Paul Harris, partner and portfolio manager, Harris Douglas Asset Management

FOCUS: North American and global large caps 

MARKET OUTLOOK:

The big issue that faces the market is inflation. The U.S. Federal Reserve and other central banks reiterated that the priority remains the fight against inflation even with the fallout in the financial sector. We continue to believe in a “higher for longer” position from the Fed and other central banks. I think rates should continue to rise another five to 75 basis points to stem inflation and more importantly inflationary expectations. Meanwhile, we continue to see a lot of complacency in the market, with the Cboe Volatility Index (VIX) in the teens. Nevertheless, this is an opportunity to analyze and purchase some great companies that you wish to hold for the long term at reasonable valuations.

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TOP PICKS:

Visa (V NYSE)

Visa is like a toll booth, when you use the card Visa gets .15 basis points per transaction. It processes over 65,000 transactions per second. Today 17 trillion in consumer transactions still use cash and has good organic growth internationally. Visa still has growth in the business-to-business market, especially with loyalty programs. We think we will see an acceleration in revenue growth into the teens driven by three things. Firstly an improving macro backdrop, secondly successful competitive changes around pricing and lastly faster-than- anticipated consumer payment innovations such as mobile payments.

Visa offers long-term secular-driven stocks, especially benefiting from COVID-19 as more people use less cash, and should provide solid organic growth with opportunities for margin expansion. Visa is expected to generate $19.0 billion in free cash flow in 2023

TD Bank (TD TSX)

As Canada’s second-largest bank, TD has developed a strong franchise in the US. The stock trades at 1.4 book value, 10 times 2021 earnings, and 4.8 per cent dividend yield. It has strong capital ratios and a diversified business with a large percentage from fee income.

Johnson & Johnson (JNJ NYSE)

It’s the world’s largest and most diverse health care company. It has three divisions pharma and medical devices. The stock trades at 15 times 2023 earnings, and a dividend yield of 2.9 per cent.

Despite a move to IPO its consumer products division, it still owns 90 per cent. It has the opportunity to use the cash to make acquisitions in pharma and medical devices.

PAST PICKS: June 29, 2022

Bank of America (BAC NYSE)

• Then: US$31.86
• Now: US$29.03
• Return: -9%
• Total Return: -6%

FirstService (FSV TSX)

• Then: $120.13
• Now: $147.06
• Return: 22%
• Total Return: 23%

EssilorLuxottica (ESLOY OTC)

• Then: US$74.93
• Now: US$90.73
• Return: 21%
• Total Return: 23%

Total Return Average: 13%