Full episode: Market Call Tonight for Thursday, March 12, 2020
Paul Harris, partner and portfolio manager at Harris Douglas Asset Management
Focus: North American and global stocks
With these volatile markets, the world feels like it is revisiting the 2008 financial crisis. It is not. Unlike 2008, the banking, payment and settlement systems aren’t being crippled. Instead, the global economy is going through a rough patch amplified by three factors:
- The coronavirus may destroy supply and demand. This has undermined what little momentum in economic growth we started the year with.
- Central banks can no longer repress financial volatility with lower rates.
- The oil price war will hurt small oil companies and the corporate and high-yield bond market.
As a result, asset prices are moving to levels where fundamentals suggested they should be. The risk is damage to the financial world and real economy. This could lead to recessions in the global economy.
Governments need to move away from just monetary policy to more fiscal policy in a coordinated manner. The faster this is done, the better the eventual outcome. Once the economy is stabilized, capital markets will do very well. Low mortgage rates and energy prices will boost consumer purchasing power.
JOHNSON & JOHNSON (JNJ NYSE)
Johnson & Johnson is the world’s largest and most diverse healthcare company. It has three divisions: pharma, medical devices and consumer. The stock trades at 14 times 2020 earnings and has a dividend yield of 2.68 per cent.
MICROSOFT (MSFT NASD)
Microsoft develops, licenses and supports a range of software products, services and devices. The company's segments include productivity and business processes, intelligent cloud and more personal computing. The stock trades at 24 times earnings and has a yield of 1.27 per cent. It has held down only 2.58 per cent this year. The company has debt, but it’s offset by cash and it will generate free cash flow of $42 billion this year.
COSTCO WHOLESALE (COST NASD)
Costco is engaged in the operation of membership warehouses in the U.S. and Puerto Rico, Canada, the U.K., Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of Aug. 28, 2016, the company operated 715 warehouses across the world. Its average warehouse space is approximately 144,000 square feet. The company has no debt, generates 3.1 billion in free cash flow and has consistently beaten its cost of capital.
PAST PICKS: MAY 21, 2019
ZOETIS (ZTS NYSE)
- Then: $102.38
- Now: $120.28
- Return: 17%
- Total return: 18%
STRYKER (SYK NYSE)
- Then: $185.45
- Now: $154.25
- Return: -17%
- Total return: -16%
BANK OF AMERICA (BAC NYSE)
- Then: $28.69
- Now: $20.51
- Return: -29%
- Total return: -27%
Total return average: -8%