Barry Schwartz, chief investment officer and portfolio manager, Baskin Wealth Management

FOCUS: North American large-cap stocks 

 MARKET OUTLOOK:

There is no easy path in investing and clearly, everything that can go wrong will go wrong. With that said, patient investors in high-quality companies are always rewarded as the market’s job is to climb the wall of worry. Yes, the current crisis of confidence is worrying, however, it also creates opportunities as confidence can be regained.

We think we are near the end of the rate hike cycle and this could lead to better returns for equity investors going forward. The best advice in any volatile market is to stay the course as long as you’ve done your homework. Our strategy is to own competitively advantaged companies run by smart managers that should have stronger earnings and free cash flow per share growth over the next five years.

• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
• Listen to the Market Call podcast on iHeart, or wherever you get your podcasts

TOP PICKS:

Adobe (ADBE NASD)

Adobe’s Creative software business (two-thirds of sales and essentially all of profits) is one of the best businesses in the world as a high-margin, sticky, recurring revenue business that benefits from the secular tailwind of growth in digital consumption and creative jobs. The company continues to report double-digit sales and earnings per share growth (adjusted for currency), which is a remarkable achievement in this environment. We think the shares are attractively valued at under 25x this year’s expected earnings.

Netflix (NFLX NASD)

In its fourth-quarter report, Netflix proved that its business model is extremely resilient and still it still has many years left of subscriber gains. Its competitors are all losing money hand over fist, meanwhile, Netflix should have its most profitable year in 2023. The company is generating strong free cash flow which we think it will use for buybacks as well as acquisitions. We like Netflix’s stock for the long run given the high incremental margins, long runway of opportunity and strong quality of the management. 

Canadian Natural Resources (CNQ TSX)

Canadian Natural Resources offers investors a unique opportunity given the recent pullback in energy prices. The company has raised its dividend 23 years in a row and its yield is now well above five per cent. If oil prices stabilize from here, we think CNQ will be able to offer generous special dividends and share buybacks. The company has over 30+ years of reserves which makes it one of the best royalty streams on energy prices in the world. 

PAST PICKS: May 9, 2022

Constellation Software (CSU TSX)

• Then: $1,930.01
• Now: $2,346.38 (After the spin-off of Lumine Group on Feb. 15th 2023)
• Return: 24%
• Total Return: 24%

Berkshire Hathaway (BRK.B NYSE)

• Then: $312.96
• Now: $297.67
• Return: -5%
• Total Return: -5%

Brookfield Infrastructure Partners (BIP.UN TSX)

• Then: $77.01
• Now: $44.06 (After 3-for-2 stock split on June 13th 2022)
• Return: -14%
• Total Return: -11%

Total Return Average: 3%