Bruce Murray, CEO and chief investment officer, The Murray Wealth Group

FOCUS: North American growth stocks

MARKET OUTLOOK:

Markets have collapsed to levels which I believe are attractive with the S&P 500 now selling at P/E of 15.4x with an ROE of 20 per cent and EPS growth forecast in the 8-10 per cent range for both 2022 and 2023.

On inflation, I still believe in the transitory nature of it as the causes are primarily supply based and it should diminish as COVID-related supply disruptions ease and China reopens over the next year. Energy prices will remain high until the world can replace Russian volumes.

As to a recession, we may have had a technical one due to industrial disruptions in the first half of 2022 if the second-quarter U.S. GNP is again negative. The economy should pick up as industrial output increases in the second half. Auto production is expected to increase as chip supplies are increasing nicely at this time. Better supply in many areas should take pressure off prices and help reduce the inflation statistics. My concern is that a demand-based slowdown happens in late 2023 or 2024 when supply recovers.

As to stocks we believe industrials, consumer discretionary, technology and selective healthcare is the place to be as the economy continues to reopen. Shortages have led to strong pricing for physical goods suppliers which are now waning. We continue to believe travel-related stocks will eventually benefit from strong demand. The technology-based consumer services stocks have sold off massively, but are now offering outstanding fundamentals, strong balance sheets, solid revenue and profit growth at low P/E’s.

While metal prices have sold off, we continue to like copper and feel energy will do well until the Russian supply situation is replaced.

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TOP PICKS:

Meta Platforms (META NASD)

The stock has been more than cut in half in the last nine months and is now selling at a 2023 P/E of 12x. Meta is the global leader in communications apps, including Facebook, Messenger, Instagram and WhatsApp. The apps are well known to most investors which we believe will continue to propel Meta’s revenue and EPS forward by at least 15 per cent through 2024. Meta has at least $60 billion of cash and is in a tremendous financial position. Its attempt to lead the Metaverse could offer an incredible opportunity, but that could still be a decade away. META stocks will recover sharply when confidence in the company returns. The median analyst target price of $290 is over 70 per cent higher than today’s price.

Alphabet (GOOGL NASD)

This incredible stock is off over 22 per cent which reflects revenue growth slowing from over 40 per cent P.A. to expected mid-teens in the 2022-2024 period. With a consistent margin of over 55 per cent, GOOG will have over $100 billion of free cash flow in 2024 and beyond. Its dominant software products like Chrome, Android and YouTube remain lightly challenged, while it is a solid number three in cloud behind AMZN and MSFT. We would expect Google to hit a new high above $3,050 within 18 months.

Aritzia (ATZ TSX)

Aritzia is one of Canada’s best growth stocks and traded over $60 in January of this year and is now 40 per cent lower. The company has a substantial expansion opportunity with about 70 stores in Canada and only half that count in the U.S. Revenue should continue to grow in the mid-teens driven by increasing store count and growing online sales as global consumer awareness rises. The median analyst target is $62 and the stock is selling at about 18x February 2024 earnings.

PAST PICKS: August 30, 2021

Canadian Natural Resources (CNQ TSX)

• Then: $42.08
• Now: $68.74
• Return: 63%
• Total Return: 69%

Broadcom (AVGO NYSE)

• Then: $498.89
• Now: $513.50
• Return: 3%
• Total Return: 6%

Uber (UBER NYSE)

• Then: $39.59
• Now: $23.12
• Return: -42%
• Total Return: -42%

 Total Return Average: 11%