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

Focus: North American and global equities


MARKET OUTLOOK

The interesting thing about capital markets this year, thus far, is the positive performance of both fixed income and equities, a rare occurrence that we think highlights the tension investors face. Usually, equities perform well when economic activity is picking up, while bonds outperform when the economy appears gloomier for growth and inflation.

The positive performance of both markets reflects expectations of central banks easing interest rates in the coming months, which justifies lower yields. These lower yields in turn are expected to mitigate the current weakness in economic activity that has mainly impacted manufacturing and areas of the global economy that are dependent on trade and China. What equity investors are looking for is further rate cuts to ensure the continuation of the economic cycle that started in 2009.

The slowdown in the global economy can especially be seen in manufacturing. China’s Caixin Purchasing Manager’s Index shows manufacturing contracted in June, and the Tankan survey of larger Japanese manufactures fell to its lowest level since 2016. Similar surveys in Europe and the U.S. point to a sharp slowdown in activity not seen in several years. This slowdown has been buffered by the service sector, which has helped growth.

TOP PICKS

Paul Harris' Top Picks

Paul Harris, partner and portfolio manager at Harris Douglas Asset Management, shares his top picks: Bank of America, Walt Disney and Novo Nordisk.

Bank of America (BAC.N)

Bank of America is one of the largest banks in the United States, holding 10 per cent of all deposits in the country. The bank continues to cut costs through technology and reduction in headcount. The company continues to improve its capital base, with its Tier 1 ratio at 12 per cent. The stock trades at 1.1 times book value and 10 times 2019 earnings. The company is buying back stock and will be increasing its dividend over the next several years from its present yield of 2.1 per cent. We think the intrinsic value is $50.

Walt Disney (DIS.N)

The Walt Disney Company, commonly known as Walt Disney or simply Disney, is an American diversified multinational mass media and entertainment conglomerate. The purchase of Fox assets and its new streaming service make it one of the best competitors to Netflix. Disney’s film library is by far the best in the industry and consists of content for all age groups. Its $60 billion in revenue is from parks (41 per cent), media (36.5 per cent) and consumer and studio entertainment (remainder). Disney will generate $9 billion in free cash flow this year. It has high-interest coverage and converts 85 per cent of its FCF to net income.

Novo Nordisk ADR (NVO.N)

Novo Nordisk, incorporated on November 28, 1931, is a global health care company engaged in diabetes care. The company operates through two business segments: diabetes and obesity care, and biopharmaceuticals. Globally, as of the end of 2015, the number of diabetic patients had risen three-fold over the previous 15 years to 415 million, or nine per cent of the global adult population. Ninety-eight per cent of those patients have Type 2 diabetes, which is mainly caused by obesity. The industry expects that 415 million will grow to about 720 million by 2025. Furthermore, 35 per cent of those 415 million people don’t even know they are diabetic, which significantly increases the cost and complexity of treating the condition. The spend on diabetes globally is presently 10-15 per cent ($670 billion) with diabetics being two to three times more expensive to treat than average patients. Novo has 46.7  per cent market share in the insulin market and other products and will continue to benefit not only from diabetes but from obesity.
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
BAC Y Y Y
DIS Y Y Y
NVO Y Y Y


PAST PICKS: AUG. 30, 2018

Paul Harris' Past Picks

Paul Harris, partner and portfolio manager at Harris Douglas Asset Management, reviews his past picks: Bank of America, CN Rail and FirstService Corp.

Bank of America (BAC.N)

  • Then: $31.01
  • Now: $26.25
  • Return: -16%
  • Total Return: -14%

CN Rail (CNR.TO)

  • Then: $116.46
  • Now: $120.50
  • Return: +3%
  • Total Return: +5%

FirstService Corp (FSV.TO)

  • Then: $111.98
  • Now: $136.42
  • Return: +22%
  • Total Return: +23%

Total Return Average: +5%
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
 BAC Y Y Y
CNR Y Y Y
FSV Y Y Y