Jamie Murray, portfolio manager and head of research, Murray Wealth Group

FOCUS: Global equities 

MARKET OUTLOOK:

The S&P 500 has bounced 15 per cent from its lows in October as inflation has rolled over and economies remain strong. Despite resounding calls for a recession, fourth-quarter gross domestic product is tracking towards the upper end of expectations and labour markets remain firm. This is providing the U.S. Federal Reserve with an off-ramp from its tough rates stance and providing the recipe for a soft landing.

If interest rates remain in current ranges, we believe we are past the point of maximum stress in financial markets and thus risk assets should perform well going forward. Look at companies hitting six-month highs such as Morgan Stanley, D.R. Horton (homebuilder). Sectors such as technology, aerospace and energy still provide good return opportunities. Around 10 days into earnings season, results have been better-than-feared and with low expectations, companies should provide beatable guidance to set up a strong year for stocks in 2023.

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TOP PICKS:

Amazon (AMZN NASD)

Amazon is set up for growth to re-accelerate through the second half of 2023 as it harvests growth from its 2021-22 investment program and earnings growth outpaces revenue growth. AWS continues to become a larger component of Amazon’s profitability and should see +20 per cent growth beyond 2024 as companies continue to build workloads in the cloud. As well, optimizing its fulfilment network should yield higher margins as e-commerce growth resumes post-COVID-19 and it rolls out the “buy with Prime” button to other e-commerce websites. The company is trading at a decade-low multiple of 14x EV/EBITDA.

Raytheon Technologies (RTX NYSE)

Raytheon is an Aerospace and defence contractor that is benefitting from two secular tailwinds. Its defence business is benefitting from increased defence spending in part due to Russia and Ukraine. Its aerospace divisions which include Collins and Pratt & Whitney are benefitting from strong aviation markets. Collins provides aftermarket parts and service and is tied to overall flight activity, while Pratt and Whitney build engines for civil and defence aircraft including the geared turbo fan engine for Airbus’ leading A320. We believe the aviation side of the business can drive 15 per cent EPS growth through 2026 as travel demand continues to recover and supply challenges abate.

Whitecap Resources (WCP TSX)

Whitecap is a Western Canadian oil company. Whitecap completed a transformational acquisition of XTO Canada in the summer of 2022. While the acquisition ran counter to the shareholder return thesis many investors wanted, we believe it provided a high-quality long-life reserve base for a moderate price. We like the company’s relative weighting to oil and expect production per share to grow ~5 per cent on top of its robust capital plans. We believe its dividend yield is attractive at a pro-forma 6.4 per cent yield with an additional five per cent of capital return potential at oil prices.

PAST PICKS: February 18, 2022

AON PLC (AON NYSE)

• Then: $283.80
• Now: $319.75
• Return: 13%
• Total Return: 13%

Air Canada (AC TSX)

• Then: $25.40
• Now: $22.33
• Return: -12%
• Total Return: -12%

Docebo (DCBO TSX)

• Then: $63.08
• Now: $46.79
• Return: -26%
• Total Return: -26%

Total Return Average: -8%