Barry Schwartz, chief investment officer and portfolio manager at Baskin Wealth Management

Focus: North American large cap stocks

MARKET OUTLOOK:

With North American markets at all-time high, many are questioning whether this rally is sustainable and if it is prudent to take profits. History suggests that when the S&P 500 continuously makes new highs, forward returns tend to be strong. We expect this time to be no different. In fact, S&P 500 stocks are cheaper today than they were at the beginning of the year on a forward-looking basis, as earnings expectations have outpaced stock price increases.

The outlook for earnings growth for North American companies looks to be broad-based and impressive. Interest rates appear to want to stay stubbornly low, making fixed investments a non-starter. We understand that many market participants are worried about inflation, however, it is interesting that the bond market does not share this inflation concern. Even as inflation has gone higher over the past few months, 10-year interest rates have moved significantly lower. In any event, we feel the best defense against rising inflation is to own great quality businesses. 

We have made very minimal changes to our portfolio over the last six months.

TOP PICKS:

BlackRock (BLK NYSE)

P/E: 21x     EV/EBITDA: 15x      Dividend Yield: 1.9%

Blackrock is the largest asset manager in the world with US$9 trillion in assets under management. Blackrock is well positioned for the major trends in asset management with leading positions in passive investing, ETFs, sustainable investing, and alternatives. We believe Blackrock will continue to gain share in the fragmented asset management industry as major investors such as pensions and insurance companies increasingly look for whole portfolio solutions to meet their goals in a low-yield environment. At just 21x earnings, we believe its shares are cheap.

Floor & Decor (FND NYSE)

P/E: 45x     EV/EBITDA: 25x     

Floor & Decor is a distributor of hard surface flooring, operating 133 large warehouses that carry a wide selection of flooring. Floor & Decor's strategy is to offer the widest selection of inventory at low prices, which will allow Floor & Decor to gain share among both professionals and individuals. We believe that Floor & Decor can open at least 400 stores and take market share from independent distributors who cannot match Floor & Decor on either price or selection. We think shares can compound at a double-digit rate going forward. 

Live Nation Entertainment (LYV NYSE)

P/E: N/A       EV/EBITDA: 63x

Despite having essentially no revenues during the pandemic, Live Nation is well positioned for the pent-up demand for unique experiences with an elevated pipeline of concert activity for the next three years. Live Nation's business model and technology at Ticketmaster allows it to maximize profits for artists and venues that have suffered during COVID. The pandemic also gave Live Nation the opportunity to upgrade its technology stack, making it a nimbler company going forward. Longer-term, there continues to be a secular shift towards consumer spending on experiences which includes concerts.

PAST PICKS: June 15, 2020

Ferrari (RACE NYSE)

• Then: $169.70
• Now: $204.40
• Return: 20%
• Total Return: 21%

Canadian Apartment Properties REIT (CAR-U TSX) 

• Then: $51.35
• Now: $61.11
• Return: 19%
• Total Return: 23%

Costco (COST NASD)

• Then: $297.18
• Now: $414.88
• Return: 40%
• Total Return: 44%

Total Return Average: 29%