Paul Harris, partner and portfolio manager at Harris Douglas Asset Management

FOCUS: North American and global stocks

MARKET OUTLOOK:

The question now is what the world will look like in 2021 and beyond. While the vaccine development has certainly changed the outlook for the pandemic, its impact may be delayed by the escalating case numbers and the logistical challenge of its distribution, both of which might slow the economic and earnings recovery in the U.S. and Canada.

Our best guess is that the U.S. and Canada will return to some semblance of normal by the third quarter of 2021. We do not, however, know what the new normal will look like. Will people travel as much? Will consumer behavior change? Will saving rates remain high? Will consumers behave as if the economy is in a depression or a recession? In a normal recession, most consumers forget the ill effects of the recession after about two years. With a depression, by contrast, consumer behavior is impacted for many years. This has implications for investing from commercial restate, to internet infrastructure. 

We continue to believe that technology, healthcare and healthcare technology, and consumer staples and discretionary- Amazon, Costco and Walmart will continue to do well.

TOP PICKS:

Bank of America (BAC NYSE)

Bank of America is one of the largest banks in the United States holding 10 per cent of all deposit in the country. The bank continues to reduce cost through reduction in headcount and technology. The company continues to improve its capital base with Tier 1 ratio at 13 per cent. The stock trades at 1.3 times book value and 15 times 2021 earnings. The company yield of 2.0 per cent. We think the intrinsic value of $50 dollars, and will be buying back 2.9 billion in shares.

Check Point Software Technologies (CHKP NASD)

Check Point Software Technologies is an Israeli software company that trades in New York. Check Point specialize in security, especially cyber security. The company trades at 18.8x earnings, has no debt and free cash flow growth. Cybersecurity is a growing area especially as we have become more digitized over the last year and cyber attacks at the corporate and government have become more common.

Stryker (SYK NYSE)

Stryker is one of the world’s leading medical technology companies. The company offers innovative products and services in orthopaedics, medical and surgical, neurotechnology and spine. With the acquisition of Wright Medical it will have products for hands and ankles, these products help improve patient and hospital outcomes. The company has 73 per cent of its business in the U.S., 21 per cent is International (developed markets) and six per cent in emerging markets. Great demographic play as the population ages the Stryker’s product become more useful and helpful, furthermore, there is somewhat of an annuity with medical technology products as once surgeons start and learn they tend not to change. Stryker is a well-diversified company and with its strong balance sheet should be able to manage through any macroeconomic pressures. Stryker is generating nearly US$3B of free cash flow in 2021 of which~25 per cent is being used for dividends. This still leaves the majority of Stryker’s annual free cash flow that could be used for M&A and pay down debt. They cover their interest payments 16x and have a high free cash flow conversion rate.

PAST PICKS: March 12, 2020

Johnson & Johnson (JNJ NYSE)

• Then: $125.41
• Now: $163.04
• Return: 30%
• Total Return: 34%

Microsoft (MSFT NASD)

• Then: $139.06
• Now: $247.87
• Return: 78%
• Total Return: 80%

Costco (COST NASD)

• Then: $279.85
• Now: $360.12
• Return: 29%
• Total Return: 33%

Total Return Average: 49%

Website: www.harrisdouglas.com