Michael Hakes, Senior Portfolio Manager, Murray Wealth
FOCUS: U.S. and global stocks
Top Picks: LVMH Moet Hennessy Louis Vuitton SE, Mastercard, Prudential
MARKET OUTLOOK:
Earnings season is underway and up until this week, 79 per cent of companies were reporting a beat on earnings per share (EPS) and 58 per cent of companies beat on revenue. There are some clear messages about the health of the consumer. When you look at both discretionary and staples companies, the consumer is weak. We have seen this in Nestle, Diageo, McDonald’s, Starbucks, Ford, P&G, Kraft Heinz, Domino’s, Chipotle, the list goes on. The consumer is trading down, they are cash-strapped and cautious. Many of those companies mentioned are guiding down for the second half. China is still under pressure.
The good news is that central banks are cutting rates, twice in Canada already, once in the U.K. this week and now the U.S. Federal Reserve in September. As always, it will be data-dependent for additional cuts. All signs point to lower rates as inflation continues to fall and the job market continues to weaken.
As we ended the June quarter and approached earnings season, gen AI-related names sold off as investors were concerned that they had reached “as good as it gets.” This week some of those fears were put to rest as we saw strong results from Microsoft, Meta, and Qualcomm. Our global growth fund continues to have good exposure to gen AI as we believe we are still in the early days and strong data centre spending will continue through 2030. Our global growth fund is up about 20 per cent year-to-date.
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TOP PICKS:
LVMH Moet Hennessy Louis Vuitton SE (MC EPA)
This is a great opportunity for long-term investors to get into a high-quality luxury goods company. This industry leader has such brands as, Louis Vuitton, Fendi, Tiffany, Sephora, Bulgari and many more.
The stock has been weak and has been impacted by the overall global consumer spending slowdown, especially in China which is still working through a real estate crisis. In the U.S. they are seeing some weakness in the entry-level customer.
The stock is cheap on historical measures and trades on about 20 times EPS versus a 10 year. average of 23 times. The stock should do well as rates come down in the U.S. and Europe and the consumer stabilizes around the world. We think it could 20 per cent higher over the next 12-18 months.
Mastercard (MA NYSE)
Mastercard is a secular-driven story with strong revenue growth and opportunities for margin expansion. It continues to benefit from accelerated cash-to-card conversion, B2B penetration and new value-added services, such as analytics. It is also continuing to benefit from cross boarder travel.
Mastercard just reported second-quarter earnings and slightly beat street consensus. We expect Mastercard will grow revenue in the low double-digit range and EPS in the high teens over the mid-term. We like Mastercard for the long term.
We expect it to maintain its valuation and see the stock reaching into the mid $500 range other the next 18-24 months. Mastercard is a core holding for us.
Prudential Plc (PRU LON)
Prudential is a life and health insurance company with direct exposure to fast growing China and South East Asia. It has operated in the region for almost 100 years and has over 19 million customers. Penetration of life and health Insurance products is low in many of its markets and there is a significant “protection gap” when compared to more developed markets. For example, insurance penetration as a percentage of GDP is about 7.5 per cent in the U.K. but in developing markets the penetration rates are only about 2.5 per cent. As the middle class continues to grow in these markets, the insurance penetration rates will also grow.
Prudential has been weak over the last year, in a very tough market overall in China and Hong Kong. The market is giving no credit for their new business growth in their core markets. It has a very strong balance sheet, and the management team is initiating a stock buyback. We think there will be more changes to come.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MC EPA | N | N | Y |
| MA NYSE | N | N | N |
| PRU LON | N | N | N |
PAST PICKS: SEPTEMBER 15, 2023
Target (TGT NYSE)
- Then: US$123.05
- Now: US$140.75
- Return:14%
- Total Return: 17%
Morgan Stanley (MS NYSE)
- Then: US$88.41
- Now: US$96.31
- Return:9%
- Total Return: 13%
Thermo Fisher Scientific (TMO NYSE)
- Then: US$515.53
- Now: US$610.05
- Return:18%
- Total Return: 18%
Total Return Average: 16%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TGT NYSE | N | N | N |
| MS NYSE | N | N | Y |
| TMO NYSE | N | N | Y |
