Bruce Murray, CEO of The Murray Wealth Group
Focus: North American growth stocks

MARKET OUTLOOK

Equity markets continued their ascent in March with the S&P 500 building on a strong run to start 2019, rising 1.8 per cent. Year-to-date the index is up 13.1 per cent, its best performance to start a year since 1998. Many financial news articles have been published about the rally, but we remain cognizant that the preceding three months were among the worst since 1998 and the return for the six-month period at month-end is down 3 per cent. On balance, we remain positive on the market, but acknowledge further upside likely needs continuing earnings growth.

We remain heavily weighted to the U.S. with about 70 per cent of our portfolio invested in this market. The U.S. remains well positioned, with strong employment levels (near full employment at 3.8 per cent), an affordable housing market, strong bank liquidity and the growing influence of technology on GDP. Inflation remains subdued with only wage inflation starting to creep higher, allowing the Federal Reserve tremendous freedom to use all the monetary policy tools at its disposal. As well, recent data suggests Chinese stimulus may be starting to kickstart the economy, providing a boost to the industrial and technology sectors. Recently, China’s Purchasing Managers’ Index rose above 50 for the first time since September, indicating expansion after a four-month lull.

We maintain 20 per cent of our Global Equity Growth Fund in Canada and continue to be underweight the natural resources sector. We also continue to prefer holding U.S. rather than Canadian dollar-denominated investments.

TOP PICKS

RAYTHEON (RTN.N)

Raytheon is a leading defence contractor mainly known for its anti-missile defense systems, but also heavily involved in intelligence and cybersecurity. The company’s revenues are expected to grow 6 to 7 per cent yearly for the next three years, double the growth in the US defense budget. Strong demand for missile defense is expected from U.S. allies in East Asia, Eastern Europe and the Middle East. We like Raytheon as solid core investment with 20 per cent total return potential based upon a 17 times price-to-earnings.

ALPHABET (GOOG.O)

The largest positions in our portfolio, we believe there’s still a lot of running room left for Google in traditional search and advertising led by YouTube and its new cloud gaming launch, Stadia. Longer term, upside comes from commercialization of its Waymo autonomous driving unit and potential for successes in its “other bets” arm.

Recent concerns surround its heavy investment in new computing capacity as well as evergreen anti-trust worries. We believe new investment is inevitable for Google to maintain its 20 per cent revenue growth rate and while anti-trust concerns will always be prevalent, Google has sufficient monetary flexibility to manage these events. The company is a cash flow machine and remains ahead at the leading-edge of the technology curve.

CAMECO (CCO.TO)

Uranium price has been depressed since the Fukushima disaster, which led to a large surplus of uranium production. Cameco and other major miners (Kazakhstan) have curtailed production and are selling from inventory. Japan had 54 operating reactors in 2010 of which only four were operating in 2017. There are nine operating today with another eight approved to restart and 12 still applying for resumption. Japan is trying to move nuclear back to being the source of over 20 per cent of the nation’s electrical power. There are also 57 new reactors under construction largely in Asia. As stockpiles are run down, we would look for the price of uranium to double and would expect Cameco to triple. This is likely a three-to-five-year play.

PAST PICKS: MAY 30, 2018

CELGENE (CELG.O)

• Then: $77.97
• Now: $94.81
• Return: 22%
• Total return: 22%

BROADCOM (AVGO.O)

• Then: $249.40
• Now: $304.19
• Return: 22%
• Total return: 26%

LINAMAR (LNR.TO)

• Then: $66.12
• Now: $50.59
• Return: -23%
• Total return: -23%

Total return average: 8%

WEBSITE: tmwg.ca