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

MARKET OUTLOOK

In spite of the recent volatility in the market, we remain fully invested and optimistic on the outlook for stocks. The booming economy, while maturing, is not showing signs of excess. An acceptable S&P 500 price-to-earnings ratio of 17.5 times leads us not to fear a severe down market. We continue to believe in companies growing faster than the market and have solid exposure to both technology and healthcare. We expect that the social media stocks will power through the recent spate of both political and data intrusions that have led to increased costs for higher scrutiny and some customer loss. The profitability and cash generation potential of these companies has been rarely seen in market history. We’re also seeing significant new pharmaceutical and medical device approvals by the FDA and have a number of holdings in this area. Our financial exposure is focussed on Canadian banks and companies leveraged to a strong economy like Manulife, Morgan Stanley and Mastercard. Our portfolio also contains a number of industry-leading companies in secular growth markets, such as Royal Caribbean Cruise Lines.

TOP PICKS

ELY LILLY & CO (LLY.TO)
Bought on Oct. 12 at $109.94.

Ely Lilly is a global pharmaceutical company with a broad drug portfolio. The company has always been a leader in the diabetes market and it recently announced very strong trial results for a new drug indication that should extend its leadership in the category for a decade. The company also has potential in its Alzheimer franchise, an underappreciated market that could provide upside to forecasts. The company pays a 2 per cent dividend. We recently acquired the shares at US$110 and have a US$130 target price.

NIKE (NKE.N)
Bought at $75.57 on Oct. 12.

Nike is benefitting from revitalized sales in North America after a weak retail landscape and strong competitor offerings in 2017 hurt sales. Sales are now growing in all geographies and the company is set to accelerate sales growth as well as margins expansion by increasing focus on direct-to-consumer sales through its own Nike stores and e-commerce distribution. Capital spending may remain elevated while the company completes this transition, but ultimately Nike will have better access sales data and be more responsive to consumer preferences. The financial position remains very strong and the company recently announced a $15 billion share repurchase program over the next four years. We recently acquired Nike at US$75 and have a $97 price target on the shares.

CAMECO (CCO.TO)
Bought at $13.61 on Aug. 31.

We have been gradually building a position in Cameco in expectations of better pricing for uranium in the coming future. Both Cameco and Kazakhstan have shut down a substantial portion of their production to rebalance the world supply following the shutdown of the Japanese nuclear power industry after the Fukushima disaster in 2011. Even japan is returning to nuclear power, with nine reactors now restarted and 26 others in application to restart. There are 453 operable reactors in 30 countries, with 55 under construction and 152 on order or planned. The uranium price is $10 above its November 2016 low of $17.75 and is expected to move much higher ($40 plus) over the next five years. Cameco has a profitable backlog of about 22 million pounds of annual uranium deliveries through 2022. Cameco also recently won a court judgement against taxes claimed by the CRA, which has cleared another negative on the stock. The stock was as high as $59.90 at the previous peak in 2007 and we believe it could return towards $40 as the fundamentals improve.

PAST PICKS: DEC. 11, 2017

ASTRAZENECA (AZN.N)

We continue to hold pharma stocks doing well and AstraZeneca has had several FDA approvals over the past year, which will reinforce sales. The yield is still an attractive 3.5 per cent.

• Then: $33.12
• Now: $38.95
• Return: 18%
• Total return: 22%

ENBRIDGE INCOME FUND (ENF.TO)

We’re holding it for the consolidation into its parent company Enbridge. Enbridge remains depressed, trading at $42 to $43 with a 6.3 per cent dividend yield and management still indicating a 10 per cent dividend growth annually for the next two to three years. The market price indicates some skepticism though, which is an opportunity.

• Then: $29.24
• Now: $31.67
• Return: 8%
• Total return: 15%

MEDICAL FACILITIES (DR.TO)

An undiscovered company with a dividend yield of 7.8 per cent, Medical Facilities operates surgical clinics in several U.S. states. It’s looking to grow by acquiring more facilities, largely from retiring doctors selling their practices.

• Then: $13.54
• Now: $14.21
• Return: 5%
• Total return: 12%

Total return average: 16%

WEBSITE: www.tmwg.ca