Sep 30, 2021
Paul Harris' Top Picks: September 30, 2021
Paul Harris' Top Picks
FOCUS: North American and global stocks
Variations in vaccination progress and economic stimulus have delayed synchronization of the global economic recovery. Global inflation has accelerated as expected, but there is little clarity whether a series of one-off factors, such as supply-side bottlenecks, semiconductor shortages and commodity price volatility could prolong this trend.
Desynchronized recovery implies diverging paths for global monetary policy. Some smaller central banks have already become more hawkish. China has started to normalize with slower credit growth, and the U.S. is still being patient, despite a pickup in inflation.
Meanwhile, the priority of most Asian central banks is to get through the latest wave of infections. The idea of a “roaring twenties economy” seems to be on the back burner. We continue to believe in long term slow growth not unlike after the GFC. Lower inflation and higher saving rates.
We continue to believe in technology, healthcare and healthcare technology, consumer staples and discretionary - Amazon and Costco.
EssilorLuxottica ADR (ESLOY OTC)
EssilorLuxottica is a global leader in design, manufacturing, and distribution of ophthalmic lenses, frames and sunglasses. Essilor is a market leader across the entire value chain in eye wear. The global eyewear market offers attractive long-term resilient growth, especially after the last months of the pandemic when screen use has gone up exponentially. We see the GrandVision acquisition as transformational and Essilor will be a winner in the digital transformation of eye wear. The stock has a dividend yield of 1.6 per cent, has a strong balance sheet and accelerating free cash flow growth.
Facebook (FB NASD)
Facebook has more than 3.0 billion users and still 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 may 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.
Visa (V NYSE)
Visa is like a toll booth - when you use the card, Visa gets .15 basis points per transaction. It processes over 65,000 transactions per second. Today, 17 trillion in consumer transactions still use cash and has good organic growth internationally. 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; 3) faster-than-anticipated consumer payment innovations such as mobile payments. Visa offers long-term secular-driven stocks especially benefiting from COVID as more people use less cash, and should provide solid organic growth with opportunities for margin expansion. Visa will make US$12.0 billion in Free Cash Flow in 2020.
PAST PICKS: September 14th, 2020
Bank of America (BAC NYSE)
- Then: $25.75
- Now: $43.16
- Return: 68%
- Total Return: 71%
Stryker (SYK NYSE)
- Then: $205.51
- Now: $268.70
- Return: 31%
- Total Return: 32%
TD Bank (TD TSX)
- Then: $63.38
- Now: $84.93
- Return: 34%
- Total Return: 39%
Total Return Average: 47%