Ross Healy's Top Picks: Aug. 8, 2019

Ross Healy, chairman of Strategic Analysis Corporation; portfolio manager at MacNicol & Associates Asset Management
Focus: North American large caps

MARKET OUTLOOK

A chart, courtesy of Goldman Sachs, triggered some serious thought. The year 2000 was the time of the dot-com stocks, when valuations soared to what still remains unprecedented levels for tech companies. Cisco for one, reached the heady valuation of 33 times book value versus about six times today. The dot-com companies had a lot of promise (in the minds of their founders and shareholders at least), but precious few assets and certainly no earnings. It was just a matter of time until their valuations collapsed – and collapse they did.

This time around, the dot-coms have been replaced by the PP stocks (profitless prosperity stocks) and the Ciscos of the world have become the FAANGs. In the future, it is my strong suspicion that the likes of Netflix will “enjoy” another major crater and the profitless prosperity stocks (Beyond Meat, Uber and Lyft among others) are likely to decline by between 95 and 99 per cent. I know that one thing is for sure: stocks which are not supported by earnings and decent book value will eventually revert to their intrinsic (“fair market”) values. This may well include the stocks of many companies which have bought back so much stock that they have zero or negative book values (Boeing, McDonald’s, Starbucks, Dollarama and so on).

The massive spread in the stock valuations between the highs and the lows would suggest a bear market that looks more like the period from 2000 to 2002 than 2008 to 2009. In other words, the next bear market will be a massacre of the guilty and some sparing of the innocent. Paradoxically, this could make both the present bulls and the bears right on their current outlook. It would also mean that “value investing” might return with a vengeance.

TOP PICKS

FORTUNA SILVER MINES (FVI.TO)

The price of silver has been lagging the gains in gold, but there’s potentially a long way for silver to catch up. Fortuna has a good balance sheet and strong intrinsic potential, and that without a big move in the price of silver.

CVS HEALTH CORP (CVS.N)

CVS had nice earnings and the restructuring appears to be paying off.

BARRICK GOLD CORP (ABX.TO)

Gold has to be the cornerstone of all portfolios and this senior gold producer has been doing well, but still has room to go still higher.

PAST PICKS: OCT. 12, 2018

BCE INC (BCE.TO)

• Then: $50.91
• Now: $61.32
• Return: 20%
• Total return: 25%

GOLDCORP (G.TO)
Acquired by Newmont Goldcorp on April 23.

• Then: $14.02
• 04/22/19: $14.20
• Return: 1%
• Total return: 2%

BLACKSTONE MORTAGE TRUST (BXMT.N)

• Then: $32.31
• Now: $35.63
• Return: 10%
• Total return: 16%

Total return average: 14%