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

MARKET OUTLOOK

My big fear is that governments, medical experts and media were supposed to scare people about COVID but instead they have terrified them, which means that normal is going to take longer than we think. We have had a V-shaped recovery in the stock market, but an economic recovery will take longer. One thing we do know is that great companies will persist. If you owned a mediocre business heading into this pandemic, it is unlikely that the company will be a better business after COVID-19. We buy high-quality companies that offer a high margin of safety. These companies have high and growing returns on capital, pricing power that is improving over time, growing free cash flow, strong balance sheets with flexibility to take on debt and are asset-light. These are businesses that do not require significant ongoing capital expenditures to make a product or service. We continue to believe that technology, healthcare, healthcare technology and consumer staples and discretionary (Amazon, Costco and Walmart) will continue to do well. Retail, oil and gas and resources will perform poorly. Every crisis is different and unanticipated outcomes are guaranteed, therefore I would advise caution and patience.

TOP PICKS

VISA (V NYSE)

Visa is like a toll both: when you use the card, Visa gets 15 basis points per transaction. It processes over 65,000 transactions per second. Visa still has growth in the business-to-business market, especially with loyalty programs. We think we will see acceleration in revenue growth into the teens driven by an improving macro backdrop, successful competitive changes around pricing, and faster-than- anticipated consumer payment innovations such as mobile payments. Visa offers long-term secular-driven growth especially benefiting from COVID as people use less cash. It should provide solid organic growth with opportunities for margin expansion. Visa will make 12 billion dollars in free cash flow in 2020.

JOHNSON & JOHNSON (JNJ NYSE)

Johnson & Johnson is the world’s largest and most diverse healthcare company. It has three divisions: pharmaceuticals, medical devices and consumer products. The stock trades at sixteen times 2020 earnings, and has a dividend yield of 2.8 per cent.

ALPHABET (GOOGL NASD)

Alphabet is a top search destination on the web and provides a leading search marketing platform for advertisers and merchants. The stock trades at almost 29 times earnings and has significant secular growth from internet advertising, with strong market share in search and other internet advertising segments. Google has a 30 per cent share of U.S. digital ad revenue and global ad revenue is expected to reach well over $400 billion in 2024. Digital advertising accounts for more than 50 per cent of total ad spend.

PAST PICKS: SEP. 26, 2019

WALT DISNEY (DIS NYSE)

• Then: $131.27
• Now: $128.11
• Return: -2%
• Total return: -2%

NOVO NORDISK (NVO NYSE)

• Then: $52.19
• Now: $66.10
• Return: 27%
• Total return: 29%

ZOETIS (ZTS NYSE)

• Then: $126.06
• Now: $157.59
• Return: 25%
• Total return: 26%

Total return average: 18%