Barry Schwartz, chief investment officer & portfolio manager, Baskin Wealth 
Focus: North American large caps

MARKET OUTLOOK

Although it was only three months ago, the market bottom on March 23 now seems like a distant memory with the S&P 500 having its strongest recovery in history, up almost 50 per cent from the bottom. Given the unusually strong rebound, many people have reacted by becoming more cautious. The train of thought usually goes something like this:

1)The S&P is up slightly from the beginning of the year and actually up 8 per cent from a year ago.

2)The economy is not 8 per cent better than it was last year: people are still dying from COVID-19 and unemployment is still double digits, and that’s before considering a possible double dip.

3)Thus, the market is overvalued and caution is warranted given the uncertainty.

We don’t know whether the market will go up or down in the next month or year, and neither does anyone else and anyone who wants to worry will find something to worry about. All we know, is that most of our companies will report record earnings this year and these earnings are worth a whole lot more when interest rates are zero.

The only thing that is predictable about the stock market is that it tends to go up over time and there is a powerful mental advantage to investing for the long-run, and in ignoring short-term fluctuations. The same mentality can be applied towards individual stocks as well: great businesses by definition get more valuable over time regardless of what the share price is doing in the short or even medium term, and it makes sense to simply buy and hold companies that you want to own for the long-term. As such, we used the recent stock market turmoil to acquire shares of high-quality companies and to improve our client’s portfolios.

TOP PICKS

Charter Communications (CHTR:UW)

Charter is the 2nd largest cable provider in the US, and demand for cable internet will continue to grow from increased usage of high-speed streaming and video games. In the US, cable internet is comprised of regional monopolies and Charter often has no direct competition that can offer the same speeds and services. Charter has done a terrific job of growing its reach and investing in its network. Charter has just completed a strong cycle of capital spending and we think Charter will generate strong free cash flows in coming years.

Domino’s Pizza (DPZ:UN)

Domino’s Pizza is a large beneficiary of COVID-19 in the restaurant industry as people stayed at home and ordered take-out, with same-store sales in Q2 up 16 per cent year over year. Domino’s has invested heavily into technology and has one of the most successful loyalty programs in the fast-food industry. We believe that Domino’s strong results during the pandemic will allow it to play offense, and expand its store footprint to further reduce delivery times. 

Parkland Fuel (PKI:CT)

Parkland Fuel is the largest independent distributor of fuel in Canada with retail brands including Ultramar, Fas Gas Plus, Pioneer, and Chevron. Parkland’s strategy is to use its scale and infrastructure to be a preferred fuel distributor in rural, hard-to-reach areas, and has grown significantly through acquisition in the last decade. We believe that driving activity and demand for fuel will return as society re-opens, and that Parkland’s strong balance sheet will allow it to grow its network even further in the US. We are happy to own a high-quality company at just 8 times free cash flow, with a 3.4 per cent dividend yield.
 

PAST PICKS: June, 24, 2019

TMX Group (X:CT)

• Then: $91.74
• Now: $138.88
• Return: 51%
• Total Return: 54%

Becton Dickinson (BDX:UN)

• Then: US$249.98
• Now: US$276.86
• Return: 11%
• Total Return: 12%

Constellation Software (CSU:CT)

• Then: $1,223.93
• Now: $1,577.30
• Return: 29%
• Total Return: 29%

Total Return Average: 32%
 

TWITTER: @BarrySchwartzBW
WEBSITE: baskinwealth.com