Bruce Murray, CEO and CIO of The Murray Wealth Group

FOCUS: North American growth stocks

MARKET OUTLOOK:

We expect significant reopening of the U.S. Economy in the next few weeks due to the rapid increase of people being vaccinated and better weather that is reducing the COVID spread. The market has been enthusiastically supporting the reopening, driving the stocks of companies expected to recover to pre-pandemic levels. Stocks of global consumer brands have done particularly well as they flourished in the online world at the expense of smaller and local brands (think Starbucks versus the local coffee shop with the inability to order and deliver online). We believe this trend will deepen as confidence in the reopening increases, with the recovery eventually spreading to highly impacted capital-intensive industries like airlines and cruise lines.

Of course, we must climb the usual “wall of worry” including higher interest rates, which typically accompany expanding economies, as well as concerns over valuation, which are typical of most market recoveries. While we may continue to have panic selloffs, we believe the market will grind higher over the next year, albeit at a more modest rate as proof of earnings recovery will be required. 

We are also amid a substantial rally in commodities as we recover from the shutdowns of a year ago. Led by copper, metals that enhance electronic performance have witnessed strong pricing and face impending supply issues, especially if electric vehicle sales meet forecasts. We see the Canadian economy benefitting from the commodity recovery including the price of oil, which should firm up as driving increases with the economy reopening.

In summary we expect a respectable market gain of 5-10 per cent in the coming year. Our Global Growth portfolio will retain its core holdings in leading growth stocks in the health care, social media, and technology sectors, which we believe still have years of growth ahead.

TOP PICKS:

Amazon (AMZN NASD) - Amazon is building on its e-commerce delivery leadership through increasing investment in service capability including two-hour delivery in some major metro markets and continued investment in price. Amazon’s newer high margin revenue sources such as AWS, Prime membership and advertising are growing faster than e-commerce and should lead to free cash flow tripling from 2020 to 2023 with profit surprising to the upside. We believe anti-trust concerns will remain but are well reflected in the shares. At a five per cent free cash flow yield on 2023 estimates, we believe Amazon provides tremendous value. The consensus 12 month target price is US$4,000 and ranges to over US$5,000. Stay with a proven winner.  

Comcast (CMCSA NASD) - Comcast cable business has benefitted from the shift to broadband internet, winning share from traditional telcos with incremental subscribers coming at very high margins. This trend should continue providing a strong cash flow base as its traditional media businesses recovers from the effects of the pandemic. The company’s television content assets including NBC and Sky should see advertising recover through 2021 while its theme park and film operations will benefit from the re-opening of public attractions. The company trades at a 7.5 per cent free cash flow yield on 2023 estimates. We expect Comcast to trade towards US$70 over the next year.

Air Canada (AC TSX) with our belief that the economy reopens this summer, Air Canada stock should be looking pretty good next year. Air Canada had pushed through $50 in late 2019 and while it has had major losses in 2020, its financial strength and strong market position will allow it to emerge in good shape and with the Transat acquisition adding capacity and Canadians eager to travel. I expect the stock to be pushing $40 or higher a year from now.

PAST PICKS: January 2, 2020

Home Depot (HD NYSE) sold at $266.71 in mid-December feeling the U.S. housing recovery was well understood, we still think Home Depot will do well but moved the position into Uber and Comcast both of which we think have more exposure to the economic reopening we expect is currently going on.

• Then: $219.66
• Now: $261.33
• Return: 19%
• Total Return: 22%

Intuitive Surgical (ISRG NASD) remains a great long term play on robotic surgery where ISRG is the technological leader. Massive growth remains as only 5-10 per cent of U.S. surgery is robotically assisted and much less worldwide.

• Then: $597.26
• Now: $757.92
• Return: 27%
• Total Return: 27%

Linamar (LNR TSX) remains a major holding with us and we still believe the stock has substantial upside, with growing exposure to the current booming automotive business including the new 9 & 10 speed transmissions for both Ford and General Motors, exposure to the strong agricultural economy through their MacDon division and an expected upturn in their industry leading Skyjack access equipment. We expect to see rising sales of electric drive componentry to the major auto companies as their sales of EV’s grow. We think street estimates are too low and the stock could trade through $100 over the next 12 months.

• Then: $49.30
• Now: $72.89
• Return: 48%
• Total Return: 49%

Total Return Average: 33%

Website: https://murraywealthgroup.com/