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

FOCUS: U.S. equities 

MARKET OUTLOOK:

After a spirited start to the year, equity markets have bogged down into a lower-volume sluggish pattern, with a notable rotation away from the leadership tech and communication names that led in the first half.

The market is split on the cause of the rotation, but to us, it is clear that higher bond yields are pressuring high-growth sectors. The other camp is focused on valuation, which at first glance looks extended from a historical standpoint but when you drill down, much of the market is trading at reasonable levels.

Health-care and industrials are two areas that we are keen on. Growth in spending on health-care will likely be double the annual gross domestic product growth in the U.S. over the next decade. Demographics are the primary reason, but technological advances are opening opportunities to extend healthy lives, and at the end of the day, that will command dollars spent. Industrials are using technology to widen margins. In addition, massive fiscal spending is a multi-year tailwind to many industrial companies.

While a few mega-cap tech names get much of the market’s attention, the opportunity may be riper in smaller, more nimble companies, whose stocks have languished because of a lack of money flow. If you’re an active investor, focussing on portfolio construction and risk management, the market appears well priced.

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TOP PICKS:

Crane NXT (CXT NYSE)

Latest purchase August 2023 at $60

This company is a recent spin-off from industrial Crane. Its payment innovations division comprises two-thirds of revenue and is made up of on-site payment checkout devices, plus its crane currency division which supplies currency paper (from 1879 to the U.S. government). Financial metrics are attractive as it trades at 12 times earnings and sports an EV/EBITDA ratio of an attractive nine times.

McKesson (MCK NYSE)

Latest purchase August 2023 at $412

MCK’s primary business is the distribution of pharmaceuticals throughout North America. The company has largely exited the European market, making it less vulnerable to a strong U.S. dollar. At 15 times earnings and growing at 12-15 per cent annually Goodreid believes there is ample opportunity for capital appreciation. In addition, MCK’s defensive attributes are coveted during these turbulent times.

Uber Technologies (UBER NYSE)

Latest Purchase August 2023 at $43

This company has entered the era of profitability and as it scales the business, valuations will fall rapidly. Of its four divisions mobility and food delivery contribute the lion’s share but advertising and freight have promise. Expect 20 per cent+ annual growth of earnings with impressive cash flow generation.

PAST PICKS: August 16, 2022

Bank of America (BAC NYSE)

• Then: US$36.64
• Now: US$29.23
• Return: -20%
• Total Return: -18%

Honeywell International (HON NASD)

• Then: US$203.67
• Now: US$187.86
• Return: -8%
• Total Return: -6%

Lear (LEA NYSE)

• Then: US$151.10
• Now: US$142.46
• Return: -6%
• Total Return: -4%

Total Return Average: -9%