Brian Madden, chief Investment Officer, First Avenue Investment Counsel

FOCUS: North American equities 


Despite the widely touted “Santa Claus rally,” or propensity for December to serve up gains for stocks, which is overdue to begin this year, our portfolios remain cautiously positioned. We expect 2023 to be marked by very different conditions and opportunities in the second half of the year, relative to the first half. We currently hold higher than normal cash balances, own numerous defensive consumer staples and health-care companies and have relatively little exposure to the resource sector (ex-gold) or interest rate-sensitive sectors like real estate. 

Inflation was public enemy number one this past year, but that story, along with the aggressive rate hike campaign to counter it is yesterday’s news. In 2023 we expect to see job losses, lower corporate profits, higher bank credit loss provisions and lower corporate and consumer confidence. This is measured both by downbeat surveys and waning “big ticket” activity like mergers and acquisitions in the corporate world and fewer home and auto purchases in the consumer world. 

While this all surely sounds ominous, we do expect to see a durable, lasting upturn in the markets, rather than simply a bounce in the ongoing bear market sometime in mid-2023. As such, expect Canadian and U.S. stocks to rise over the course of the full year. In the meantime though, the economy still needs to take a few steps backwards before stocks can take their next big steps forward. We continue to monitor and measure 39 different cross-asset class metrics to assess when that transition is nearing completion. When it does, we will shift portfolios meaningfully towards a more aggressive posture. Including more financials, more industrials, more resources, more semiconductors, more deeply depressed value stocks and more highly leveraged companies – to best capture the historically outsize gains early stages of a new bull market.

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Brian Madden's Top Picks

Brian Madden, CIO at First Avenue Investment Counsel discusses his Top Picks: Microsoft, RBC, CVS Health.

Microsoft Corporation (MSFT NASD)

Latest purchase May 2022 @ $282.07

Microsoft is the world’s second-largest company and is by far the largest global software company. Operating across personal computing, productivity and business process and intelligent cloud segments, the company is a scale-advantaged, defensive growth company with excellent exposure to several long-term secular infotech themes. These themes include digital transformation and cloud computing, business intelligence and analytics as well as security and collaboration. With nearly 70 per cent of revenues recurring, and much of its product offering “mission critical” whether to a corporate entity or to a personal user, the company has a strong incumbency advantage over rivals and a wide competitive moat to defend its market share and margins. The 40 per cent pullback in the shares earlier this year affords investors an excellent entry point into a global IT powerhouse at the undemanding multiple of 25x expected earnings.

Royal Bank of Canada (RY TSX)

Latest purchase Feb 2022 @ $147.12

Royal Bank is one of the ten largest banks in the world and is soon to become significantly larger, pending the completion of the acquisition of HSBC Canada. With a dominant domestic personal and commercial banking franchise, a top ten global capital markets business and the leading Canadian wealth management franchise rounded out with smaller insurance and investor services and treasury businesses Royal has a very solid and well-diversified earnings stream. Royal is well diversified by geography with large-scale businesses in Canada, the U.S. and Europe and in various other global financial centres. The bank is a leader in digital banking and in AI and is using its scale to invest heavily in these drivers of long-term competitive advantage. With a dividend yield of 4.1 per cent and with dividends growing at a nine per cent annual rate over the last decade, we see a highly visible path to ongoing sustainable double-digit returns over a cycle. In fact, the bank has outperformed the S&P TSX Composite in 19 of the last 25 years.


Latest purchase May 2022 @ $99.52

CVS is best known as America’s leading pharmacy, but via two transformational acquisitions over the last fifteen years has morphed into a vertically integrated health-care colossus, occupying position four on the Fortune 500. It has $315 billion of revenues spread across an upstream health-care benefits and health insurance business, a midstream pharmacy benefits management business and the downstream retail network of stores. The company has grown earnings at a compound rate of 10 per cent over a decade, and the move upstream into the PBM and managed care business accelerates its growth and profitability into a huge addressable market. Americans spend $3.8 trillion annually on health-care, broadly defined. The shares yield 2.2 per cent and trade at an undemanding 11x forecast earnings versus the 20-year average of 14x. The pending $8 billion acquisition of Signify Health extends the business into in-home and virtual primary care and will add 10,000 medical professionals (doctors, nurse practitioners, etc.) across all 50 states to its roster. Prior bull market cycles in this stock are big and long, averaging 438 per cent in price appreciation over a 6.2-year time frame, suggesting the bull run in these shares is barely halfway complete off the 2019 lows.




PAST PICKS: December 2, 2021

Brian Madden's Past Picks

Brian Madden, CIO at First Avenue Investment Counsel discusses his Past Picks: Brookfield Corp, Parex Resources and CGI Inc.

Brookfield Corporation (BN TSX) Former Brookfield Asset Management (BAM.A TSX)

  • Then: $73.21
  • Now: $45.45
  • Return: -23%
  • Total Return: -23%

Parex Resources (PXT TSX)

  • Then: $21.01
  • Now: $18.18
  • Return: -13%
  • Total Return: -9%


  • Then: $109.99
  • Now: $117.22
  • Return: 7%
  • Total Return: 7%

Total Return Average: -8%