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

MARKET OUTLOOK

In today’s market, quality investments look expensive. Companies in our portfolio like Apple, Microsoft, Costco, Constellation Software, Visa and Moody’s trade at high valuations. So many investors say they would love to own these companies, but only at cheaper prices. I’ve got news for them: Quality companies should trade at expensive multiples. If you own a share of a great business that routinely grows its revenues and earnings year after year, then for the most part, its shares should also trade at higher values.

It’s rare to buy quality on the cheap. Generally speaking, the prices of many quality companies’ stocks fell with the rest of the market in late February and March of this year, but like tennis balls, many of these companies bounced right back. For example, in March, Microsoft’s stock price fell 20 per cent, but then investors realized that Microsoft would be a big winner in the work-from-home trend and it recovered promptly by month-end.

If you find one of those companies, our advice is to hold tight. There are probably fewer than 100 terrific quality companies right now trading on North American and European exchanges, but if you are lucky to pick one of these winners, your returns could be incredible. Since we can’t know which quality company will deliver outsized returns, we hold a basket of them, but ultimately the only way to generate outsized returns from stocks is to let your winners run and trim back when your holdings get too large in the portfolio.

In uncertain times, we take comfort in owning quality businesses and we believe we will get what we pay up for.

TOP PICKS

Alphabet (GOOGL NASD)

We believe Alphabet’s shares will benefit near-term from a cyclical rebound in travel as well as a secular shift in consumer behavior towards e-commerce and online video like YouTube. Despite the antitrust issues, we believe Google's products are superior and favored by consumers.  Google has a fortress balance sheet and has started to buy back healthy amounts of stock.  

Constellation Software (CSU TSX)

Constellation Software is an acquirer of small software companies and has done a terrific job compounding capital at 25 to 30 per cent yearly. As the world looks to re-open, Constellation’s portfolio of software companies should see improved results. In the meantime, Constellation continues to aggressively build out its portfolio.  We believe the company has an extremely long runway of growth ahead. 

Granite REIT (GRT-U TSX)

Granite REIT’s legacy business was to own Magna’s real estate, but it smartly pivoted to be an industrial REIT focused on e-commerce distribution in North America and Europe. Today, just 30 per cent of Granite’s revenue comes from Magna and that number is shrinking. Granite’s strategy is to invest in modern warehouses in major transportation hubs to take advantage of the growth in demand driven by e-commerce. Most of its revenue is long-term contracted with fixed or inflation-based escalators which will support dividend growth. Granite’s CEO, Kevan Gorrie, has a superb track record.  

PAST PICKS: NOV. 19, 2019

MOODY’S CORPORATION (MCO NYSE)

• Then: $223.87
• Now: $274.06
• Return: +22%
• Total Return: +24%

MARKEL CORPORATION (MKL NYSE)

• Then: $1,122.59
• Now: $1,014.45
• Return: -10%
• Total Return: -10%

FIRSTSERVICE CORP (FSV TSX)

• Then: $121.96
• Now: $168.06
• Return: +38%
• Total Return:+39%

Total Return Average: +18%

WEBSITE: https://baskinwealth.com/