Paul Harris' Top Picks: April 9, 2019

Paul Harris, partner and portfolio manager at Harris Douglas Asset Management
Focus: North American and global equities

MARKET OUTLOOK

We believe that equity markets should perform well into the end of 2019. Still, we do have some concerns over stock price weakness over the short term. The market is likely to be shaken by growth slowdown as we move into the second quarter. We’re definitely seeing evidence of slower growth in Europe, with industrial production falling, sluggish German growth and the possibility of a no-deal Brexit. There are similar trends in Asia, especially in China and Australia.

Similarly in the U.S. we’ve seen mixed numbers that clearly indicate slower growth, especially in earning revisions for2019 which have dropped substantially from the beginning the year. This has put most central banks on hold and we should see no interest rate increases in 2019. We may even see rate cuts. With slower growth, low inflation and interest rates not increasing, we should see reasonable environment for stocks in the second half of the year. My concern is that the bond market is telling us something very different (that we’ll see slower global growth and lower inflation) from what the stock market is telling us (that everything is fine and growth is still strong). I believe the bond market is a better predictor that the stock market.

TOP PICKS

CN RAIL (CNR.TO)

Canadian National Railway is a rail and related transportation business with 20,000 route miles of track spanning Canada and Middle America. The stock trades at 18 times 2019 earnings and has a yield of 1.8 per cent. We like CN because of the unique characteristics of the rail industry: limited and rational competition, high barriers to entry and sustainable demand.

ALIMENTATION COUCHE-TARD (ATDb.TO)

Alimentation Couche-Tard operates a network of convenience stores across North America, Ireland, Scandinavia, Poland, the Baltics and Russia. The company primarily generates income through the sale of tobacco products, groceries, beverages, fresh food, quick-service restaurants, car wash services, road transportation fuel, stationary energy, marine fuel and chemicals. In addition, the company operates more stores under the Circle K banner. The stock trades at 15 times earnings and has a 0.5 per cent dividend yield.

FIRSTSERVICE CORP (FSV.TO)

FirstService focuses on residential property management and services. It has room to grow market share in the U.S. in what remains a very fragmented business. The stock trades at 27 times next year’s earnings and yields 0.70 per cent.

PAST PICKS: APRIL 26, 2018

DOLLAR TREE (DLTR.O)

• Then: $96.93
• Now: $102.60
• Return: 6%
• Total Return: 6%

BANK OF AMERICA (BAC.N)

• Then: $30.07
• Now: $28.89
• Return: -4%
• Total Return: -2%

FIRSTSERVICE CORP (FSV.TO)

• Then: $90.62
• Now: $117.46
• Return: 30%
• Total Return: 31%

Total average return: 12%