Bruce Murray, CEO and CIO, The Murray Wealth Group

FOCUS: North American growth stocks 

MARKET OUTLOOK:

We are pleased that our Global Equity Growth Fund finished in the best five performing funds in the recent RBC Pooled Fund Survey for both the three-year and five-year time periods.

As to the market we are constructive, we have been both climbing and slipping on the “wall of worry” for 18 months since the top of the market in 2021.

The rapid rise in inflation has likely been dealt with by the rapid rise in interest rates and inflation has fallen to the three per cent range, still above the U.S. Federal Reserve target. Price growth is still slowing and will fall in consumer durables (cars and appliances) where production is still to complete recovery from the pandemic and are triggering declines in used car pricing indices. Services and travel are still seeing strong pricing but that should also moderate as the travel drought from the pandemic is refreshed. We think inflation is yesterday’s story.

We are now focussed on a recession which may or may not came as the economy completes recovery from the pandemic and adjusts to higher borrowing costs, and long lead time companies work through inventory accumulated by over-ordering during the pandemic. We think the economic bottom will be some time in the first half of 2024 when demand for services slows. A recession will be mild if at all.

The market is selling about 18 X and which is held up by high multiples on the large higher growth companies like AMZN, MSFT or even LVMH, which sells at 30 X. but companies have cut costs and we expect earnings growth to continue at moderate but acceptable pace and re-accelerate in late 2024.

The market is dominated by pessimism, and we believe we can find companies that will flourish over the next five years.

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TOP PICKS:

Aritzia (ATZ TSX)

Aritzia is a classic retail growth case. We think they have many years of growth in front of them and our work indicates they are on the same growth path as both Inditex and Lululemon, which are years ahead of them and still growing. The most recent quarter saw the inventory cycle predicated by the pandemic catch up, which has created a classic buying opportunity as the stock has dropped over 30 per cent from its highs of last autumn. We expect the inventory to be cleaned up quickly and look for the stock to get back above $50 fairly quickly.

Pfizer (PFE NYSE)

We recently bought PFE in our Income Growth Fund as we felt the fallout from the decline in COVID vaccine sales was overdone. Here you had one of the world’s dominant drug companies selling for less than pre-pandemic with a four per cent plus yield and a huge portfolio of potential new drug treatments, each worth billions of potential revenue. However, the market though, was focused away from PFE on companies like LLY and NVO with more immediate potential from their obesity drugs. Then Monday PFE announces it has a weight reduction pill, which completed a phase two study and helped patients lose weight faster than NOV’s Ozempic and it’s a pill, not a weekly injection. We look for PFE to return to $50 level.

Linamar (LNR TSX )

Linamar is a long-time favourite of mine. The company recently reported its first quarter with sales and earnings up 30 per cent, with double digit sales growth forecast and improving margins. With almost $10 per share of earnings power, no debt and a very strong order backlog, I still believe we should be seeing a $100 stock price

Past Picks: May 2, 2022

Alphabet (GOOGL NASD)

• Then: US$2,331.66
• Now: US$121.12 (After 12-for-1 stock split on July 18, 2022)
• Return: 4%
• Total Return: 4%

Airbus (EADSY OTC)

• Then: US$27.36
• Now: US$33.25
• Return: 22%
• Total Return: 23%

Air Canada (AC TSX)

• Then: $22.09
• Now: $21.20
• Return: -4%
• Total Return: -4%

Total Return Average: 8%