Jamie Murray's Top Picks: Aug. 19, 2019

BNN Bloomberg

Full episode: Market Call for Monday, August 19, 2019

VIDEO SIGN OUT

Jamie Murray, portfolio manager and head of research at Murray Wealth Group

Focus: North American equities

MARKET OUTLOOK

Global markets are adjusting to a longer than expected trade war as well as a step down in long-term interest rates. While an economic slowdown is widely anticipated, profit growth expectations are low with seven per cent earnings per share (EPS) growth expected in 2020 and three per cent expected in 2020. Therefore if the global economy can avoid a recession, markets should continue to march higher.

Lower interest rates will help consumers and credit, while progress on the tariff front will boost confidence. Stay invested in U.S.-centric companies with strong balance sheets and high margins. These companies are able to strengthen their competitive positions in recessions and can even provide positive equity returns in such markets.

TOP PICKS

Jamie Murray's Top Picks

Jamie Murray, portfolio manager at Murray Wealth Group, shares his top picks: Amazon, Airbus and Intuitive Surgical.

AMAZON (AMZN.O)

Amazon has moved from “the company that doesn’t make money” to “the company that is awash in cash” in short. The company should generate US$26 billion in free-cash-flow this year, growing to US$47 billion in 2021. At this level of free-cash-flow, Amazon is trading at six per cent free-cash-flow yield, which is an attractive level in a low-interest rate world. The cash flow growth is driven by the company’s AWS cloud division and new advertising revenue, two high margin business that should grow at healthy levels over the next decade. The tradition e-retail division continues to innovate and invest in leading consumer-centric innovation such as one day delivery. Anti-trust concerns are the main risk but historically, anti-trust consequences have amounted to speed bumps versus derailment of investments.

AIRBUS SE (EADSY.PK)

Airbus is positioned to benefit from Boeing’s 737 Max issues and continue growing its record backlog for its competing A320 airplane. The company has several levers to pull including raising production rates, improving mix and raising prices. Any of these catalysts will help free-cash-flow growth and we believe there’s opportunity for all three to come to fruition. The strong backlog for the plane means the company is taking new orders for mid-decade (2024-2026) so visibility is strong. Airbus recently instilled its former head of commercial aviation as its CEO and the new management has already reversed several past decisions. With a fresh slate to operate this should create additional shareholder friendly decisions with respect to capital allocation.

INTUITIVE SURGICAL (ISRG.O)

ISRG is a robotic surgery company that sells its da Vinci Surgery System to hospitals globally. The systems provide enhanced experiences for patients and surgeons alike with faster surgeries, shorter recoveries and fewer errors. The company makes about 70 per cent of its revenue from tools, services and accessories thus growing its installed base is key for the company. Over time, surgeons continue to grow the uses for the system which increases the total addressable market. The shares have underperformed for the medical device sector in 2019 due to concerns over Medtronic entering the space (an MDT investor day in the fall is key overhang), however Medtronic has stated its intention to target new markets rather than compete head-to-head with ISRG. As well, ISRG heavily increased R&D and marketing spending ahead of the Medtronic launch which led to reduced EPS guidance. However, we believe the additional spending will improve its growth rate in 2020 and we should see its multiple recover back to 45 times EPS.