Chris Blumas, portfolio manager, Raymond James Investment Counsel Ltd.

FOCUS: North American large caps 

MARKET OUTLOOK:

Last week the U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) surprised the market by coming in cooler than expected and offered encouragement that the U.S. Federal Reserve could start a new cycle of interest rate cuts. However, the post-meeting Federal Open Market Committee (FOMC) statement and Summary of Economic Projections struck a harsher tone and indicated that interest rate cuts would be more gradual than prior indications.

Here in Canada, underlying inflation pressures have also continued to ease. The Canadian economy has struggled under the weight of higher interest rates and with gross domestic product (GDP) growth in the first quarter continuing to be lower than forecast, the Bank of Canada took action and reduced its policy interest rate by 25 basis points. Going forward, any further divergence in interest rate policy between Canada and the U.S. would likely cause the Canadian dollar to further weaken relative to the U.S. dollar and raise the cost of imported goods for Canadians.

With lower interest rates, the outlook for financial markets is positive. However, a favourable environment can turn unfavourable in a hurry and investors should remain well-diversified and defensively positioned. There are pockets of value in today’s markets and history has shown that the biggest mistake an investor can make is to exit the markets at the wrong time.

• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
• Listen to the Market Call podcast on iHeart, or wherever you get your podcasts

TOP PICKS:

MAINSTREET EQUITY (MEQ TSX)

Most recent purchase at $166.00 on June 13. Mainstreet is a real estate corporation that owns mid-market multi-family apartment buildings. The company is focused on the Western Canadian market and has more than 75 per cent of its total units in Alberta (around 55 percent) and British Columbia (around 20 percent). Mainstreet’s unique business model (structure, market focus, and operating capabilities) has allowed it to generate tremendous value for shareholders over the long term. Going forward, the company has the capabilities and balance sheet required to continue growing and to take advantage of opportunities to increase densification across its portfolio. The shares currently trade at around 17 times forward funds from operations and at a 10 per cent premium to its IFRS book value per share. Note: Mainstreet is a smaller market capitalization company and investors should consider using limit orders when buying and/or selling shares. 

VISA (V NYSE)

Most recent purchase at $270.35 on June 14. Visa is a digital payments company with a global presence. The company generates around 40 per cent of its revenue from the U.S. market and around 60 per cent from international markets. Visa operates the largest and most profitable payment network, and its products include cards (credit, debit, and prepaid), commercial payment solutions, and global ATMs. Going forward, the company is well-positioned to capture market share in a growing market. The shares currently trade around 26 times forward earnings per share and have a trailing free cash flow yield of around 3.5 per cent. 

FORTIS (FTS TSX)

Most recent purchase at $55.75 on June 6. Fortis is a holding company that owns regulated utilities and generates around 90 per cent of its revenue from the North American market. The company has very defensive attributes and an attractive dividend. Fortis has a presence in both Canada and the United States and the ability to grow in either region. The shares currently trade around 16.5 times forward earnings and have a dividend yield of 4.4 per cent with a forward payout ratio of around 75 per cent. 

PAST PICKS: JUNE 14, 2023

TD BANK (TD TSX)

• Then: $79.92
• Now: $74.11
• Return: -7%
• Total Return: -3%

RTX (RTX NYSE)

• Then: US$96.86
• Now: US$104.82
• Return: 8%
• Total Return: 11%

BROOKFIELD CORP. (BN TSX)

• Then: $44.10
• Now: $56.48
• Return: 28%
• Total Return: 29%

Total Return Average: 12%