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

MARKET OUTLOOK:

The problem with COVID is that it is everywhere until it is nowhere. COVID will keep us in some kind of restricted economy for several months and will continue to add a see-saw in economic data which will amplify investor anxiety. A stronger economy and rising inflation prospects, as well as an earnings recovery, would make it difficult to justify negative real rates and the current positioning of many of the major central banks. Even so, such an outcome does not necessarily imply an end to the economic recovery or longer-term bull run, but It could mean that returns are more muted in the near term. 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 continue to believe that technology, healthcare and healthcare technology, consumer staples and discretionary - Amazon, Costco and Walmart - will continue to do well.


TOP PICKS:

EssilorLuxottica (ESLOY FR) 

EssilorLuxottica is a global leader in design, manufacturing, and distribution of ophthalmic lenses, frames, and sunglasses. Essilor is a market leader across the entire value chain in eye wear. The global eyewear market offers attractive long-term resilient growth, especially after the last months of the pandemic when screen use has gone up exponentially. We see the Grand Vision acquisition as transformational and Essilor will be a winner in the digital transformation of eye wear. The stock has a dividend yield of 1.6 per cent, has a strong balance sheet and accelerating free cash flow growth.

Stryker (SYK NYSE)

Stryker is one of the world’s leading medical technology companies. The company offers innovative products and services in Orthopedics, Medical and Surgical, Neurotechnology and Spine, and with the acquisition of Wright Medical, 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 6 per cent in emerging markets. Great demographic play as the population ages - the Stryker’s product becomes more useful and helpful, furthermore, there is somewhat of an annuity with Med Tech products as once surgeons start and learn they tend not to change. SYK is a well-diversified company and with its strong balance sheet and should be able to manage through any macroeconomic pressures. SYK is generating nearly US$3.0B of free cash flow in 2021 of which about 25 per cent is being used for dividends. This still leaves the majority of SYK's annual free cash flow that could be used for M&A and to pay down debt. They cover their interest payments 16x and have a high free cash flow conversion rate.

Facebook (FB NASD) 

Facebook has more than 3.0 billion users and is still growing its user base. The large amount of data collected from this user base is a unique and valuable asset for ad and content targeting. Facebook has many growth levers with WhatsApp and Instagram. The company has high margins with EBITDA margins in the mid-50 percent, trades at 24 times earnings, and is projected to generate US$25 billion in free cash this year.
 

PAST PICKS: August 20th, 2020

Visa (V NYSE) 

• Then: $204.15
• Now: $234.96
• Return: 15%
• Total Return: 16%

Johnson & Johnson (JNJ NYSE)

• Then: $151.42
• Now: $176.70
• Return: 16%
• Total Return: 20%

Alphabet (GOOGL NASD)

• Then: $1,576.25
• Now: $2,819.17
• Return: 79%
• Total Return: 79%

Total Return Average: 38%