David Baskin, president of Baskin Wealth Management
Focus: North American large caps

MARKET OUTLOOK

Going into 2019 the underlying macroeconomic outlook is clouded by a variety of events, any of which could have a substantial impact on the world economy. These include the continued U.S. government shutdown, trade wars between the U.S. and its three largest trading partners (China, Canada and Mexico), the ongoing Brexit saga, and slowing economic growth in China. Against this backdrop, positive factors including very low unemployment in North America, strong corporate profits and little evidence of inflationary pressures.

The very sharp correction in the fourth quarter of 2018 saw major markets fall about 20 per cent from peak to trough in a period of about 11 weeks. Since that time there’s been an equally sharp recovery of as much as half of those losses. Stocks which were arguably overpriced now look more affordable and dividend yields on a number of blue-chip companies such as the Canadian banks and telecom companies are now highly attractive.

We expect central bankers in Europe, Canada and the U.S. to keep interest rates around current levels for the near-to-mid-term future. Ultimately, stock prices are driven by profit levels and the attractiveness of other asset classes. With interest rates still at historically low levels and with corporate profits continuing to climb, stocks look more attractive to us than bonds.

TOP PICKS

BERKSHIRE HATHAWAY (BRKb.N)

Berkshire Hathaway’s stock was essentially flat in 2018, and dropped around 15 per cent in December in part due to its $40-billion stake in Apple. As a reminder, Berkshire is a collection of very high-quality businesses like GEICO, BNSF Railway and Precision Castparts run by “world-leading” managers with the greatest investor ever investing the cash flows generated from these businesses. Berkshire Hathaway comes down to whether you think Warren Buffett still has the touch and his investing career would suggest that it’s wise to invest with him. Berkshire’s recent program of share repurchases suggests that Buffett thinks the stock is undervalued at 1.3 times book value.

BOOKING HOLDINGS (BKNG.O)

Booking is the largest hotel and travel booking platform in the world, its properties include Booking.com, Priceline, KAYAK and OpenTable. The main value proposition of sites like Booking.com is that it spends a tremendous amount of effort finding every type of property around the world, including igloos in Finland and tents in Mongolia and opening up these properties to a global traveler base. We think there’s a tremendous amount of value in this type of platform that isn’t easy to replicate even by companies like Google. At 17 times earnings, the stock is not expensive. 

BCE (BCE.TO)

In general, we like the major telecoms in Canada. They have stable oligopoly positions and growing dividends. BCE will continue to benefit from growing consumption of data, while there has been little evidence of cord-cutting in Canada so far. The acquisition of Alarmforce helps BCE to further wrap its arms around clients by bundling home service products with internet and TV. BCE has raised its dividend every year since 2009, and should yield around 5.7 per cent this year.

PAST PICKS: JAN. 4, 2018

MOODY’S (MCO.N)

• Then: $151.60
• Now: $155.48
• Return: 3%
• Total return: 4%

BECTON DICKINSON (BDX.N)

• Then: $220.99
• Now: $239.19
• Return: 8%
• Total return: 10%

TMX GROUP (X.TO)

• Then: $71.51
• Now: $75.58
• Return: 6%
• Total return: 9%

Total return average: 8%

WEBSITE: baskinfinancial.com