Michael Hakes, senior portfolio manager, Murray Wealth Group

FOCUS: U.S. and global stocks 

MARKET OUTLOOK:

After a great first quarter, we think it will be tough for the U.S. markets to continue higher with inflation and employment remaining sticky. Most recently, the U.S. consumer price index (CPI) came in above expectations for the third month in a row. The market has pushed back expectations for cuts in the U.S. to begin in September, or later. There is a wide range of expectations.

The economic data remains key, and we have seen a divergence in inflation performance between the U.S. and the rest of the world. This is notable. We have seen weaker inflation data in Europe and China’s CPI also continued that trend, coming in substantially lower recently. Canada this week saw continuing slowing inflation and rising unemployment. Rate reductions in Europe and Canada are expected around June, now before U.S. rate cuts.

Earnings per share (EPS) growth estimates for the S&P 500 for 2024 is around eight per cent and the S&P 500 Index is trading around 20.5 times 2024 EPS estimates. This is not cheap, especially if rates continue to stay in the higher range.

The Murray Wealth Group (MWG) Global Growth Fund is up more than 14 per cent year to date (YTD) and we continue to find great investment opportunities around the world. This is a concentrated portfolio with great characteristics. For example, the fund trades on 14.3 times price-earnings and long-term EPS growth is expected to be 17.2 per cent.

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TOP PICKS:

Kingfisher (KGF LON)

Kingfisher is an international home improvement retailer with over 2,000 stores. It operates in the U.K. and several European countries including France, Poland and Romania. Its store banner names include B&Q, Screwfix, Brico Depot and Castorama.

We believe Kingfisher shares are undervalued and should offer a good upside to patient investors. As the U.K. and France begin to cut rates through 2024 and the specific changes the management team has made over the last few years take hold. We think Kingfisher could trade back to more historical valuation levels and could see a good upside in the stock over the next 18 months.

Starbucks (SBUX NASD)  

Starbucks stock has been quite weak over the last six months or so and the market expects them to guide down in the second quarter when it reports April 30.

U.S. sales are a focus, and the company has said that the second quarter will be below annual guidance, but not by how much. China also continues to be concerned and recovery is also on everyone’s mind. Some investors assign little to no value to its China business.

In the long term, investors are worried that SBUX long-term algorithm of five per cent comp growth, 10 per cent revenue growth and 15 per cent EPS growth is too aggressive and may need to be tempered. We feel the market is already discounting a slower growth rate and this is a good entry point.

AstraZeneca (AZN NASD)

Astra Zeneca is a global pharma company. It has undergone one of the most comprehensive and rapid research and development overhauls in recent times moving from a challenged track record of late-stage failures to building an impressive pipeline and is now one of the best growth stories ….. outside obesity. Life isn’t all about obesity. It has a strong oncology pipeline and 2024 should see some key product launches.

It has an important investor day in May. This could be an important catalyst as they have not had one in a long time.

Astra Zeneca trades on only 14 times 2025 earnings, and for that, you get eight per cent top line and 12 per cent EPS growth for the next three years, at least.