Jamie Murray’s Top Picks for November 28, 2024

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

FOCUS: North American equities

Top Picks: Adyen, Thermo Fisher, Northland Power

MARKET OUTLOOK:

The market is broadening out as inflation and interest rates decline and shares in the technology sector consolidate after a strong run. We expect optimism to remain elevated as earnings growth accelerates through 2025, aided by recovering consumer confidence and manufacturing. Valuations are certainly elevated in anticipation of a more business-friendly environment, and we are actively seeking companies trading below historical multiples for new investments.

AI investment is accelerating and it’s important to ensure companies are not disrupted by these technological changes. We expect industries such as automobiles, social media, computing, and professional services to see broad impacts from emerging technology. Across the pond, select European companies are offering good relative value. European savings rates remain above historical levels and decreasing geopolitical tension may improve confidence levels.

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TOP PICKS:

Adyen (ADYEY ADR)

We own shares of Adyen in our MWG Global Equity Growth Fund. The company is one of the largest global payment processors with over 1 trillion euros processed in the past year. It’s a single software platform that provides higher authorization rates and a lower total cost of ownership versus incumbent and legacy players. It believes that revenue can grow above 20 per cent through 2027 which comes with strong cash flow margins. Adyen’s greatest growth potential comes from its customer base which is typically faster growing retailers with a strong e-commerce presence. Lost in the discussion of Adyen is its large (and growing) cash balance of EUR8.7 billion (20 per cent of company value) as it has not paid dividends to-date, but we believe that may change as the cash pile continues to grow and margins expand closer to 60 per cent.

Thermo Fisher Scientific (TMO NYSE)

Thermo Fisher is a diversified provider of tools and services for healthcare and life sciences companies. Following very strong demand through the COVID-19 pandemic, the life sciences industry has undergone a three-year period of inventory destocking and anemic demand that has led to flat earnings. It feels like we are exiting the bottom of the cycle with improved commentary from competitors in terms of inventory levels and the potential for renewed enthusiasm for medical R&D under the Donald Trump administration. Trading at just 22x P/E, we believe TMO is on the verge of a new cycle of spending that will see EPS grow over 10 per cent per year through 2028.

Northland Power (NPI TSX)

Northland Power has a globally diverse portfolio of power producing assets. The shares have been pressured due to some operational hiccups like cost overruns on large development projects and an unfortunate healthcare incident at a project in Taiwan that led to the fatality of a worker and delayed construction. Additionally, the company is operating with both an interim CEO and CFO. Thus, investors have lots of reasons to cast NPI aside. However, we believe the core operations footprint is stable, and growth projects remain on track to produce economic returns through 2027. The three projects under development could add 50 per cent growth to its EBITDA. A strong CEO choice could re-establish investor confidence, which could see the shares trade closer to $30 vs. the $20 level they currently trade at.

PAST PICKS: NOVEMBER 8, 2023

Aritzia (ATZ TSX)

• Then: $25.05
• Now: $45.96
• Return: 84%
• Total Return: 84%

Exchange Income (EIF TSX)

• Then: $46.73
• Now: $57.09
• Return: 22%
• Total Return: 29%

Aon PLC (AON NYSE)

• Then: US$327.54
• Now: US$393.31
• Return: 20%
• Total Return: 21%

Total Return Average: 45%