John O'Connell's Top Picks
John O'Connell, chairman and CEO of Davis Rea
Focus: North American Large Cap Stocks
There are no changes to our long-term positive outlook for the companies which we have chosen for our clients. As always, there are company-specific issues that must be navigated, but the general economic backdrop for continued global recovery continues to be a positive tailwind.
That having been said, the potential for a setback in market valuations is rising. The laundry list of boogeymen under the bed is, as always, long. Mostly, we think it is irrelevant.
Reading the Globe on your Google browser, or scanning Facebook, you see a friend fixed up their kitchen and feel you should do something too. You go to Home Depot and buy a Stanley Black & Decker drill or you buy a new iPad, using your Visa card, and FedEx delivers it. Watching Disney+ on your iPad, you order McDonald’s. McDonald’s employees are wearing uniforms and washing their hands with sanitizer made by Cintas. J.P. Morgan, Bank of America, Citibank and PNC Financial provide loans to Cintas’ suffering competitors. The banks hate bad loans. So, Cintas buys the loans. The banks are pleased because they get a bad loan off the books and get paid to do it. Cintas hires Accenture for advice to integrate the businesses, and Accenture suggests Microsoft’s software hosted on Amazon.com’s cloud. Cintas buys COVID testing equipment from Thermo Fisher Scientific and adds United Health’s benefits to the new employees so they can get a new hip from Stryker. Stryker uses Rockwell Automation robotics to make the hips in a clean environment. Rockwell has lots of trade secrets hackers are trying to steal, so they use Raytheon’s cyber security software. Cool, huh?
The stock market will do what it does. Governments will do what they do. The press will interview ‘experts’ like us to try to make sense of it all. The companies you own will ignore it all and go about their daily business.
Are stocks overvalued? There are a lot of stocks in the world. You own amongst the best in the world, and they are doing just fine and will for a long time.
As one of the largest global players in the life science tools industry, we see Thermo Fisher Scientific as being better positioned than ever to capitalize on some of the fastest growing end markets in the health care and scientific research space. Thermo Fisher Scientific’s size and well-capitalized balance sheet should pave the way for continued market share gains both organically and through acquisition – continuing to leverage its economies of scale to provide industry-leading solutions to globally critical industries for years to come.
Synopsys has delivered high quality revenue and earnings growth of 10 per cent and 12 per cent respectively over the past five years and enjoys a 90 per cent recurring revenue stream. Strong management has brought Synopsys to where it is today, and we believe they will continue to take advantage of the ever-increasing complexity of our technologically augmented world to grow the company well into the future.
While Retail product sales lie at the core of Amazon’s business, the most promising long term growth drivers are lie in growing subscription revenues generated from Amazon Prime, Prime video, and AWS. Amazon continues to demonstrate its value by building out a synergistic ecosystem that adds convenience and reliability for customers with each marginal unit adopted. As one of the world’s best-managed companies, we feel confident in Amazon’s ability to innovate and drive sustainable growth across business segments.
PAST PICKS: May 26, 2020
Visa (V NYSE)
- Then: $193.22
- Now: $233.31
- Return: 21%
- Total Return: 21%
Microsoft (MSFT NASD)
- Then: $181.57
- Now: $255.70
- Return: 41%
- Total Return: 42%
Facebook (FB NASD)
- Then: $232.20
- Now: $331.19
- Return: 43%
- Total Return: 43%
Total Return Average: 35%
Company Twitter handle: @DavisReaLtd
Personal Twitter handle: @oconnelljohn
Company website: www.davisrea.com