Jaime Murray's Top Picks: April 17, 2020

Jamie Murray, portfolio manager and head of research at the Murray Wealth Group
Focus: North American equities

MARKET OUTLOOK

The market is struggling to discount a wide range of economic possibilities due to uncertainty created by COVID-19. Providers of basic needs such as grocery stores, the healthcare sector and most notably, the internet, have performed solidly through this period and stand to benefit from increased periods of social distancing. On the opposite end of the spectrum, the travel and tourism industry is the most negatively impacted, with discretionary retailers and the real estate that houses them also being affected. We expect COVID-19 concerns to remain a focus of the market for the next year until a reliable vaccine is rolled out to the public. Social distancing measures will continue to impact certain sectors and activities, but overall we expect business returning to normal for most industries once health concerns are alleviated. Investors should look at high-quality cyclicals that won’t see earnings impaired beyond COVID-19, as well as leading technology companies.

TOP PICKS

MICROSOFT (MSFT NASD)

The outlook for Microsoft’s product line-up remains as strong as ever. Its Azure cloud computing division is growing at scale, up 62 per cent last quarter and should see a tailwind from COVID-19 as companies race to modernize their IT infrastructure. Office 365 usage should also increase as more employers look at the flexibility of working from home. Xbox is well-positioned to benefit from increased video game activity. LinkedIn remains the businessperson’s social media network.

The company indicated it may see some weakness in enterprise hardware and servers, but this is like a cyclical lull and not meaningful to its outlook. Microsoft is as close to an internet utility as possible, but without the anti-trust target that some of its peers have on their backs. Record-low interest rates support a high multiple.

INTUITIVE SURGICAL (ISRG NASD)

Intuitive is the leading robotic surgery medical device maker in the world. The systems provide an enhanced experience for patients and surgeons alike, with faster surgeries, shorter recoveries and fewer errors. The company uses the razor/razor blade model, earning 70 per cent of its revenue from tools and services and thus providing a recurring revenue stream. Over time, the use cases for the system have grown, which increases the total addressable market. With just about 5 per cent of surgeries performed robotically, there is still dramatic room to grow this field. Intuitive has been impacted by COVID-19 as surgeries have been delayed, but it has a US$5 billion buffer to support itself through the crisis. The company’s shares should recover to its highs when socially distancing practices are relaxed.

AIRBUS SE (EADSY OTC)

Airbus shares have been rocked by COVID-19 and the drastic decline in global flying. It will likely experience a large financial impact in 2020, with difficulties potentially carrying forward to 2021. Before the outbreak, Airbus had a six-year backlog for its narrow-body A321 aircraft (the competitor to the Boeing 737 Max). While the timing of a recovery is uncertain, at some point flying will resume and the lower cost profile of new aircraft will be preferred to less efficient legacy planes. We also believe Boeing may face a tougher hurdle for winning public support for its aircraft to the benefit of Airbus.

Airbus has the financial resources to manage through an extended period of low industry activity. There will be more turbulence, but we believe current share price represent excellent value for those with a suitable time horizon.

PAST PICKS: JULY 8, 2019

ALPHABET (GOOGL NASD) 

• Then: $1116.76
• Now: $1288.59
• Return: 15%
• Total return: 15%

ELI LILLY (LLY NYSE)

• Then: $111.52
• Now: $155.60
• Return: 40%
• Total return: 42%

CHEMTRADE LOGISTICS (CHE-U TSX)

• Then: $9.81
• Now: $4.94
• Return: -50%
• Total return: -45%

Total return average: 4%

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