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

FOCUS: U.S. Equities 

MARKET OUTLOOK:

Last month’s BNN Market Call Outlook by Goodreid ended with, “Our conclusion of the current state of equity markets is that they are fragile, moving on sentiment more than fundamentals and therefore susceptible to a retracement of the recent advance.” Not a particularly brave call necessarily, but simply a recognition that until the storm clouds of higher rates, inflation and recession clear out, sentiment is in the driver’s seat.

Market lessons are recurring. Just as some investors suffered because they believed the front-loaded benefits brought on by the pandemic, (think Peloton, DocuSign and Netflix) were permanent, they will suffer by believing that a recession-led drop in corporate earnings is permanent. The best way to lose money in the market is to extrapolate from periods of extremes. But unfortunately, most investors do their most rigorous analysis during anomalous times; when they’re giddy about the gains they have just made or are despairing about negative headlines. At Goodreid we spend much of our time trying to understand our position within “normalized” financial conditions. From that baseline, we can build in the effects of secular changes, be they positive or negative.

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TOP PICKS:

AMN Healthcare Services (AMN NYSE)

Latest Purchase June 2022 at $99

AMN is a specialty healthcare recruiting company, specializing in the staffing of nurses. Nursing shortages and turnover have led to robust growth in revenues and profits. While a lessening of demand as COVID-19 subsidies is expected, the tight labour market and the reluctance of people to pursue a health care-related career will allow professional recruiters to benefit.

McKesson (MCK NYSE)

Latest Purchase August 2022 at $362

MCK’s primary business is the distribution of pharmaceuticals throughout North America. The company has largely exited the European market, making them less vulnerable to a strong U.S. dollar. At 15x earnings and growing at 10 per cent+ annually, Goodreid believes there is ample opportunity for capital appreciation. In addition, MCK’s defensive attributes are coveted during these turbulent times.

Raytheon (RTX NYSE)

Latest Purchase August 2022 at $95

Raytheon is committed to its five-year goals set out in the spring of 2020. Including achieving revenue growth of 6-7 per cent per year, expanding margins meaningfully and generating greater than $10 billion in annual free cash flow. At the halfway mark things are looking good. Its commercial business is picking up smartly as the travel business rebounds.