Michael Hakes, senior portfolio manager, Murray Wealth Group

FOCUS: U.S. and global stocks 

MARKET OUTLOOK:

 As we enter the first quarter earnings season the market is still digesting the many data points recently announced regarding the economy, labour markets and inflation. Is the U.S. Federal Reserve really going to still raise one more time in the face of a weakening economy?  

The weakness is coming from many areas. The labour market, which has stayed quite resilient, is finally normalizing. Last week the JOLTS survey of job openings fell by over 600,000 and are now off the peak by around two to three million. Private sector hiring rose by less than expected in March. Labour supply has recovered from its pandemic decline and immigrant population growth has recovered. Other indicators that have come in lower than expected were ISM Manufacturing which decreased to 46.3 in March (fifth straight month of decline) and ISM services decrease to 51.2 (54.4 expected). U.S. supply chain activity fell to the slowest in six years. Add the banking crisis to the mix and even more reports of cooling inflation yesterday (PPI) and you have all the ingredients needed for the Fed pivot. This could be the “end of cycle moment” we have all been waiting for.  

 We could be in for some heightened uncertainty through the summer, but we could be setting up well for equities as we move to the second half of 2023 and 2024.  

 We, at Murray Wealth, are focused on the companies we own and the long-term business prospects. Our concentrated Global Growth fund has core holdings in leading growth stocks in technology, health care and social media which we believe still have years of growth ahead.  

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TOP PICKS:

Prudential PLC (PUK NYSE)  

Prudential is a life and health insurance company with direct exposure to fast-growing China and South East Asian markets. It has operated in the region for almost 100 years and has over 19 million customers. Penetration of life and health insurance products are low in many of its markets and there is a significant “protection gap” when compared to more developed markets. For example, insurance penetration as a percentage of gross domestic product is about 7.5 per cent in the U.K. but in developing markets, the penetration rates are only about 2.5 per cent. As the middle class continues to grow in these markets, the insurance penetration rates will also grow.  

Also, now that China is reopening and the mainland Chinese population are travelling again to Hong Kong, we should be entering a robust period of new business growth for that region.  

We think Prudential Plc could be 20 per cent higher over the next 12-18 months 

UnitedHealth Group (UNH NYSE)  

UnitedHealth Group is the largest health insurer in the U.S. It has two main business segments, UnitedHealth care the insurance arm and OptumHealth, the information technology and health services portion of the business. 

Its diversified business model provides protection against potential regulatory changes and recession risks. The OptumHealth division is helping to drive future earning growth.

UNH is the number one player in the medicare advantage market with 28 per cent market share.  

We think the stock can trade up above $600 over the next 12 months, which will equate to trading at 19X 2025 EPS estimates of around $32. 15-20 per cent upside.  

TH International (THCH NASD)  

Or “Tims China”. This is quite a speculative pick, one that we don’t own but I find interesting.  

Tims China has over 600 stores in China with a plan to have over 1,000 by the end of 2023, this will make China the biggest market for Tim Hortons outside Canada. Longer term, it hopes to have almost 3,000 stores by 2026. It acquired the Popeyes brand in China.   

The company is currently not profitable. In December 2022, it had almost 300 stores closed because of COVID-19 restrictions.  

The store base is primarily company owned. The stock has rallied from its April 6, 2023, earnings report but if it can execute the long-term business plan, this stock can go materially higher.