Jamie Murray's Top Picks
Jamie Murray, portfolio manager and head of research, Murray Wealth Group
FOCUS: Global equities
The market has never been more confused in terms of news flow as both bad news and good news seem to drive the market lower. May’s strong job report was met with widespread selling as a strong job market corresponds with a hawkish Federal Reserve. All the while, consumer discretionary stocks have been crushed by higher inventories and a presumed recession. Central to these points, investors are looking for a goldilocks economy, not too hot, not too cold and they have doubts about the Fed’s ability to land in the middle. So far the Fed’s more recent tough inflation stance has slowed demand in sectors such as housing and technology, but recent strength in services such as restaurants and travel are causing new pockets of price increases.
Commodity supply also remains tight although moderating prices outside of energy should provide some supply relief. The wild card remains the Russia/Ukraine war as Europe and Russia play a game of chicken based on how much economic pain each side will endure. Ultimately, the long-term impact on energy will be determined by the impairment of Russia’s productive capacity. With bearish sentiment near fifteen-year lows, we believe the risk-reward is attractive
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Aritzia is a Vancouver-based fashion company with stores in Canada and the U.S. The company improved its market share throughout the pandemic and should see further growth as it opens stores in new U.S. metro areas where it currently does not operate. It’s been a beneficiary of the omnichannel retail approach as it can add SKUs in new categories that do not retail well in-store and can generate higher sales with a lower store density.
For context, Aritzia generated US$16M in sales per U.S. store location last year, versus US$12M pre-pandemic. Recent data points to strength in sales and margins and provides confidence that upcoming earnings reports will meet its guidance for $1.8B in sales in fiscal year 2023. With no financial debt (only leases), our confidence is growing that Aritzia has many years of future growth ahead. Aritzia trades at 19x fiscal year 2024 earnings.
Linamar is a Guelph, Ontario-based maker of auto components, industrial lifts and harvesting equipment. Shares have been pressured by a number of supply chain issues including auto OEM chip shortages, componentry and transportation delays. The company is facing inflationary headwinds like many other industrial companies. However, we believe the company is very close to the end of the supply chain issues. Its largest auto customers are indicating chip shortages are abating, componentry shortage occurrences are less common and its end markets are in dire need of new supply.
The company still guides to +10 per cent growth in EPS in 2022/2023, well above the street consensus. The company has low debt and is buying back its shares at an aggressive rate. We expect to see improved results as early as August when it reports Q2 financials.
Airbus (EADSY OTC)
Airbus shares have stagnated with supply chain issues and energy price concerns for European manufacturers. However, travel is back and Airbus’ fuel-efficient A321 NEO-narrow-body plane can offer airlines fuel savings in the range of 20 per cent, all the more important given current fuel prices. Air travel is a high growth market with new passengers in the Middle East and Asia and we believe demand will be resilient following two years of restricted air travel.
Airbus is planning on raising production to 75 planes per month (from 60 currently) by 2025, which should provide strong growth in free cash flow for the years beyond given its 7,000 unit backlog and no new aircraft program currently planned. Airbus should also benefit from additional defence spending in western Europe. The company has EUR$7.7B in net cash and trades at 16x 2023 EPS.
PAST PICKS: July 12, 2021
Dollar Tree (DLTR NASD)
- Then: $98.95
- Now: $159.76
- Return: 61%
- Total Return: 61%
Amazon (AMZN NASD)
- Then: $3718.55
- Now: $122.45 (20-to-1 stock split on June 6)
- Return: -34%
- Total Return: -34%
Converge Technology Solutions (CTS TSX)
- Then: $11.25
- Now: $7.21
- Return: -36%
- Total Return: -36%
Total Return Average: -3%