Paul Harris, portfolio manager, Harris Douglas Asset Management

FOCUS: North American and global large-caps 

MARKET OUTLOOK:

The risk is that COVID-19 caused a dislocation in the global economy and extended the monetary lag. If we are going to have a slowdown it should happen in the next three to six months. However, the economy may surprise, as it has over the last two years and be stronger than expected, with lower inflation and the much talked about recession may be short-lived and soft. We believe that rates are normalizing around the world and this is important for investors, as they now have a choice for their investable assets.

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TOP PICKS:

TD Bank (TD TSX)

Canada’s second-largest bank. TD has developed a strong franchise in the US.  The stock trades at 1.4 book value, 10 times 2021 earnings, 4.5 per cent dividend yield. Has strong capital ratios and a diversified business with a large percentage of fee income. 

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, neurotechnology and spine and with the acquisition of Wright Medical will have products for hands and ankles these products help improve patient and hospital outcomes. The company has 73 per cent of its business in the U.S., 21 per cent is International (developed markets) and six per cent in emerging markets. 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 ~25 per cent 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 11.4x and has a high free cash flow conversion rate. 

Enbridge (ENB TSX)

ENB-is an energy transportation and distribution company. The company has five business segments- pipelines, gas transmission, gas distribution and storage, renewable power generation and energy services. The stock has a dividend yield 7.7 per cent. The stock is down 14 per cent this year, partly due to the purchase of Dominion Energy Inc. We think it is good value at these levels.

PAST PICKS: December 22, 2022

Apple (AAPL NASD)

• Then: US$132.23
• Now: US$191.51
• Return: 45%
• Total Return: 46%

Zoetis (ZTS NYSE)

• Then: US$145.03
• Now: US$175.28
• Return: 21%
• Total Return: 22%

Amazon (AMZN NASD)

• Then: US$83.79
• Now: US$146.24
• Return: 74%
• Total Return: 74%

Total Return Average: 47%