Gordon Reid, President & CEO, Goodreid Investment Counsel
Focus: U.S. equities
Top picks: Amgen, Qualcomm, United Rentals
MARKET OUTLOOK:
U.S labour markets are cooling but it appears that this has been going on for awhile as the labour data we are intermittently fed is less than perfect in its accuracy. How do we interpret that? Well…it depends.
- Glass half empty view = more fragile economy.
- Glass half full view = U.S. achieved growth with many fewer workers, meaning much better productivity.
We are in a disruptive economic period as technology impacts corporate hiring decisions. Artificial intelligence productivity gains will only grow from here (code for less hiring and layoffs). Higher corporate margins will be rationalized. In the short term this will be a boost for corporations. Longer term expect downward pass-through pricing pressure as competitive action heats up and to maintain and grow sales volumes. Much longer term expect higher taxes as governments seek to redistribute wealth.
The Federal Reserve is showing its hand by notionally giving up on its strict two per cent inflation target in favour of supporting economic strength. At Goodreid, we have argued for the last couple of years that the employment side of the mandate would dominate and that the two per cent inflation target would become negotiable. These new policy revelations virtually guarantee a Sept rate cut and put a 50 basis points (bps) cut in the US on the table (i.e. weaker labour growth and manageable inflation). Further cuts at the October and December meetings are likely.
The market likes easy monetary conditions. There is a big but, however. GDP numbers and inflation data support the notion that the Fed is now restrictive (rates too high). If rates fall closer to a more neutral level and we continue to achieve a growing, albeit slower economy, the market will react positively. If however, further easing is required because the economy is stalling, markets will become skittish and likely correct.
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TOP PICKS:
Amgen (AMGN NASD)
Amgen offers wide appeal on a number of fronts. Their portfolio is broad, with 15 products posting double-digit revenue gains in the most recent quarter. This comes on the heels of their US$28 billion purchase of Horizon Therapeutics. A weight loss drug, Maridebart cafraglutide (MariTide) is going through trials and offers sizzle. At 13 times this year’s earnings per share (EPS) estimates and sporting a 3.4 per cent dividend yield, Amgen is a solid holding.
Qualcomm (QCOM NASD)
At current prices, Qualcomm offers a good opportunity to participate in the tech revolution of AI, namely in internet of things, automotive and other chip led transformations. Trading at just 13 times next year’s estimated EPS, this issue has been held back by concerns of handset sluggishness, but growth in other areas should allow for an eventual re-rating.
United Rentals (URI NYSE)
United Rentals is the largest equipment rental company in the world but still commands only a 15 per cent share of the equipment leasing market. They are benefitting from the infrastructure build out coming from both private and public projects. EPS growth has been rapid, as evidenced by a 22 per cent annual growth rate over the past ten years.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| AMGN NASD | Y | N | Y |
| QCOM NASD | Y | N | Y |
| URI NYSE | N | Y | Y |
PAST PICKS: September 17, 2024
Citigroup (C NYSE)
Then: US$59.29
Now: US$101.19
Return: 71%
Total Return: 75%
Microsoft (MSFT NASD)
Then: US$435.15
Now: US$506.39
Return: 16%
Total Return: 17%
Griffon Corp (GFF NYSE)
Then: US$67.60
Now: US$77.65
Return: 15%
Total Return: 16%
Total Return Average: 36%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| C NYSE | Y | N | Y |
| MSFT NASD | Y | N | Y |
| GFF NYSE | N | Y | Y |
