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

MARKET OUTLOOK

Now that the Federal Reserve followed the ECB with a cut in interest rates, the normalization of monetary policy seems more distant than a few months ago. The global economy continues to slowdown and virtually no country has escaped this deterioration. While the U.S. still has stronger growth than most developed countries, it continues to worsen just as fast as the global average.

The reasons are self-inflicted and plain to see. The U.S.-China trade war has seen global trade volumes shrink and as a result we’re seeing a manufacturing and investment drought. Capital goods production has stalled and global car sales are contracting. While the U.S. is less exposed to external troubles than smaller or more open economies, it can’t shield itself completely from the fallout.

Monetary hawks have been up in arms over the loosening of monetary policy by the ECB and the Fed, but maybe the issue is that policymakers haven’t gone far enough in staving off a an economic downturn.

TOP PICKS

DISNEY (DIS:UN)

Disney is a diversified multinational mass media and entertainment conglomerate. The company’s purchase of Fox assets along with its new streaming services make it one of the best competitors to Netflix. Disney’s film library is by far the best in the industry and spans all age groups. From US$60 billion in revenue, 41 per cent comes from parks, 36.5 per cent from Media and the remainder is consumer and studio entertainment. Disney will generate US$9 billion in free cash flow this year. The company has a high-interest coverage and converts 85 per cent of its free cash flow to net income.

NOVO NORDISK (NVO:UN)

Incorporated in 1931, Novo Nordisk is a global healthcare company engaged in diabetes care. It operates through two business segments: diabetes and obesity care, and biopharmaceuticals. Globally by the end of 2015 the number of diabetic patients rose threefold over the previous 15 years to 415 million, or 9 per cent of the global adult population. Ninety-eight per cent of those patients have type 2 diabetes, which is mainly caused by obesity. The industry expects that the number of patients will grow to about 720 million by 2025 and 35 per cent of the current number don’t even know they’re diabetic, which significantly increases the cost and complexity of treating the condition. The spend on diabetes globally is presently 10 to 15 per cent (US$670 billion), with diabetics being two to three times more expensive to treat than average patients. Novo has 46.7-per-cent market share in the insulin market and other products and will continue to benefit not only from diabetes, but from obesity.

ZOETIS (ZTS:UN)

Spun off from Pfizer in 2013, Zoetis is the largest public animal-health company. In 2018, U.S. pet owners spent US$15.5 billion on over-the-counter medicine and supplies, double the US$6.2 billion in 2001.

Healthcare for animals has a certain advantage over healthcare for humans. The industry doesn’t have to contend with pricing pressure from the insurance industry, as most medical expenses are paid out of pocket. Plus, developing drugs for pets is generally faster and less expensive since it requires fewer clinical studies with fewer subjects. Most companies try to find compounds that have worked in humans, so they don’t to start from scratch. Generic drugs are also less of a threat.

PAST PICKS: OCT. 11, 2018

FIRSTSERVICE CORP (FSV:CT)

• Then: $102.63
• Now: $137.37
• Return: 34%
• Total return: 35%

CN RAIL (CNR:CT)

• Then: $109.77
• Now: $118.95
• Return: 8%
• Total return: 10%

CVS HEALTH (CVS:UN)

• Then: $73.19
• Now: $61.59
• Return: -16%
• Total return: -13%

Total return average: 11%

WEBSITE: harrisdouglas.com