Barry Schwartz, chief investment officer and portfolio manager at Baskin Wealth Management
FOCUS: North American Large Caps
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MARKET OUTLOOK
As we head into 2017, we aim to provide each of our clients with a diversified portfolio of quality investments which have—long runways of growth, good balance sheets, smart capital allocation and a history of profitability. Investors may be tempted to direct their portfolios toward the benefits of rising interest rates and inflation; that may work out, but keep in mind that many of those stocks have already moved up significantly in the past few weeks, and the good news may already be priced in. We are the most bullish on the U.S. economy since the financial crisis, but we must temper our enthusiasm, given the higher valuations of stocks. That said, compared to fixed income alternatives, such as bonds and preferred shares, we believe that patient equity oriented investors will be well rewarded.

TOP PICKS

STELLA JONES (SJ.TO)
Forward P/E: 17x, EV/EBITDA: 12x, Dividend Yield: 0.9 per cent
Stella-Jones is the largest provider of wood railway ties and utility poles in North America. Demand for railway ties and utility poles will be lumpy in the short-run but must be replaced over time. A large portion of utility poles in the US were built in the post-war period, and are due to be replaced. Demand can easily rise by 50 per cent over the next few years. Stella’s CEO Brian McManus runs the company in a shareholder friendly and efficient manner. We expect the company to make many meaningful acquisitions over the next 12-24 months. The company has increased its dividend every year for the past five years and we expect many more years of dividend raises.

HARDWOODS DISTRIBUTION (HWD.TO)
Forward P/E: 12x, EV/EBITDA: 7.3x, Dividend Yield: 1.4 per cent
Hardwoods is a distributor of commercial and residential wood for US markets. The  US residential market continues to be well below sustaining levels of 1.5m homes (currently at around 1m) and Hardwoods will be a beneficiary of this favorable trend. It recently made a large acquisition that diversifies its product line into architectural building products. Hardwood’s stock trades at a meaningful discount to U.S. competitors

PRICELINE (PCLN.O)
Forward P/E: 20x, EV/EBITDA: 15x, Dividend Yield: 0 per cent
The Priceline Group is the largest online travel company operating sites including booking.com, rentalcars.com, kayak, agoda, and OpenTable, which comes with all the benefits of scale and a network effect. Priceline has an extremely long runway of growth given that it has about a 10 per cent market share of online bookings. As well, only 35 per cent of all travel bookings in 2015 were made online. The company has $10b (and growing) in offshore cash and can benefit from a Trump tax holiday. Priceline remains a strong growth company generating significant free cash flow trading at a reasonable price
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
SJ Y N Y
HWD N Y Y
PCLN N N Y


PAST PICKS: JANUARY 28, 2016

TELUS (T.TO)

  • Then: $38.61
  • Now: $42.38
  • Return: +9.76%
  • TR: +14.70%

BROOKFIELD INFRASTRUCTURE PARTNERS (BIP_u.TO)

  • Then (pre-3-for-2 split): $49.14 
    • Adjusted price after split: $32.76*
  • Now: $44.45
  • Return: +35.68%
  • TR: +43.00%

*There was a 3-for-2 stock split on September 15, 2016.

CINEPLEX (CGX.TO)

  • Then: $47.96
  • Now: $51.04
  • Return: +6.42%
  • TR: +9.26%

TOTAL RETURN AVERAGE: +22.32%

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
T N N Y
BIP N N Y
CGX N N Y

 


TWITTER: @barryschwartzbw
WEBSITE: www.baskinwealth.com
BLOG: www.baskinwealth.com/blog/