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

MARKET OUTLOOK

A recent study shows that of 70 investible asset classes around the world, 63 or 90 per cent of them are currently showing losses year-to-date. The Canadian market is among the losers and has been particularly discouraging for value investors. Usually reliable sectors such as banking, utilities and telecommunications have been down and the recent sharp fall in energy stocks has only made things worse. We certainly understand the pullback in highly valued technology stocks in the U.S. and we also understand the concern that higher interest rates will choke off growth and make bonds more attractive than stocks. We think that the sale of both growth and value stocks has been overdone at this point and that, as a result, there's an opportunity to buy high-quality assets at attractive prices. History shows that money is made by those with the courage and wisdom to buy when markets are falling rather than rising.

TOP PICKS

DELTA AIR LINES (DAL.N)

We remain bullish on the airline industry overall. Decades of consolidation have reduced the number of major airlines to four, with each airline dominating its respective hub. Airports in the U.S. are largely out of capacity, giving more pricing power to airlines that control gates. Pricing increases have come through added fees for things that were formerly free such as baggage and food service, as well as segmentation of customers into higher priced seats such as premium economy. Airlines have also raised prices in-line with oil prices, but are unlikely to reduce them now that oil is lower. We like Delta over the others because it is the best run in terms of reliability, has non-unionized employees and pays a decent dividend.

APPLE (AAPL.O)

Apple is probably the most over-analyzed company in the world and from time to time the market overreacts to short-term news despite nothing fundament actually changing. The trigger for Apple’s recent sharp price decline was the firm’s decision to stop reporting unit sales, which the market interpreted to be bad news. With shares down 25 per cent from the peak, we think Apple is trading at a very cheap price at 12 times earnings given the loyalty of its user base and ability of Apple to sell more services to these users. Apple also has around $28 of net cash per share, all of which is going to be returned to shareholders. 

TD BANK (TD.TO)

We like the Canadian banks overall and they're trading at multi-year low price-to-earnings ratios, perhaps because of overall pessimism towards the Canadian economy. We think the fears are overblown. 30 per cent of TD’s earnings come from the U.S. TD’s exposure to the oil industry is minimal at just 3 per cent of its net loans in Canada. The exposure to the Canadian housing industry is also overstated, with half of TD’s mortgage portfolio being insured, and the remainder having low loan-to-value ratios averaging 68 per cent. TD also pays a healthy dividend of 3.75 per cent.

PAST PICKS: OCT. 3, 2017

BROOKFIELD ASSET MANAGEMENT (BAMa.TO)

• Then: $52.15
• Now: $58.76
• Return: 13%
• Total return: 14%

INTERTAPE POLYMER (ITP.TO)

• Then: $18.90
• Now: $16.88
• Return: -11%
• Total return: -7%

BOOKING (BKNG.O)
Formely Priceline Group.

• Then: $1,867.65
• Now: $1,824.61
• Return: -2%
• Total return: -2%

Total return average: 2%

TWITTER: @DavidBaskinBWM
WEBSITE: baskinwealth.com