Brett Girard, chief financial officer and portfolio manager at Liberty International Investment Management
Focus: Global stocks

MARKET OUTLOOK

In 2019 everything worked, including developed and emerging market equities, credit and even oil, gold and other commodities. The 31 per cent total return of S&P last year was in the 93rd percentile of historical returns. The index’s price-to-earnings multiple expanded from 14.4 times to 18.8 times, which was in the 90th percentile of P/E readings over the last 40 years. This multiple expansion in conjunction with record share buybacks has led us to all-time highs. Our concern is that we are not on firm ground: Weak jobs growth, companies being forced to address high levels of debt, and exogenous events could all cause earnings to fall, reversing last year’s fortunes through a period of multiple contraction. 

What won’t change are the opportunities granted by investing in high-quality management teams with business models that can consistently create and grow free cash flow. Over the long term, investors will do well investing in companies that focus on free cash flow as it affords them the ability to, among other things, buy back shares when the stock price is low, raise dividends, invest in R&D and have a cushion when industry conditions deteriorate. 

TOP PICKS

COLOPLAST (CLPBY OTC)
Last purchased at 812.44 Danish kroner on Dec. 19, 2019.

Coloplast develops, manufactures and markets medical products across ostomy, continence, urology and wound and skin care. Although the company has been around since 1957, they continue to focus on R&D. Since 2015, it has increased clinical studies by 2.5 times and patents per year by a tenfold. This has led revenue growing by almost 9 per cent over the last 15 years and also been a factor in the dividend increasing by more than 10 times over the last decade.

RAVEN INDUSTRIES (RAVN NASD)
Last purchased at $34.84 on Dec. 12, 2019.

Raven is a small-cap environmental social governance (ESG) play. The company’s technological efficiencies improve agricultural yields, its covers and liners help protect the environment and its Aerostar balloons empower populations. It stands to benefit from a growing global population, U.S.-China relations improving and oil prices rising.

VERISK ANALYTICS (VRSK NASD)
Last purchased at $138.19 on Nov. 27, 2019.

Verisk is an asset-light data analytics company operating in the property and casualty insurance, energy and financial services verticals. Their proprietary data sets are offered on a subscription basis (recurring revenue and scale), leading to a 90-per-cent market share in data analytics for the U.S. property and casualty insurance industry. A litigation setback in fall 2019 is behind them. Expect continued penetration into industry verticals, further entrenching their competitive position.

PAST PICKS: OCT. 28, 2019

TD BANK (TD TSX)

• Then: $75.15
• Now: $73.14
• Return: -3%
• Total return: -2%

DANAHER (DHR NYSE)

• Then: $136.21
• Now: $159.57
• Return: 17%
• Total return: 17%

INTERTEK (IKTSY OTC)

• Then: $69.36
• Now: $75.45
• Return: 9%
• Total return: 9%

Total return average: 8%