Paul Harris, partner and portfolio manager at Harris Douglas Asset Management
Focus: North American and global stocks


MARKET OUTLOOK

The market outlook for the rest of 2020 will depend on the U.S. Congress extending the benefits package, the presidential election and the vaccine timeline. I would not be surprised to see a directionless volatile market at least until the election. The market seems to be expecting greater volatility, with the VIX index in the high 20s and the increase of fund flows in bond ETFs. Major economic risks include a prolonged economic slowdown or further lockdowns that cause a secular change in consumer behavior. In a classic business cycle, recessions are forgotten about within a year after they end. The worry is this economic environment might tilt from a recession into a depression characterized by a prolonged period of weak economic growth, widespread excess capacity, deflationary pressure and a wave of bankruptcies. If this scenario plays out, consumers and businesses would become more cautious, further exacerbating economic growth. We know great companies will persist; if you owned a mediocre business heading into this pandemic, it is unlikely that the company will be a better business after COVID-19. We continue to believe that technology, healthcare and healthcare, technology, consumer staples and discretionary will continue to do well; retail, oil and gas and resources will perform poorly. I would advise caution and patience over next several months.

TOP PICKS

Paul Harris' Top Picks

Paul Harris, partner and portfolio manager at Harris Douglas Asset Management discusses his top picks: Amadeus, Visa and Johnson & Johnson.

Amadeus IT Group SA (AMADY OTC)

Amadeus is a Spain-based company engaged in providing information technology (IT) services for the tourism and travel industries in two business segments: distribution and IT solutions. The distribution division offers Global Distribution System (GDS), a worldwide computerized reservation system used as a single point of access for booking airline seats, hotel rooms and other travel-related services by travel agencies and travel management companies. The IT solutions division provides a range of technology solutions that automate core processes for travel providers. Its customers include full service carriers and low-cost airlines, hotel managers, rail operators, cruise and ferry operators, travel insurers and car rental companies, among others. Amadeus has a yield of 0.1 per cent, covers its interest payments 10 times, converts 95 per cent of free cash flow to net income and is expected to have $600 million in FCF in 2021.

Visa (V NYSE)

Visa is like a toll both: when you use the card, Visa gets 0.15 basis points. 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 1) an improving macro backdrop; 2) successful competitive changes around pricing; and 3) faster-than- anticipated consumer payment innovations such as mobile payments. Visa offers long-term secular-driven stocks benefiting from COVID-19 as more people use less cash, and it should provide solid organic growth with opportunities for margin expansion. Visa will make $12 billion in FCF in 2020, has a great balance sheet and converts 100 per cent of FCF to net income.

Johnson & Johnson (JNJ NYSE)

Johnson & Johnson is the world’s largest and most diverse health-care company. It has three divisions: pharma, medical devices and consumer. The stock trades at sixteen times 2020 earnings, with a dividend yield of 2.8 per cent, a free cash flow yield of 5.6 per cent and 21 billion in free cash.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
AMADY Y Y Y
V Y Y Y
JNJ Y Y Y

 

PAST PICKS: NOV. 5, 2019

Paul Harris' Past Picks

Paul Harris, partner and portfolio manager at Harris Douglas Asset Management discusses his past picks: FirstService Corp, Disney and Alphabet.

FirstService Corp (FSV TSX)

  • Then: $116.26
  • Now: $168.57
  • Return: 45%
  • Total return: 46%

Walt Disney (DIS NYSE)

  • Then: $131.45
  • Now: $126.19
  • Return: -4%
  • Total return: -3%

Alphabet (GOOG NASD)

  • Then: $1,291.44
  • Now: $1,624.11
  • Return: 26%
  • Total return: 26%

Total return average: 23%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
FSV Y Y Y
DIS Y Y Y
GOOG Y Y Y