Paul Harris, partner and portfolio manager at Harris Douglas Asset Management
Focus: North American and global equities

MARKET OUTLOOK

We believe that equity markets should perform well into the end of 2019. However, we do have some concerns over stock price weakness over the short term. The market is likely to be shaken by growth slowdown as we move into Q2. We are definitely seeing evidence of slower growth in Europe with industrial production falling and slower German growth and the possibility of a no-deal Brexit. There are similar trends in Asia, especially China and Australia. The Australian housing market continues to fall. Similarly, in the U.S. we have seen mixed numbers that clearly indicating slower growth, especially in earning revisions for2019, which have dropped substantially from the beginning the year. This has put most of the central banks on hold and we should see no interest rate increases in 2019 and maybe rate cuts. With slower growth, low inflation and interest rates not increasing, we should see reasonable environment for stocks in the second half.

TOP PICKS

BANK OF AMERICA (BAC.N)

Bank of America is one of the largest banks in the U.S., holding 10 per cent of all deposit in the country. The bank continues to reduce cost through reduction in headcount and technology. The company is also still improving its capital base with Tier 1 ratio at 12 per cent. The stock trades at 1.13 times book value and 10 times 2019 earnings. The company is buying back stock and will be increasing its dividend over the next several years from its present yield of 2.1 per cent. We think it has an intrinsic value of $50.

MICROSOFT (MSFT.O)

One of the largest software companies, it’s trading at 21 times 2020 earnings and has a yield of 1.2 per cent. Microsoft has a multiyear growth engine with Office 365 and Azure, which continue to grow and see margin expansion. The growth in cloud is just beginning and Microsoft is benefiting from its scale and strong execution. We believe that Microsoft will be a major beneficiary as companies look to use data an AI to reduce cost and enhance growth.

CN RAIL (CNR.TO)

Canadian National Railway is a rail and related transportation business with 20,000 route miles of track spanning Canada and Middle America. The stock trades at 18 times 2019 earnings and has a yield of 1.8 per cent. We like CN because of the unique characteristics of the rail industry: limited and rational competition, high barriers to entry and sustainable demand.

PAST PICKS: FEB. 12, 2018

FIRSTSERVICE CORP (FSV.TO)

• Then: $86.37
• Now: $117.41
• Return: 36%
• Total return: 37%

DOLLAR TREE (DLTR.O)

• Then: $104.74
• Now: $98.56
• Return: -6%
• Total return: -6%

BANK OF AMERICA (BAC.N)

• Then: $31.12
• Now: $28.70
• Return: -8%
• Total return: -6%

Total return average: 8%

WEBSITE: harrisdouglas.com