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

FOCUS: North American and global stocks 

MARKET OUTLOOK:

The main issue that faces the market is inflation and interest rates. The U.S. Federal Reserve and other central banks reiterated that the priority remained the fight against inflation even with the fallout in the financial sector. We continue to believe a “higher for longer” position from the Fed and other central banks.

The risk is that COVID-19 caused a dislocation in the global economy and we may see further surprises to the upside for the economy and the stock market. The economy may be stronger than expected, inflation lower and the much talked about recession may be short-lived and soft. I think that we will see rates rise another 50 basis points and stem inflation and more importantly inflationary expectations. 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:

Bank of America (BAC NYSE)

Bank of America is one of the largest banks in the United States holding 10 per cent of all deposits in the country. The bank continues to reduce costs through a reduction in headcount and technology. The company continues to improve its capital base with a Tier 1 ratio at 13 per cent. The stock trades at one times book value and 8.5 times earnings. The company has a yield of 3.3 per cent. We think the intrinsic value of $50 dollars. It has diversified business with a large percentage of earnings from fee income.

TD Bank (TD TSX)

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

Johnson & Johnson (JNJ NYSE)

It’s the world’s largest and most diverse healthcare company. It has three divisions, including pharma and medical devices. The stock trades at 15 times 2023 earnings, and a dividend yield of 2.9 per cent. Although its consumer product division is public, it still owns 90 per cent. It has the opportunity to use the cash to make acquisitions in pharma and medical devices.

PAST PICKS: August 29, 2022

Alphabet (GOOG NASD)

• Then: US$110.34
• Now: US$131.64
• Return: 19%
• Total Return: 19%

Zoetis (ZTS NYSE)

• Then: US$157.87
• Now: US$190.57
• Return: 21%
• Total Return: 22%

FirstService (FSV TSX)

• Then: $125.93
• Now: $153.75
• Return: 22%
• Total Return: 23%

Total Return Average: 21%