Bruce Murray, CEO & chief investment officer, The Murray Wealth Group and David Newman, head of research, The Murray Wealth Group

FOCUS: North American Equities

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MARKET OUTLOOK:

Amidst the rocky start to the year in Q1, we continued to be fully invested given our belief in the strength of the underlying U.S. economy and fundamentals. We are encouraged by the set up heading into the second half of the year. A continued turn in key economic data out of the U.S. should lead to an improvement in investor sentiment. Analysts’ earnings expectations were ratcheted down during the sell-off, more a function of fear as opposed to the actual data, which should set the companies up well into the back half of the year for continued earnings surprises and growth.

We remain skewed towards high-quality U.S. growth names in consumer, information technology and healthcare. Higher-quality names in these sectors underperformed in the first quarter, especially healthcare. Again, we like the set up on these sectors and our choice of high quality names heading into back half of the year. We would note that just over 50 percent of our Global portfolio is invested in consumer and healthcare stocks, e.g. Coca-Cola, Walt Disney, Celgene and Medtronic. We continue to believe the U.S. consumer is driving the bus given stronger employment, rising wages and growing confidence. As well, we have over 20 percent of our portfolio invested in technology due to superior growth prospects, e.g. Alphabet (Google) and Facebook, or compelling valuations, e.g. Microsoft and Cisco. While commodities have rallied, we are of the belief that they will remain range-bound for a period of time, which should cap the Canadian dollar upside.

Top Picks:

Alphabet (GOOGL.O)

Strong growth at Google, with hyper-growth out of YouTube and GooglePlay (store for the

Android operating system), which will be monetized through search and video ads.

Huge 70 percent market share in its core search business, with a strong position in mobile. Other bets-sell driving cars, combat aging (Calico), fibre to the home (Fiber), public cloud, etc. $64 billion in cash, with strong cash flow from operations, to support future growth and buybacks.  

25x FY3 EPS of $47.18 = $1,000 (USD) Target Price.

Have owned the position since we started the fund on July 1, 2015. Most recent purchase of 100 shares on April 19 at $754.11.

MasterCard (MA.N)

Benefiting from ongoing shift from cash to plastic and e-commerce trends. The toll booth of the payments system. Expect mid-teens EPS growth.

Volumes and net revenue yields remain strong and stable. Focused on ex-US growth and benefitting from its European presence.

Almost $7 billion in cash, plus cash flow from operations, support dividend, buybacks and other growth initiatives.

27x FY3 EPS of $4.90= $112.00 (USD) Target Price.

Have owned the position since we started the fund on July 1, 2015. Most recent purchase of 700 shares on March 4 at $88.42.

Medtronic (MDT.N)

Best in class medical technology company with implantable medical devices and lifelong solutions. Focused on cardiovascular, restorative therapies and diabetics (insulin pumps).

Expect strong earnings momentum from cost savings as a result of the merger with Covidien. Investment in Irish company provided Medtronic access to trapped international cash.

Strong cash flow will lead to growth through acquisitions and share buybacks.

19x FY3 EPS of $5.44 = $88.00 (USD) Target Price.

Have owned the position since early July 2015. Most recent purchase of 300 shares on March 4 at $73.44. 

Fund Profile

The Murray Wealth Group pooled funds were launched on July 1st, 2015. Our flagship fund, the MWG Equity Growth Fund, is comprised of 40 best-in-class global companies, with a skew towards the U.S., Canada and Europe. Stocks in this portfolio tend to exhibit higher than average growth characteristics. Since our start last year, our investment strategy was to overweight the US consumer against the backdrop of an improving economy, increasing employment, real wage gains, lower energy costs and the lowest household debt since 2007.

We also have an Income Growth Fund. This long-only portfolio consists of up to 35 income-oriented securities (both equity and debt-based). The mandate of this portfolio is to select securities that are able to generate high returns through income and capital appreciation. This portfolio will consist of primarily of dividend-paying stocks, and may at times include REITs, convertible securities, debt securities, preferred securities, and other income-oriented assets.

Top Holdings:

National Bank

Bank of Nova Scotia

CIBC

Crown Castle International

TD Bank