Zachary Curry, president and portfolio manager at Davis Rea
Focus: North American large caps


Our base case view is that manufacturing activity is bottoming and will recover over the final months of 2019 and into 2020. The outlook for equities, corporate bonds, commodities, and the Canadian dollar is expected to improve in tandem with global manufacturing.

Our manufacturing indicators are leading indicators of earnings and they suggest additional earnings weakness into early 2020. Consensus earnings estimates appear too high and they will likely be adjusted downward. With equity valuations on the rich side, there is room for more volatility in equity prices. However, with manufacturing likely to turn up through the fall, we believe that any weakness will be temporary and equity markets will be on an improving trend later this year. High-yielding, low-growth defensive sectors like utilities and consumer staples have led the way, but are expensive and vulnerable to an improving economy and higher bond yields. The economy-sensitive sectors like industrials and resources have lagged and are more favourably valued. We believe these cyclical sectors tend to post large gains after our manufacturing indicators turn upward. U.S. banks also do very well, and they offer attractive dividend yields that are growing smartly. Resource stocks are expected to benefit from higher commodity prices, but Canada’s paralysis on pipelines remains a headwind for Canadian energy companies, and the recent election may do little to change this.

Downside risks are still based on U.S. interest rates, trade and geopolitical frictions. The Fed has cut short-term interest rates three times this year, which has certainly helped. Likewise, favourable signals from U.S.-China trade talks may prevent additional trade actions, but they have been rising since 2009 and  Trump could still impose tariffs on other nations. The slowdown could yet morph into recession with substantial weakness in asset prices, commodities and the Canadian dollar. Alternatively, lower global interest rates and tentatively positive signs on U.S.-China trade could boost confidence and give the global, U.S., and Canadian economies a quick boost. This would give a hefty lift to asset prices, commodities and the Canadian dollar.


Zachary Curry's Top Picks

Zachary Curry of Davis Rea shares his top picks: Apple, JPMorgan and Inter Pipeline.


Despite ample noise surrounding slowing iPhone sales and margin pressures, we remain positive on Apple as they undergo an evolutionary transition from a hardware-focused to a more services-oriented company.

New iPhone and wearables product releases and record Mac sales in fiscal 2019 have helped continue to grow their loyal user base, estimated to be approaching 1.5 billion active devices globally. For the past two quarters, Apple has managed to grow revenues even as iPhone sales have declined, proof that it does have a future beyond the iPhone.  In their 2019 fiscal year-end report, Apple set all-time records in both their services and wearables segments, growing revenues by double digits in all markets and across all product lines.

While hardware sales growth may be hampered by the law of large numbers and affordability in emerging markets, services spanning many aspects of life from health and finance to entertainment give customers a reason to stick around. Looking forward, we expect to see Apple continue to leverage their market-leading hardware to bolster their service offerings and will be paying special attention to the rapidly-growing Apple Pay business, which is now growing four times faster than rival PayPal. Apple Pay, through the Apple Card creates an opportunity to break into the world of financing , potentially transforming the hardware sales business from a one-and-done transaction to a recurring “hardware-as-a-service” opportunity.


JPMorgan is the largest bank holding company in the U.S. with over $2.8 trillion in assets and one of the five largest banking institutions globally. It’s one of the best diversified banking franchises and a global leader across all operating segments.

Despite a challenging interest rate backdrop and slowing global economic growth, it’s produced record revenues and delivered $9.6 billion to shareholders in the third quarter of fiscal 2019, a testament to the resilience of their diversified business model. U.S. consumers remain strong, creating tailwinds for the consumer lending and credit card segments, a counterweight to the dampening effects of weakening business sentiment. Since the Financial Crisis, JPMorgan has poured billions of dollars into building up capital reserves, creating a “fortress” balance sheet and making it more capable than ever to deal with the fallout of a similar event in the future. In the face of recent geopolitical uncertainty and slowing economic growth, we expect JPMorgan’s strong financial positioning to allow it to continue to grow earnings and shareholder returns while still investing in the technology necessary to modernize its systems.  We anticipate increased shareholder returns coming through the form of buybacks or increased dividends (it currently yields around 2.8 per cent).


Inter Pipeline is a petroleum transportation and storage and natural gas liquids processing business with operations based primarily in Western Canada and Europe. Its portfolio of diversified energy transportation assets generates long-term stable cash flows, of which approximately 64 per cent are secured against volume and commodity price volatility through long-term take-or-pay contracts. The result is a highly predictable revenue stream which provides shareholders with a stable source of monthly cash dividends, with remaining funds being invested back into the business to fund growth initiatives.

Of particular interest, we see the completion of the highly anticipated Heartland Petrochemical Complex in Alberta as a major growth driver which will create significant shareholder value upon its completion in late 2021. This will be Canada’s first integrated propane dehydrogenation and propylene facility and is expected to generate between $450 million to $500 million of incremental highly contracted long-term annual EBITDA, an increase of approximately 35 per cent over Inter Pipeline’s 2018 EBITDA. In August of 2019, an unsolicited takeover offer was reportedly made (and turned down) to management at a price rumored to be approximately $30 per share. We see this as a positive indication that Inter’s stock price does not adequately reflect its true value and could rise as the projects in its investment pipeline become fully operational. 




PAST PICKS: NOV. 20, 2018

Zachary Curry's Past Picks

Zachary Curry of Davis Rea reviews his past picks: Apple, Brookfield Infrastructure and Stryker.


  • Then: $176.98
  • Now: $259.43
  • Return: 47%
  • Total return: 49%


  • Then: $51.48
  • Now: $66.09
  • Return: 28%
  • Total return: 35%


  • Then: $165.95
  • Now: $200.78
  • Return: 21%
  • Total return: 22%

Total return average: 35%




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