David Baskin, chairman at Baskin Wealth Management

FOCUS: North American large caps 

MARKET OUTLOOK:

Economic conditions remain surprisingly strong in spite of the significant increases in interest rates in all markets. Unemployment in North America remains at or near post-war lows and wages continue to rise along with or slightly ahead of inflation. The main concerns are of course the future actions of central bankers and the war in Ukraine.

Market strength in the first half of the year was primarily concentrated in technology issues, which rebounded very sharply from their 2022 lows. Interest in artificial intelligence continues to drive capital markets. Fears about a looming recession are weighing on banks, commodities and higher-ticket consumer discretionary stocks.

We think selected banks and financials offer good upward potential. Certain real estate-related issues have been oversold and are now available below net asset value.

Yield-seeking investors now have the option of moving from higher dividend payers back into the bond market, which was so unrewarding for so long. Good quality corporate issues are now yielding well over five per cent for terms out to three years.

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TOP PICKS:

National Bank of Canada (NA TSX)

Despite the headwinds facing the Canadian banking sector, we think National should outperform in a recession. Over half of National’s portfolio is in Quebec, which has lower household leverage and less housing exposure than other provinces. National has a very strong balance sheet and has managed its funding prudently, which should allow for stable margins going forward. At just 10 times earnings and 4.2 per cent dividend yield, we think shares are attractively valued.

Granite REIT (GRT.UN NYSE)

Granite REIT was formed as a spinoff of Magna’s real estate properties but has since diversified itself into a large industrial REIT. Demand for high-quality industrial warehouse space remains high as companies continue investing in e-commerce fulfillment allowing Granite to offset rising cap rates with higher rents both from higher inflation and on renewal. Granite has kept the balance sheet very clean at just 32 per cent net leverage, and we think shares are attractive at a discount to NAV.

Restaurant Brands (QSR TSX)

Restaurant Brands is the parent of Tim Hortons, Burger King, and Popeyes, which are strong brands despite underperformance in the last decade. With former Domino’s CEO Patrick Doyle joining as Executive Chairman, we think Restaurant Brands can restore store growth by investing in technology and improving franchisee relationships. Shares are trading at a material discount to other fast-food chains at 15 times EBITDA, with a three per cent dividend yield.