May 30, 2018

Bruce Murray's Top Picks: May 30, 2018

BNN Bloomberg

Bruce Murray , BNN Bloomberg

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

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MARKET OUTLOOK

At the Murray Wealth Group, we believe the outlook for the markets remain constructive overall. The global economic picture is still quite bright, with real GDP growth currently forecast at 3.9 per cent. This healthy rate of growth, which is being led by the world’s largest economies, will support a bullish market.

China’s economy, while slowing, grew 6.8 per cent in the first quarter and will exceed the output of the entire EU this year. Meanwhile the USA (2.7 per cent), Germany (2.3 per cent) and Japan (1.5 per cent) are all experiencing growth rates at the higher end of recent years. Canada is expected to slip below 2 per cent for the rest of this decade.

Against this backdrop, the outlook for earnings is strong, particularly when combined with lower taxes in the U.S.

Market worries of rising trade issues are legitimate, particularly the issues raised by America against China. Moreover, Trumps tweets, which bounce between sticks and carrots, have been accompanied by higher market volatility. We must believe sanity will bring resolution of these issues.

The Federal Reserve Board has signaled higher rates, which the markets have so far absorbed. With inflationary pressures remaining low, we’re not overly concerned that there will be a need to squeeze the economy hard enough to cause a recession, at least not in the U.S. and most of Europe.

A number of factors will discourage investment in Canada. The consumer remains over-levered. In addition, there are concerns of higher taxes and a slowdown in the housing sector (both of which appear inevitable). Lastly, internal trade barriers will confine the exporting of oil, Canada’s largest export.

We continue to find lots of stocks with solid growth prospects available at attractive prices.

TOP PICKS

CELGENE (CELG.O)

Celgene is a high-growth biotechnology company with a large pipeline of new products that should see approval in the next two years. The sentiment around the company is extremely negative given government pressures to lower drug costs, the upcoming patent expiration of its Revlimid drug, uncertainty surrounding generic drug entry and some missteps from management. We see improving sentiment turning around the share price as Celgene is very cheap on a price-to-earnings basis at 9 times current year earnings with strong price-to-earnings growth over the next two years. New approvals will be needed to manage the Revlimid patent cliff, but we believe the risk/reward favours the upside. Last purchase was at US$79.16.

BROADCOM (AVGO.O)

Broadcom is a provider of semiconductors to both wireless and wired clients. The shares have sold off in sympathy with other semiconductors following concerns of weakness in the wireless segment and general trade worries with China. Broadcom shares should recover as its free cash flow generation picks up and the company starts to execute on its recently announced $12-billion buyback program. Indications point to technology spending for data centers and AI computing power remaining strong so Broadcom should continue to generate a high level of free cash flow in the midterm, which we expect will be used for further buybacks or accretive acquisitions. Shares trade at a free cash flow per share multiple of 13 times, an attractive level for a company like Broadcom. Last purchase was atUS$228.25.

LINAMAR (LNR.TO)

Linamar is a manufacturer of industrial and automotive parts. The company has a long history of growth as auto original equipment manufacturers (OEM) continue to outsource. Linamar has continued to win new business, including in the electric vehicle space. As a testament to its track record, over the past 10 years (pre-crisis), Linamar has tripled its automotive sales and more than doubled its industrial sales without issuing equity. On the industrial side, Linamar builds telebooms and scissor lifts in its Skyjack division and it recently completed the purchase of MacDon in Winnipeg which provides a new business line in the agriculture space. The shares trade at just 7 times 2018 earnings purchase. Last purchase was at $67.96.

DISCLOSURE	PERSONAL	FAMILY	PORTFOLIO/FUND
CELG	Y	Y	Y
AVGO	Y	Y	Y
LNR	Y	Y	Y

PAST PICKS: AUG. 1, 2017

MAGNA INTERNATIONAL (MG.TO)
Bought at $59.00 and sold at $71.09. We switched into Linamar with the proceeds, a comparable company with stronger growth prospects.

Then: $58.40
Now: $83.04
Return: 42%
Total return: 45%

ALPHABET ‘C’ SHARES (GOOG.O)