David Baskin, chairman and president, Baskin Wealth Management

FOCUS: North American large caps 

MARKET OUTLOOK:

Our view is that inflation has peaked in North America and that in spite of occasional hawkish comments from both the Bank of Canada and the U.S. Federal Reserve, interest rates are at the high for this cycle. We do think we will see a modest reduction in rates during 2024, but likely not more than one per cent to 1.5 per cent on the prime rate. We expect mortgage rates to come down only modestly.

High rates will have a bigger impact in Canada due to the higher number of variable-rate and short mortgages that will result in an increased debt service burden on consumers. For this reason, we could see a shallow recession in Canada. We do not expect to see a recession in the U.S. as debt service costs are somewhat lower and employment and hiring remain quite strong.

We were impressed by the durability of corporate earnings in the third quarter and the strength of consumer spending in the U.S.

We think yield-seeking investors will have a much better 2024 as oversold banks, utilities, pipelines and telcos react favourably to stable or falling interest rates. We are moderately concerned about valuations in the mega-tech companies. 

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TOP PICKS:

National Bank (NA TSX)

Despite the headwinds facing the Canadian banking sector, we think National should outperform in a recession. Over half of National’s portfolio is in Quebec, which should perform well due to lower household leverage and fewer housing-related risks than other provinces. National has a very strong balance sheet and has managed its funding prudently, which should allow for stable margins going forward. At under 10x earnings, we think shares are attractively valued. 

Granite Real Estate Investment Trust (GRT.UN TSX)

Granite REIT is an industrial REIT with a well-located portfolio of modern properties in North America and Europe. Despite a weak real estate market, rents for desirable industrial space are still rising with Granite obtaining 14 per cent rent lifts on 2024 renewals. With Granite having abnormally low leverage for a REIT of 32 per cent and shares trading at a 25 per cent NAV discount, we think shares are attractively valued. 

Copart (CPRT NASD)

Copart is the leading provider of salvage auctions in the world. Copart benefits from several secular trends including an aging vehicle fleet and rising vehicle complexity and repair costs, all of which increase the total loss rate and more volumes for Copart. Copart is a well-run company that has been steadily gaining market share over its main competitor and has over $2 billion in net cash on its balance sheet. We think Copart is a compounder whose shares should continue to do well over time. 

PAST PICKS: December 8, 2022

Restaurant Brands (QSR TSX)

• Then: $91.16
• Now: $94.63
• Return: 4%
• Total Return: 7%

Live Nation Entertainment (LYV NYSE)

• Then: US$71.47
• Now: US$89.28
• Return: 25%
• Total Return: 25%

Brookfield Asset Management (BAM TSX)

• Then: $44.41
• Now: $43.99
• Return: -1%
• Total Return: 2%

Total Return Average: 11%