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

MARKET OUTLOOK

In March 2009, right in the middle of the great financial crisis, the S&P 500 stopped its decline and began rallying higher in a big way. However, if you had read the headlines at that time, you never would have known that this would be the start of the longest bull market in history. Just like today, you had so many pundits telling you not to buy the rally, and that we are certainly going to test the lows again. In 2010, when it was clear that the economy had recovered, those same pundits were telling us that a double-dip recession was guaranteed. Not only were the lows not tested again, but also the U.S. economy has yet to fall back into a recession.  Those patient investors of 2009 were well rewarded for their courage.

Similarly today, we have more than our fair share of pessimistic market pundits. I have no time, or interest, in trying to predict short-term moves in the stock market. As investors in companies, we need to ask ourselves the following four questions:

1. Do we believe that a company’s ability to grow earnings over the long-term will be unaffected by a long-lasting pandemic and/or recession?
2. Can we buy these companies for new clients and clients that deposit cash at reasonable valuations?
3. Do we believe that these companies will have the ability to reinvest their future cash flows at above-average rates of returns?
4. Do we believe that, compared to other asset classes, these companies will deliver a better relative rate of return in the long run?

For those that have followed me for years, it will come as no surprise that my answer to all four questions is “yes”, and that I am bullish on our stock portfolio. In our opinion, now more than ever, it is time to upgrade your portfolio and stick with high-quality companies. When I look at some of the companies that our clients hold, like Microsoft, Visa, Amazon and Constellation Software, to name a few, I see their current growth trajectories as slightly delayed but not impaired. Given their stocks’ performance in the current market downdraft, investors clearly agree overall. In our opinion, there aren’t that many high-quality companies in North America with experienced management, strong balance sheets and enormously profitable business models. As a result, we believe these companies will be re-rated with much higher valuations than ever before.

TOP PICKS

Facebook (FB:UW)
We believe Facebook is still in the early days of monetizing the 2.4 billion people around the world that use it daily. Facebook should be a key beneficiary of emerging markets growth over the next few decades. In developed markets, we think Messenger, WhatsApp, and even Instagram are under-monetized relative to their usage, and its efforts in payments and e-commerce will continue to increase returns for advertisers. The Q1 results soothed fears of a sharp slowdown in advertising demand, and we believe shares are extremely attractive at just 22x earnings net of cash.

American Tower (AMT:UN)
American Tower is one of the largest operators of cell towers in the world, with assets in 17 countries. American Tower should benefit from increased data consumption and the need for  improved communication networks to meet the demand. Internationally, American Tower will benefit as emerging markets catch up to the US in network standards, and consumers upgrade from voice and chat to mobile data services such as video.

Copart (CPRT:UW)
Copart is the largest salvage auction company in the US and is one of only two companies that have the scale and buyer network to service insurance companies on a national basis. Despite sharply lower volumes due to shutdowns, the long-term trends remain favorable. The average car is now over 12 years old and repair costs continue to rise, both of which leads to a higher total loss rate and more volumes for Copart. We believe driving activity will return to pre-virus levels over the next few months and that the shares are attractively valued at current prices.
 

• Then: $55.39
• Now: $45.03
• Return: -19%
• Total Return: -18%

Domino’s Pizza (DPZ:UN)

• Then: US$248.94
• Now: US$360.35
• Return: 45%
• Total Return: 46%

Parkland Fuel (PKI:CT)

• Then: $40.97
• Now: $32.00
• Return: -21%
• Total Return: -18%

Total Return Average: 3%