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

MARKET OUTLOOK

Now that Federal Reserve and the European Central have cut rates and returned to quantitative easing, the normalization of monetary policy seems more distant than a few months ago. We have seen a phase 1 trade deal between China and the U.S., the passage of USMCA and Brexit going through. This should lead to some stability in global markets and the economy. We should see better economic data as we move into 2020 and more investment as corporation have some certainty on trade.

The stock market has claimed a wall of worry and disregarded many of the difficult issues facing the global economy. We think this will continue unless we see changes in central bank policy or more trade issues. The loss of the Labour party in the U.K. has some ramifications for the Democrats going into 2020. Climate change will come to the forefront of the investment world in 2020.

TOP PICKS

FIRSTSERVICE CORP (FSV:CT)

FirsService was recently spun out of Colliers International. The company focuses on residential property management and services (College Pro Painters and California Closets). It has room to grow market share in the U.S. in what remains a very fragmented business. The stock trades at 28 times next year’s earnings and yields 0.60 per cent.

ZOETIS (ZTS:UN)

Zoetis is the largest public animal-health company. It was spun off from Pfizer in 2013.In 2018, U.S. pet owners spent $15.5 billion on over-the-counter medicine and supplies, double the $6.2 billion spent in 2001. Healthcare for animals has a certain advantage over health for humans: The industry doesn’t have deal with pricing pressure from insurance industry as most medical expenses are paid out of pocket, developing drugs for pets is generally faster and less expensive than for humans, and most companies try to find compounds that have worked in humans, so they don’t to start from scratch. Generic drugs are less of a threat.

STRYKER (SYK:UN)

Stryker is one of the world’s leading medical technology companies. The company offers innovative products and services in orthopaedics, medical and surgical uses, neurotechnology and the 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 6 per cent in emerging markets. This is a great demographic play: as the population ages, Stryker’s product become 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. 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 $2.6 billion of free cash flow annually, with about 25 per cent being used for dividends and approximately $720 million in annual share repurchases in 2019–2020. This still leaves the majority of Stryker’s annual free cash flow, which could be used for M&A. This is in addition to nearly $2 of cash and marketable securities on its balance sheet.

PAST PICKS: APRIL 9, 2019

ALIMENTATION COUCHE-TARD (ATD/B :CT)
Two-for-one stock split on Sep. 30.

• Then: $80.52
• Now: $42.09
• Return: 5%
• Total return: 5%

CN RAIL (CNR:CT)

• Then: $120.42
• Now: $118.33
• Return: -2%
• Total return: -0.5%

FIRSTSERVICE CORP (FSV:CT)

• Then: $117.46
• Now: $121.07
• Return: 3%
• Total return: 3%

Total return average: 3%