piece of bad news was this week, when China announced that Astra’s head of China was under investigation. We think this is a great entry point for the global pharma company with a strong portfolio of existing drugs and a strong pipeline.
Astra Zeneca trades on only 16 times 2025 earnings, and for that you get eight per cent top line and 12 per cent EPS growth for the next three years or so.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ATZ TSX | N | N | Y |
| EADSY U.S. | N | N | Y |
| AZN NASD | N | N | Y |
PAST PICKS: SEPTEMBER 15, 2023
Target (TGT NYSE)
- Then: US$123.05
- Now: US$151.65
- Return: 23%
- Total Return: 27%
Morgan Stanley (MS NYSE)
- Then: US$88.41
- Now: US$117.60
- Return: 33%
- Total Return: 39%
Thermo Fisher Scientific (TMO NYSE)
- Then: US$515.53
- Now: US$560.40
- Return: 9%
- Total Return: 9%
Total Return Average: 25%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TGT NYSE | N | N | N |
| MS NYSE | N | N | Y |
| TMO NYSE | N | N | Y |