Gordon Reid, president and CEO, Goodreid Investment Counsel

FOCUS: U.S. equities  

MARKET OUTLOOK:

The “Santa Claus” rally is developing, as seasonal factors are setting up for a strong close for equity markets in 2023. And yes, it can be that simple. But aren’t we all our own worst enemies and wired to second guess? Sentiment is a strong market influence. Momentum can put markets on their back in both positive and negative ways. We’ll see what happens but here’s what we know:

• The U.S. Federal Reserve and the Bank of Canada are likely finished raising rates for the cycle.
• Inflation has been tamed, especially on goods, which are showing deflationary signs.
• The employment market has been surprisingly resilient.
• We’re entering a presidential election year, traditionally strong for equity markets.
• The effects of fiscal stimulus will be felt by the economy and markets for years to come.
• Artificial Intelligence is a game changer and will have a greater influence in the IT revolution than the development of the Internet.

All that said, Goodreid picks stocks one at a time, based on fundamental strength, and a compelling quality ranking.

• 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:

Eaton (ETN NYSE)

ETN is primarily a power management company producing engineered products for a wide variety of industrial applications. It folds well into to the infrastructure spend story and its results demonstrate that. Total sales are growing at 10-12 per cent, driven by their Electrical Americas division which sports growth of 15 per cent annually.

Fluor (FLR NYSE)

Secular tailwinds are aiding Fluor, who after a spotty record in the last few years appears to have righted the ship. Another engineering, construction and project management company, its backlog is expanding as is its profitability. At 14 times earnings the expectation is for earnings growth to spur a re-valuing leading to a much higher stock price.

Wesco Int’l (WCC NYSE)

Trading at just 10 times earnings, this midwest-based distributor of electrical, industrial, and communication products is growing its operating and net margins. Expanding market share is key to its success. Profitability ratios, such as return on equity are pushing 20 per cent, record levels for WCC.