Alex Ruus, portfolio manager at Arrow Capital Management
Focus: North American stocks

MARKET OUTLOOK

2019 has been a mixed year both economically and from a market perspective. The global economy has continued to expand, but at a slower rate, and parts of the world have shown some significant slowdown, meanwhile the U.S. consumer economy continues to plow forward solidly on the back of very low unemployment levels. Recent loosening in monetary policy by the U.S. Federal Reserve is likely to have a stimulative effect on the economy next year and should help revive weakness in the industrial and commodity portions of the economy, which have recently struggled. Similarly, the stock market has generally gained solidly, but with some dramatic divergences between sectors with sectors such as technology generating extremely strong returns, while areas like energy have performed weakly. Recent months have accentuated this trend, with momentum and technical investors continuing to pile money into the stocks that have been rising with little regard for their valuations. The gap in valuations between the high-flyers and the underperformers is one of the largest we’ve seen in many years. We believe the market is now setting up for a potentially large swing from the overvalued high-flyers to some of the solid companies that have been sold off this year despite solid fundamentals. The NR Conservative Growth fund is well positioned to profit over the coming year, as we have taken the opportunities the market has presented to us to buy solid companies trading at discounts.

TOP PICKS

ELEMENT FLEET MANAGEMENT (EFN:CT)
Last purchased September 2018 at $7.

Element Fleet is a global leader in fleet management, with the no. 1 position in North America and Australia and led by an experienced management team. The company has jumped into a void in the market following the 2008 downturn and has emerged as a new leader in the space. It’s undervalued at 11 times next year’s earnings and has an attractive and growing 1.6 per cent dividend. The company trades at both a discount to the market and comparable companies despite its attractive valuation and could be a takeover target by either a competitor or private equity.

MICROSOFT (MSFT:CT)
Last purchased in February 2016 at $54.

Microsoft is the world’s largest software company and an emerging leader in commercial cloud services. The market is undervaluing this leader, which has significant growth potential driven by the commercial cloud and its move to subscription and recurring revenues. The stock trades a 4 per cent free cash flow yield and a 1.3 per cent dividend yield.

ENBRIDGE (ENB:CT)
Last purchased in September 2019 at $45.

Enbridge is North America’s largest energy transportation company, with a growing portfolio of oil and gas pipelines and alternative energy projects. The market is undervaluing this company with the largest portfolio of increasingly unreplaceable assets. It trades at 17 times earnings with a dividend yield of almost 6 per cent.

PAST PICKS: AUG. 26, 2019

FREEHOLD ROYALTIES (FRU:CT)

• Then: $6.91
• Now: $6.69
• Return: -3%
• Total return: -0.3%

ANTHEM (ANTM:UN)

• Then: $260.51
• Now: $289.45
• Return: 11%
• Total return: 11%

POLARIS INFRASTRUCTURE (PIF:CT)

• Then: $13.81
• Now: $11.81
• Return: -14%
• Total return: -13%

Total return average: -1%