Barry Schwartz's Top Picks: Jan. 7, 2019

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

MARKET OUTLOOK

Falling markets are discouraging and disconcerting. It’s natural that investors want to protect their portfolios when it seems like the market is going down on a daily basis. Stock markets are volatile, but the pendulum tends not to swing in one direction for too long. At some point, the market will price in all the (perceived) bad news and start to recover. Warren Buffett has the best response: “If you wait for the robins, spring will be over.” 

During these turbulent times, the best course of action is to control your emotions and not lose perspective. When we’re faced with such extreme volatility, we always ask ourselves the following question: Am I certain that my assessment of the current situation is rational or am I being influenced by other factors?

Our strategy in the face of market declines has remained consistent for over 25 years. We believe that the North American economy is neither so good that interest rates will rise too far, nor it’s so weak that a recession is imminent. Just as it has in the last 10 years, we believe that the North American economy will continue its slow ascent and will suffer its usual fits and starts. We’re moving ahead with the same cautious approach we have always taken. While we remain fully invested, we will stick to high-quality corporations that have strong balance sheets, that generally have a history of raising dividends and that have a long runway of growth for their products and services.

There’s no doubt that the market will face its fair share of headwinds during 2019. That said, valuations are the cheapest we’ve seen since 2011 and 2015. Investors that stuck with stocks during those periods were well rewarded. We believe the result will be the same going forward. 

TOP PICKS

VAIL RESORTS (MTN.N)

Vail is the largest ski resort operator in the world, with well-known properties such as Whistler, Vail and Breckenridge. Vail has spent the last decade building up a portfolio of the highest-quality ski resorts in North America. At some point, we believe Vail will acquire more properties in Australia, Asia and Europe to reduce its sensitivity to the North American winter season. Each property it adds increases the value of its season pass (called Epic Pass).  We believe there is a tremendous pricing opportunity in the future for the Epic Pass. Management also continues to invest in their business, with a plan to spend $180 million on capital expenditures next year for upgrades to its resorts.

HYATT HOTELS (H.N)

Hyatt Hotels is a global hospitality company with a focus on the luxury hotel experiences. Now that Hyatt has achieved scale with over 600 properties in 50 countries, it’s transitioning to a capital-light franchising business similar to the rest of its peers. As Hyatt sells its properties to franchisees, it’s using the proceeds to buy back stock rapidly and has reduced its share count by 30 per cent over the last four years. The stock trades at a deep discount to its competitors.

DISNEY (DIS.N)

Disney is on an exciting journey. First, it plans to spend $20 billion over the next five years on its wildly successful parks and resorts. This summer, it plans to open Star Wars: Galaxy’s Edge at Disneyland and add more Star Wars attractions at Disney World in 2020. Second, with the pending acquisition of Fox, Disney may control at least 40 per cent of the U.S. box office and we all know that the company has the secret sauce at the box office. Finally, it’s launching its streaming service later this year.

Over the past three years the stock has gone nowhere, but we believe the future looks very bright for Disney shareholders. We believe investors have a unique opportunity to acquire a company with some of the best assets in the world at a market multiple.

PAST PICKS: JAN. 9, 2018

NATIONAL BANK (NA.TO)

• Then: $63.68
• Now: $57.31
• Return: -10%
• Total return: -6%

FIRSTSERVICE CORP (FSV.TO)

• Then: $85.92
• Now: $94.92
• Return: 10%
• Total return: 11%

KORN/FERRY INTERNATIONAL (KFY.N)

• Then: $41.82
• Now: $41.03
• Return: -2%
• Total return: -1%

Total return average: 1%

WEBSITE: Baskinfinancial.com
TWITTER: @BarrySchwartzBW