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

FOCUS: North American and global stocks

MARKET OUTLOOK:

The question now is what the world will look like in 2021 and beyond. While the vaccine development has certainly changed the outlook for the pandemic, its impact may be delayed by the escalating case

numbers and the logistical challenge of its distribution, both of which might slow the economic and earnings recovery in the U.S. and Canada. Our best guess is that the U.S. and Canada will return to some semblance of normal by the third quarter of 2021. We do not, however, know what the new normal will look like. Will people travel as much? Will consumer behaviour change? Will saving rates remain high? Will consumers behave as if the economy is in a depression or a recession? In a normal recession, most consumers forget the ill effects of the recession after about two years. With a depression, by contrast, consumer behavior is impacted for many years. This has implications for investing from commercial real estate, 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:

Facebook (FB NASD)

Facebook has more than three billion users and an ever-growing user base. The large amount of data collected from this user base is a unique and valuable asset for ad and content targeting. Facebook has many growth levers with WhatsApp and Instagram. The company has high margins with EBITDA margins in the mid 50 per cent, trades at 24 times earnings, and is projected to generate 25 billion in free cash this year.

Alphabet (GOOGL NASD)

Alphabet is a top search destination on the web and provides a leading search-marketing platform for advertisers and merchants. The company continues to see exceptional growth in YouTube and its ability to monetize advertising. The stock trades at 26 times earnings. It will generate 48 billion in free cash flow in 2021. Google has significant secular growth from internet advertising, strong market share in search and other internet advertising segments. Digital advertising accounts for more than 50 per cent of total ad spend.

Stryker (SYK NYSE)

Stryker is one of the world’s leading medical technology companies. The company offers innovative products and services in orthopaedics, medical and surgical, neurotechnology and 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 six per cent in emerging markets. As the population ages, Stryker’s products become more useful and helpful. 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 US$3B of free cash flow in 2021, of which~25 per cent being used for dividends. This still leaves the majority of Stryker's annual free cash flow for M&A or paying down debt.

PAST PICKS: May 11, 2020

ZEBRA TECHNOLOGY CORP. (ZBRA NASD)

• Then: $235.26
• Now: $479.46
• Return: 104%
• Total Return: 104%

MICROSOFT (MSFT NASD)

• Then: $186.74
• Now: $241.93
• Return: 30%
• Total Return: 31%

JOHNSON & JOHNSON (JNJ NYSE)

• Then: $149.11
• Now: $168.32
• Return: 13%
• Total Return: 16%

Total Return Average: 50%

Website: www.harrisdouglas.com