Gordon Reid, president and CEO at Goodreid Investment Counsel

FOCUS: U.S. Equities

MARKET OUTLOOK:

As we anticipated in our Market Outlook on our Feb. 7 appearance, markets are adapting to a “higher for longer” interest rate scenario. The competing positive offset that is allowing markets to march upward is a much stronger economic backdrop as evidenced by GDP (gross domestic product) growth and strong corporate earnings on the back of both significant revenue growth and expanding margins.

The AI revolution is here, and we’ve only seen the tip of the iceberg. Technology companies that produce chips and those that have developed large language models are getting most of the attention, but the real power will be in the application. Most companies will use AI as a productivity tool, expanding margins, and driving earnings growth rates higher. Some macroeconomists have predicted that this will add one to two percent to the gross domestic product GDP, but even they will admit that is just a guess. Our “guess” is that the economic impact will be revolutionary rather than evolutionary, so stay tuned, for this could rival the Industrial Revolution in its impact.

All that said, markets inevitably ebb and flow, and there is little doubt that they are technically “overbought” at this point. As always, Goodreid preaches a discipline of staying fully invested in that portion of your financial assets that you allocate to equities. Trying to time a market correction leaves a meaningful percentage of investors on the outside looking in, usually because they sell too early, and while a correction eventually happens it takes markets back to levels higher than those investors exited.

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TOP PICKS:

Freeport-McMoRan (FCX NYSE)

The price of copper has been buffeted by competing factors over the past few years. One of the latest is the slowing of adoption of electric vehicles. Combined with a recessionary Chinese economy and interest rates that have been holding higher, the stock has only grudgingly pushed higher. But the long-term story is intact and at the current price FCX is attractive.

IBM (IBM NYSE)

IBM has struggled to escape legacy products and resurrect growth for close to 15 years. They are now partnering with Meta to facilitate Llama on their Watsonx platform, an open-source alternative to closed systems such as ChatGPT and Gemini. While its stock price has responded in this rally, it remains one of the least expensive AI plays out there at 18 times earnings. In addition, their growth cycle has just begun. They get high marks for valuation, profitability, and dividend payout.

Meta Platforms (META NASD)

Meta is trading at close to a market multiple, with growth rates of five to six times GDP, and two times the average stock. In other words, very inexpensive. Marks for growth, profitability, momentum, and revisions are top-drawer. Risks include management missteps, challenges to margins as expenses to support AI, AR and VR rise, regulatory initiatives to limit advertising strategies, especially to teens, and growth in China.

PAST PICKS: February 16, 2023

Adobe (ADBE NASD)

Then: US$365.16
Now: US$582.40
Return: 59 per cent
Total Return: 59 per cent

Chevron (CVX NYSE)

Then: US$166.57
Now: US$154.39
Return: -7 per cent
Total Return: -4 per cent

La-Z-Boy (LZB NYSE)

Then: US$28.75
Now: US$36.85
Return: 28 per cent
Total Return: 32 per cent

Total Return Average: 29 per cent