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 U.S. Congress extending the benefit package, the U.S. presidential election and whether or not we have a vaccine. I would not be surprised to see a directionless volatile market at least until the U.S. election. The market rebound since April has been significant despite the fact that the economic recovery has not fully taken shape. This rebound has been largely impacted by the monstrous amount of fiscal and monetary stimulus being supplied by policymakers. The Federal Reserve and the Bank of Canada continue to stress the fact that they have no intention of raising interest rates anytime soon. We have V-shaped recovery in the stock market, but economic recovery will take longer. One thing we do know is that 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 (Amazon, Costco and Walmart) will continue to do well. Retail, oil and gas and resources will perform poorly.  I would advise caution and patience over the next several months.

TOP PICKS

Bank of America (BAC NYSE)

Bank of America is one of the largest banks in the U.S., holding 10 per cent of all deposits in the country. The bank continues to reduce cost through reduction in headcount and technology. The company continues to improve its capital base with its Tier 1 ratio at 12 per cent. The stock trades at 0.86 times book value and 10 times 2021 earnings. The company yield of 3 per cent. We think the intrinsic value of $50 dollars.

Stryker (SYK NYSE)

Stryker is one of the world’s leading medical technology companies. The company offers innovative products and services in orthopedics, medical and surgical, neurotechnology and spine. With the acquisition of Wright Medical, Stryker will also 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 in developed markets and 6 per cent in emerging markets. This is a great demographic play: as the population ages, Stryker’s product become more useful. Furthermore, there is somewhat of an annuity with med-tech products, as once surgeons start using them 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. It’s generating nearly $2.6 billion of free cash flow in 2021 of which about 25 per cent is being used for dividends. This still leaves the majority of Stryker’s annual free cash flow that could be used for M&A and pay down debt. They cover their interest payments 11.4 times and have a high free cash flow conversion rate.

TD Bank (TD TSX)

Canada’s second-largest bank, TD has also developed a strong franchise in the U.S.  The stock trades at 1.4 times book value, 10.6 times 2021 earnings and has a 4.8 per cent dividend yield.

PAST PICKS: NOV. 5, 2019

FirstService Corp (FSV TSX)

• Then: $116.26
• Now: $170.84
• Return: 47%
• Total return: 48%

Walt Disney (DIS NYSE)

• Then: $131.45
• Now: $131.85
• Return: 1%
• Total return: 1%

Alphabet (GOOG NASD)

• Then: $1,292.03
• Now: $1,557.45
• Return: 21%
• Total return: 21%

Total return average: 23%