Paul Harris, partner and portfolio manager, Harris Douglas Asset Management

FOCUS: North American and global stocks 

MARKET OUTLOOK:

We think that central banks should maintain higher rates until inflation is in line with their target of two per cent and the market is too optimistic concerning the number of rate cuts.

We believe that rates are in the process of normalizing around the world and this is important for investors who now have a choice for their investable assets.

We should anticipate volatility during the year with many elections around the world, including India, Indonesia, the U.K. and most importantly the U.S.  

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TOP PICKS:

Stryker (SYK NYSE)

Stryker is one of the world’s leading medical technology companies. The company offers innovative products and services in orthopedics, medical and surgical and more. With the acquisition of Wright Medical, it will have products for hands and ankles, which help improve patient and hospital outcomes. The company has 73 per cent of its business in the U.S., 21 per cent in developed international markets and six per cent in emerging markets.

It is a great demographic play as the population ages Stryker’s products become more useful and helpful. Furthermore, there is somewhat of an annuity with med tech products as once surgeons start and learn they tend not to change SYK is a well-diversified company and with its strong balance sheet should be able to manage through any macroeconomic pressures. SYK is generating nearly $3.3 billion of free cash flow in 2022 of which around 25 per cent is being used for dividends. This still leaves the majority of SYK's annual free cash flow that could be used for mergers and acquisitions and pay down debt. It covers its interest payments 11.4 times and has a high free cash flow conversion rate.

Visa (V NYSE)

Visa is like a toll both when you use the card Visa gets .15 basis points per transaction. It processes over 65,000 transactions per second. Today 17 trillion in consumer transactions still use cash and has good organic growth internationally. Visa still has growth in the business-to-business market, especially with loyalty programs. We think we will see an acceleration in revenue growth into the teens driven by an impro2ving macro backdrop, successful competitive changes around pricing and faster-than-anticipated consumer payment innovations such as mobile payments. Visa offers long-term secular-driven stocks, especially benefiting from COVID-19 as more people use less cash, and should provide solid organic growth with opportunities for margin expansion. Visa is expected to generate 19 billion in free cash flow in 2023.

Essilor Luxottica (ESLOY OTCMKTS)

Essilor Luxottica is a global leader in design, manufacturing as well as distribution of ophthalmic lenses, frames, and sunglasses. Essilor is a market leader across the entire value chain in eyewear. The global eyewear market offers attractive long-term resilient growth, especially when screen use has gone up exponentially. We see the grand vision acquisition as transformational and Essilor will be a winner in the digital transformation of eyewear. The stock has a dividend yield of 1.75 per cent, has a strong balance sheet and accelerating free cash flow growth.