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

FOCUS: North American and global stocks

MARKET OUTLOOK:

We think the stock market will most likely be higher in 2024. However, there are poten­tial cata­lysts for cor­rec­tions in the com­ing year: sig­ni­fic­ant, sud­den policy shifts around key elec­tions, con­ta­gion from con­flicts around the world, unex­pec­ted set­backs related to tech­no­logy, as well as higher inflation and lower corporate earnings. I think Canadian stocks may outperform U.S. stocks in 2024 as Canada is more rate-sensitive, and banks and utilities may perform better if rates fall. We believe that rates are in the process of normalizing around the world and this is important for investors as they now have a choice for their investable assets.

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TOP PICKS:

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. The company has 73 per cent of its business in the U.S., 21 per cent is international (developed markets) and six per cent in emerging markets. Great demographic play: as the population ages, Stryker’s products 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. SYK is a well-diversified company and with its strong balance sheet should be able to manage through any macroeconomic pressures. SYK is generating nearly US$3.3 billion of free cash flow in 2022 of which about 25 per cent being used for dividends. This still leaves the majority of SYK's annual free cash flow that could be used for M&A or to pay down debt. They cover their interest payments 11.4 times and have a high free cash flow conversion rate.

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 stocks especially benefiting from COVID as more people use less cash, and it should provide solid organic growth with opportunities for margin expansion. Visa is expected to generate $19 billion in free cash flow in 2023.

Essilor Luxottica (ESLOY OTCMKTS)

Essilor Luxottica is a global leader in design, manufacture and distribution of ophthalmic lenses, frames and sunglasses. Essilor is a market leader across the entire value chain in eyewear. The global eyewear market offers attractive long-term resilient growth, especially 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 eyewear. The stock has a dividend yield of 1.75 per cent, has a strong balance sheet and accelerating free cash flow growth

Past Picks:  Jan. 26, 2023

Apple (AAPL NASD)

• Then: US$143.96
• Now: US$193.88
• Return: 35 per cent
• Total Return: 35 per cent

Amazon.com (AMZN NASD)

• Then: US$99.22
• Now: US$153.36
• Return: 55 per cent
• Total Return: 55 per cent

Alphabet (GOOG NASD)

• Then: US$99.16
• Now: US$141.40
• Return: 42 per cent
• Total Return: 42 per cent

Total Return Average: 44 per cent