Bruce Murray, portfolio manager, CEO and CIO, The Murray Wealth Group
​FOCUS: North American grrowth stocks

MARKET OUTLOOK

Our outlook for the global markets is moderately bullish. The COVID pandemic clearly ended the previous business cycle, with most cyclical industries seeing very poor sales opportunities due to global economic shutdown. We were fortunate to have a strong exposure to the digital economy in our Global Growth Fund. The pandemic exacerbated trends that were underway , like working-from-home and online shopping. This bifurcated the stock market. We saw the well-documented surge in the major social media stocks and a select cast of companies that provide systems and support for the work/shop/play at home markets. Most companies though were victims and lost sales due to the shutdown. Dine-in restaurants and the travel/vacation industries will see many providers forced into shutdown.

Companies are valued by discounting a stream of future cash flow by a rate that is based off of interest rates. Today’s low-interest rates are allowing for higher market valuations for those companies with a high level of confidence/visibility in sales in years to come. With the potential reopening of the economy over the next six months, we expect the cyclical companies that survived the pandemic to see increased sales and a substantial recovery. We have already seen solid stock price recovery in companies like Disney, General Motors and the cruise lines, although they are still down materially. We expect these companies to regain their prices of earlier this year over the next 18 months.

We also expect the stocks of the recent market leaders to slow down as the rate of growth slows from the peak second quarter. Within this group, we still see substantial opportunity ahead for Alphabet and Facebook.

TOP PICKS

Intuitive Surgical (ISRG NASD)

Intuitive is the leader in robotic surgery, which today represents only a small share of overall surgeries. Robotic surgery is expected to take over many high-frequency operations due to better outcomes. The company’s sales fell this year due to dislocation in the health sector, but catch-up growth of 50 per cent is forecast in 2021, with several years of 20 per cent afterwards. The stock is expensive due to the certainty of the outlook. 

Morgan Stanley (MS NYSE)

With exception of credit card brand owners and processors, most financial stocks remain depressed due to fear of losses from COVID-induced bankruptcies. Morgan Stanley is favourably placed, with little loan exposure as well as leadership positions in wealth management and capital markets, both of which are well-positioned to grow. We think the stock can move towards $70 with $6 of eps over the next two to three  years.

Linamar (LNR TSX)

Linamar is our favourite manufacturing company in Canada, with rapid growth forecast as the industrial economy recovers. Revenue will ramp up as the auto-build recovers. Moreover, it has significant exposure to electric vehicles should traditional auto manufacturers gain meaningful share. The company’s skyjack division will rebound with U.S. construction, and the MacDon farm machinery division is well placed for a North American farm cycle. Linamar earned $8 or more a share in 2016, 2017 and 2018 and is well-positioned to surpass that this cycle. We could see the stock up significantly with the coming recovery.

PAST PICKS: SEP. 16, 2019

Aritzia (ATZ TSX)

We still love this company, which has held up despite COVID-related closures. It has massive growth potential, with the U.S. store count at 29, less than half that of Canada.  About 30 per cent of sales are online and these grew 50 per cent in recent months. We believe the stock will recover quickly and sell at 40 times forward earnings per share, surpassing its $25 high. We added to our position below $15 during the depths of the panic.

• Then: $17.07
• Now: $17.99
• Return: 5%
• Total return: 5%

Tapestry Inc. (TPR NYSE)

We bought Tapestry on expectations of a continuing financial recovery. The Coach brand had been stabilized and Kate Spade’s product renewed. Like many retailers, the pandemic has devastated the fundamentals short term. We see recovery generating well over $2 of earnings per share and a mid-teens multiple. Growth in China could carry the stock well beyond that valuation.

• Then: $25.51
• Now: $15.20
• Return: -40%
• Total return: -39%

Pfizer (PFE NYSE)

We hold Pfizer for stability and dividend income. The company has several new therapies, including a COVID-19 vaccine. We target the stock to trade through the mid $40s, with a multiple of 15 times earnings per share of 3.30 in 2021 and $3.50 in 2022. Investors also collect a 3.8 per cent dividend. Better than a bond.

• Then: $36.83
• Now: $38.69
• Return: 5%
• Total return: 9%

Total return average: -8%