Paul Harris, partner and portfolio manager at Avenue Investment Management
Focus: North American and global equities

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MARKET OUTLOOK

The global economy keeps seeing some real improvements. Economic data continues to better, like the ISM index, which is expanding. We've seen positive readings in retail sales, industrial production, the job market and consumer and small business confidence. We're also seeing strong earnings growth and topline revenue growth instead of the deterioration in margins that some have been expecting. As a result, many of the central banks around the world are looking to slow quantitative easing (QE) or increase rates. However, we believe we'll see low inflation and low interest rates for some time as central banks will not want to run the risk of pushing the economy into a recession. With the S&P forward price-to-earnings at 17.4, I don't think the market is expensive.

At the margin, we see:

• Higher rates as central unwind QE.
• Higher inflation, but not extreme numbers.
• Strong earnings growth, which can sustain valuations and see targets increase for the S&P and TSX.

I do think we will see more volatility during the year and that it will be a buying opportunity.

TOP PICKS

FIRSTSERVICE CORP (FSV.TO)

FirstService Corp has recently spun out of Colliers International. The company focuses on residential property management and services. It has room to grow market share in the U.S. in what remains a very fragmented business. Trades at 28 times next year’s earnings and yields 1 per cent.

BANK OF AMERICA (BAC.N)

Bank of America is one of the largest banks in the U.S. holding 10 per cent of all deposit in the country. The bank continues to reduce cost through reduction in headcount and technology. They continue to improve their capital base with Tier 1 ratio at 13.60 per cent. The stock trades at 1.28 times book value and 12.75 times 2018 earnings. The company is buying back stock and will be increasing its dividend over the next several years from its present yield of 1.88 per cent. We think the intrinsic value is $50.

DOLLAR TREE (DLTR.O)

Dollar Tree operates discount variety stores offering merchandise at a fixed price. The company has 14,334 stores in 48 states and in Canada. The stock trades at 16.73 times 2019 earnings, 10.3 EV/ EBITDA and a free cash flow yield of 5.7 per cent.

PAST PICKS:  FEB. 13, 2017

GILEAD SCIENCES (GILD.O)

• Then: $67.65
• Now: $81.06
• Return: 19.82%
• Total return: 23.33%

BLACKSTONE GROUP (BX.N)

• Then: $30.45
• Now: $34.43
• Return: 13.07%
• Total return: 22.74%

AUTOCANADA(ACQ.TO)

• Then: $25.37
• Now: $20.67
• Return: -18.52%
• Total return: -16.60%

Total return average: 9.82%

WEBSITE: www.avenueinvestment.com