Gordon Reid, president and CEO, Goodreid Investment Counsel

FOCUS: U.S. equities 

MARKET OUTLOOK:

The market is beginning to adopt the view of a perfect, U.S. Federal Reserve-orchestrated, economic soft landing; slaying high inflation while maintaining strong employment and robust economic growth. This optimistic view can take the market a long way, especially considering that the average U.S. stock is trading at a reasonable 16 times earnings. This is far lower than the mid-20s multiples of many of the technology-based companies that dominate the averages and the news coverage. That said, it also begs for caution as we know that overly optimistic views can suffer a hard reality if things don’t work out perfectly. Goodreid’s balanced asset mix has been employed by most of its clients and provides a hedge to the ebullient equity market while providing participation.

The “magnificent seven,” the seven largest stocks in the S&P 500 Index, control 30 per cent of the performance weighting. Goodreid owns representation within this group of quality companies but with more limited exposure at 15 per cent. Portfolio research reveals outstanding opportunities among the other 493 companies, and Goodreid has rounded out its portfolios to provide greater sector and industry diversification along with attractive growth characteristics.

Owning quality companies and paying close attention to target weightings within your asset mix is key at this point of the cycle. Resist chasing returns by stretching asset weight targets and don’t be afraid to trim overweight positions in favour of other asset classes. Stay disciplined.

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TOP PICKS:

Adobe (ADBE NASD)

ADBE and Figma have called off a proposed merger after strong resistance from regulators. The market’s focus has shifted anyway, from a collaborative web-based opportunity to an AI focus. ADBE will be better served by concentrating its efforts and financial resources on developing AI capabilities.

Lennar (LEN NYSE)

An economic soft landing and a gentle reduction of interest rates is just what the doctor ordered for the homebuilder sector. Although LEN and other homebuilders (Goodreid owns five in its small-cap portfolio) are trading at all-time high levels, valuations remain reasonable. A chronic shortage of homes in the U.S. creates long-term support.

U.S. Food Service (USFD NYSE)

USFD is the second largest food service distribution company in the U.S., behind Sysco. A combination of strong organic growth within a very strong economy and a reasonable valuation, which stands 20 per cent below the S&P 500 average, make this a compelling offering. 

PAST PICKS: JANUARY 11, 2023

Amgen (AMGN NASD)

• Then: US$272.91
• Now: US$306.64
• Return: 12%
• Total Return: 16%

Deere & Co. (DE NYSE)

• Then: US$433.48
• Now: US$388.84
• Return: -10%
• Total Return: -9%

United Rentals (URI NYSE)

• Then: US$383.97
• Now: US$653.04
• Return: 70%
• Total Return: 72%

Total Return Average: 26%