John O'Connell, CEO and CIO, Davis Rea

FOCUS: North American large cap stocks

MARKET OUTLOOK:

Investors continue to reassess the prospects for economic growth as central banks begin the process of allowing interest rates to reflect economic reality rather than pandemic-induced life support. That economic growth will slow materially is generally accepted, the degree of moderation ranges from those calling for a recession within a year to those who expect a mid cycle pause continues. The inflation debate and the pace of its moderation also is subject to a great deal of uncertainty. The manner that companies are able to navigate these difficulties will be the major considerations for investors for the balance of the year. The coming earnings season these next few weeks will set the tone for the balance of the year.

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TOP PICKS:

Accenture (ACN NYSE)

Accenture is a global leader in the consulting business and its growth profile is being powered by the growth of business needing to move their operations towards the digital cloud.

Their clients span multiple industries, protecting the company from exposure to any one idiosyncratic negative slowdown. The company continues to gain market share and count 89 of the fortune 100 as clients.

The company has a shareholder-friendly strategy of allocating its growing profitability 1/3 toward each of growth investments, dividend growth and share repurchases. We believe Accenture is the kind of business that investors can own for generations and watch capital compound at highly attractive after-tax rates.

Amazon.com (AMZN NASD)

What can be said about Amazon other than to acknowledge that it was one of the companies that allowed the pandemic to be a bit more manageable. The sign of a truly valuable franchise. We believe Amazon will continue to grow its business in a highly disciplined and rapid manner. From nowhere five years ago, it has gone unnoticed by many, that its advertising business has grown to a scale that is now larger than YouTube.

Home Depot (HD NYSE)

Home Depot is the kind of company that can grow its net earnings at the seven to eight per cent compounding growth rates for years to come. The company has a good growth strategy and disciplined management that is constantly innovating to drive efficiencies for its business and its clients. The demographics for hiome construction and renovation for many years to come make HD a superb long-term compounder

PAST PICKS: June 10, 2021

Thermo Fisher (TMO NYSE)

• Then: $464.91
• Now: $598.05
• Return: 28.63%
• Total Return: 28.87%

Synopsys (SNPS NASD)

• Then: $262.07
• Now: $313.61
• Return:  19.66%
• Total Return: 19.66%

Amazon (AMZN NASD)

• Then: $3349.65
• Now: $3059.50
• Return: -8.66%
• Total Return: -8.66%

Total Return Average: 13.29%