Gordon Reid, president and chief executive officer, Goodreid Investment Counsel

FOCUS: U.S. equities 

MARKET OUTLOOK:

Market consensus, which was largely bearish in the early part of 2023, is beginning to turn more positive. The primary reasons are the perceived ending of central banks’ tightening cycle, corporate earnings that are holding up better than expected, steady improvements on the inflation front, and optimism that AI and other advanced technologies will spur positive change. While all that sounds good, valuations on the broad U.S. market are relatively rich.

Positive performance can be achieved in one of two ways in this environment. First, market valuation can become further stretched on building optimism, something that has occurred many times but is resolved by a correction or a flat market while fundamentals catch up. Secondly, as an active investor, one can build a portfolio with a high tracking error to the market. In today’s market, many sectors present opportunities by trading at lower ranges when compared to their historical valuations. Overweighting these areas, namely healthcare, energy, and materials presents an opportunity. 

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TOP PICKS

Amazon (AMZN NASD) Latest purchase May 2023 at $107

Amazon, as expected, is beginning to square its revenue growth with its expense profile. Coming off the pandemic, AMZN had over-invested, believing that sales trends would continue. They did not, leading to a dormant period. AWS continues to be a strong engine of growth and the buzz around AI will bolster the stock. Once its ducks are in a row, AMZN has powerful growth potential that Goodreid believes will lead the stock higher.

Dycom Industries (DY NYSE) Latest Purchase Apr 2023 at $90

 The Investment and Jobs Act allocated $40 billion for the construction of rural communications networks, which will allow Dycom’s backlog of work to continue to grow. At its current level of over $6 billion, it represents more than 18 months of revenue. Although financial progress tends to be lumpy because of weather disruptions and uneven capital allocations from large telecom companies, we believe the rate of growth of revenue and earnings will accelerate over the next few years.

Morgan Stanley (MS NYSE) Latest Purchase May 2023 at $89

 As a financial institution reliant on capital markets business and steady equity and fixed income returns, 2022 was a difficult year. As we envision a financial world that is more stable, with the end of the tightening cycle, inflation coming off the boil and greater confidence in corporate board rooms, MS stock looks enticing. At just 12 times expected 2023 EPS and paying a 3.7 per cent dividend yield we believe you can own MS with confidence. 

PAST PICKS: May 3, 2022

CVS Health (CVS NYSE)

• Then: US$95.98
• Now: US$67.69
• Return: -29%
• Total Return: -28%

Jacobs Solutions (J NYSE)

• Then: US$138.60
• Now: US$113.33
• Return: -18%
• Total Return: -18%

Merck (MRK NYSE)

• Then: US$87.10
• Now: US$116.16
• Return: 33%
• Total Return: 37%

Total Return Average: -3%