Brianne Gardner’s Top Picks for November 5, 2024

Brianne Gardner, senior wealth manager, Velocity Investment Partners, Raymond James

FOCUS: Canadian, U.S. large caps

Top Picks: Thermo Fisher, Coca-Cola, CES Energy

MARKET OUTLOOK:

The U.S. election is finally here today, and North American markets have taken a breather after a six-week rally that ended mid-October.

The election, earnings guidance and mixed global economic data have kept investors cautious, and we have positioned our portfolios to take advantage of some short-term opportunities. Once the uncertainty disappears, markets typically move higher regardless of which party holds office. Benchmarks are only 2.5 to 3.0 per cent off October highs, and while we may see this volatility remain for a short while after the election, we anticipate upward momentum resuming through December and will look to redeploy cash soon.

Economic growth is still a concern for Canada, but we see opportunities in real estate, energy, and materials, which should benefit from lower rates and higher commodity prices. U.S. recession fears have eased, but we are cautiously evaluating conditions in case that starts to change. Economic data is mostly positive, although payroll figures were softer, and earnings growth is projected to continue into next year, helping support stock price appreciation.

With almost three-quarters of companies reported, Q3 earnings growth stands at 5.1 per cent, surpassing the 4.3 per cent forecast, marking a fifth straight quarter of gains. While beats are slightly below average, guidance for future profits has been the biggest driver of price movement, with both positive and negative reactions. The U.S. economy grew 2.8 per cent in Q3, reinforcing our lack of recession concerns. The labour market softening is not a bad thing, as inflation eased to 2.1 per cent in September.

The U.S. Federal Reserve’s rate decision and dot-plot on Wednesday could be a significant event, though election results may cause amplified short-term market swings. Historically, markets see double digit gains after elections, and similar returns are typical with falling rates and solid corporate profits. With both of these tailwinds, we have reasons to be bullish on the year ahead.

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TOP PICKS:

Thermo Fisher Scientific (TMO NYSE)

Thermo Fisher Scientific is a health care sector position and a global leader in scientific services, providing essential tools and support for research, healthcare, and industry. They’ve seen revenue and earnings grow double digits for last five years and expect steady growth into 2025, even as pandemic-related revenue becomes less significant, due to other growth drivers becoming more visible. The company raised its full-year EPS guidance to US$21.35–$22.07, with the last quarter of the year expected to increase three per cent higher than previous estimates. Target: $650 (17 per cent upside potential).

Coca-Cola (KO NYSE)

Coca-Cola is a consumer staples/defensive sector stock and has shown resilient demand for its premium sodas and juices, especially in the U.S., despite some industry challenges. They were able to offset the one per cent sales volume drop with a 10 per cent increase in average selling prices, allowing the company to maintain revenue growth despite volume pressures. This stock is also a solid income position that dividend hunters like, with a strong history of consistent dividends and a current yield close to three per cent. Target: US$75 (15 per cent upside potential).

CES Energy Solutions (CEU TSX)

CES Energy Solutions Corp. is a Canadian company that provides specialized chemicals and services to the oil and gas industry. The recent $15 million acquisition of Hydrolite is expected to be accretive and also adds growth potential while highlighting management’s excellent capital allocation strategy. As economies and industrial activities grow, the demand for energy is increasing, necessitating enhanced exploration and production activities, and this directly benefits companies that provide essential support services to the oilfields. Their projected free cash flow yield is impressive and will give the business stability through cycles. Target: $10.75 (32 per cent upside potential).

PAST PICKS: DECEMBER 1, 2023

WALMART (WMT NYSE) [3 for 1 stock split 2/26/2024]

• Then: US$51.44

• Now: US$83.51

• Return: 62%

• Total Return: 64%

ABBVIE INC (ABBV NYSE)

• Then: US$143.41

• Now: US$200.29

• Return: 40%

• Total Return: 45%

GOLD BULLION ETF (VALT TSX)

• Then: $25.97

• Now: $33.96

• Return: 31%

• Total Return: 31%

Total Return Average: 47%