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

Focus: North American and global equities

MARKET OUTLOOK

We believe that equity markets should perform well into the end of 2019. However, we do have some concerns over stock price weakness over the short-term. The market is likely to be shaken by growth slowdown. We are definitely seeing evidence of slower growth around the world. The trade issues with China and the U.S. can certainly increase volatility in the market and we would look to buy names we like.  This has put most of the central banks on hold and we should see no interest rate increases in 2019 with maybe rate cuts.  With slower growth, low-inflation and interest rates not increasing, we should see reasonable environment for stocks in the second half.

The bond market tells us that we will have slower global growth and lower inflation. If earnings can continue to meet expectations, we should see a stronger equity market.

I believe the bond market is a better predictor than the stock market and it seem to concur with slower growth and weak inflation.

TOP PICKS

ZOETIS (ZTS.N)

Zoetis is the largest public animal health company. Zoetis was spun off from Pfizer in 2013. In 2018, U.S. pet owners spent US$15.5 billion on over the counter medicine and supplies.

Healthcare for animals has a certain advantage over health for humans. The industry doesn’t have content with pricing pressure from insurance industry as most medical expenses are paid out of pocket

Developing drugs for pets, compared with for humans, is generally faster and less expensive since it requires fewer clinical studies involving fewer subjects. Most companies try to find compounds that have worked in humans, so we don’t to start from scratch. Generic drugs are less of a threat.

STRYKER (SYK.N)

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 that help improve 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.

Great demographic play as the population ages Stryker’s product 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.  It is generating nearly $3 billion of free cash flow annually, with around 30 per cent being used for dividends and approximately $720 million in annual share repurchases in 2019 to 20. This still leaves the majority of SYK's annual free cash flow that could be used for M&A, which is in addition to nearly $4 billion of cash and marketable securities on its balance sheet.

BANK OF AMERICA (BAC.N)

Bank of America is one of the largest banks in the United States holding 10 per cent of all deposit in the country. The bank continues to reduce cost 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 1.1 times book value and 10 times 2019 earnings.

The company is buying back stock and will be increasing its dividend over the next several years from its present yield of 2.1 per cent. We think the intrinsic value of 50 dollars.

PAST PICKS: June 7, 2018

FIRSTSERVICE CORP (FSV.TO)

• Then: $93.58
• Now: $115.59
• Return: 24%
• Total return: 24%

DOLLAR TREE (DLTR.O)

• Then: $81.96
• Now: $115.59
• Return: 24%
• Total return: 24%

CVS HEALTH (CVS.N)

• Then: $65.02
• Now: $53.52
• Return: -18%
• Total Return: -15%

Total return average: 10%