Dec 24, 2020

Paul Harris' Top Picks: Dec. 24, 2020

BNN Bloomberg

Full episode: Market Call for Thursday, December 24, 2020

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

MARKET OUTLOOK

What lies ahead for 2021 is anyone’s guess. The most likely scenario is difficult first quarter, a better second quarter and a quite a robust economy in the second half as a substantial amount of pent-up demand will take place (travel, restaurants). No central bank will raise rates even if we see an uptick in inflation.

A lot has been priced into markets and investors will need to understand that the world has changed; not only fiscal and monetary policy is different, but individual behaviour after working from home, isolation and fear as well. This has implications for investors in everything from commercial restate to internet infrastructure. 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

Paul Harris' Top Picks

Paul Harris, partner and portfolio manager at Harris Douglas Asset Management discusses his top picks: Bank of America, Lockheed Martin and Sienna Senior Living.

Bank of America (BAC NYSE)

Bank of America is one of the largest banks in the U.S. and it holds 10 per cent of all deposits in the country. The bank continues to cut costs through reduction in headcount and technology. The company continues to improve its capital base with Tier 1 ratio at 12 per cent. The stock trades at 0.96 times book value and 12 times 2021 earnings. The company yield of 2.51 per cent. We think there’s an intrinsic value of $50 dollars.

Lockheed Martin (LMT NYSE)

The U.S. defence budget remains at an elevated level while international defence spending continues to rise. Lockheed Martin’s portfolio is well positioned for priority areas such as aircraft modernisation (the F-35) and missile defence systems. Overall earnings growth is at the upper end of the peer group (a five-year EPS CAGR of 15 per cent). There are material opportunities in the pipeline, including further block buy deals with the U.S. Department of Defense for F-35 aircraft, the U.S. Vertical Lift programme and multiple domestic and international prospects for missile defence and weapons systems. It had a strong operating cash generation of $18.4 billion over the 2018-20 period. Lockheed Martin is at the upper end of the peer group for dividends with a 2.9 per cent yield and it trades at 14 times earnings.

Sienna Senior Living (SIA TSX)

Sienna is a Canada-based seniors' living provider. The company serves independent living, independent supportive living, assisted living, memory care and long-term care through the ownership and operation of seniors’ living residences in British Columbia and Ontario. The company offers various services, including meal packages, housekeeping, transportation, laundry and long-term chronic care. Although COVID-19 has exposed many difficult issues with long-term care, we believe management has handled the crisis well and we see this as a good demographic play. The stock trades at a discount to its net asset value and has a yield of 6.5 per cent.