Gordon Reid, president and CEO, Goodreid Investment Counsel

FOCUS: U.S. equities 

MARKET OUTLOOK:

As we begin to exit the seasonably weak late summer period, markets appear poised to rally into year-end. The August to September correction, albeit mild, did its job, leaving both equity markets and the majority of stocks in an oversold state. Absent a major negative surprise, there is optimism that stocks can add to early-year gains. After all, analysis has shown us that statistics on the entire market lead us to believe that it is expensive, while a more detailed analysis reveals that a handful of mega-cap stocks have skewed the results. Equal weighted, the U.S. markets are fair value and in fact have enjoyed a relatively subdued bounce back after a poor year in 2022. A broadening of the market would be healthy and allow investors to “catch up” to the posted index performance results.

Fixed-income markets are finally offering a complement to equities in balanced accounts. The “higher for longer” camp is gaining followers and Goodreid has benefitted from adopting that position quite early. The days of near-zero interest rates are gone and will be viewed as a financial anomaly brought on by the massive disruptions of the pandemic. Lower interest rates are likely only going to be felt in the event of a recession, something we’d rather do without, but is a normal occurrence within an economic cycle.

Investors who overweight the mega-cap tech and communications services stocks in hopes of continued outperformance are likely to be disappointed. Smaller cap stocks and less well-known issues should prevail. Active investing is preferable to passive, or index investing.

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TOP PICKS:

Alphabet (GOOGL NASD)

Latest Purchase in September at $136.

Alphabet is getting its act together after stumbling in its messaging about the future of the firm. Ruth Porat has assumed the role of CEO, a stabilizing move. Its AI offering, BARD, is off to a fast start and has advantages over Chat GPT, most notably that it offers more current information. With expectations of $6 in earnings per share (EPS) in 2024, this issue is timely, relevant, and attractive.

Jacobs Solutions (J NYSE)

Latest Purchase in September at $133

Jacobs provides exposure to the construction and engineering space as well as the burgeoning rollout of 5G technology. It is restructuring by selling its Critical Missions Solutions business. At 16 times estimated 2024 earnings and sporting solid double-digit growth potential of both earnings and cash flow, this issue is compelling, and the attractiveness will only increase as allocated infrastructure dollars begin to be spent.

Visa (V NYSE)

Latest Purchase September at $245.

Visa is a poster child for predictability and persistence. Transaction volumes are rising sharply, up double digits in international markets and mid-single digit in North America. Revenue and earnings growth are accelerating, and EPS should challenge $10 next year. At a 50 per cent premium to the S&P 500 valuation, this issue is trading at a discount to historical levels.

PAST PICKS: September 9, 2022

AMN Healthcare Services (AMN NYSE)

• Then: US$106.10
• Now: US$82.84
• Return: -22%
• Total Return: -22%

McKesson (MCK NYSE)

• Then: US$366.21
• Now: US$439.79
• Return: 20%
• Total Return: 21%

RTX (RTX NYSE)

• Then: US$88.04
• Now: US$72.11
• Return: -18%
• Total Return: -16%

Total Return Average: -6%