Michael Hakes, senior portfolio manager, The Murray Wealth Group

FOCUS: U.S. and global stocks 

MARKET OUTLOOK:

The mood in the markets has become increasingly tense as investors continue to decipher how hawkish the U.S. Federal Reserve will be for the rest of the year and into 2023. They have raised rates at the fastest pace in recent history going from almost zero in March to 2.25-2.50 per cent today. They are certainly talking a tough game through the rest of the year. It takes time for Fed rate hikes to have a widespread economic impact, usually 6-12 months, so it’s too early to know even how the first Fed hike in March is affecting the economy. Overall, we feel that the Fed heavy lifting is done and that the market has bottomed and inflation has peaked, in North America anyway! How long can the U.S economy hold out, with Europe struggling and China cutting rates to stimulate their economy given the COVID zero policy?

Second-quarter earnings season is pretty much done and 80 per cent of companies met or beat earnings per share (EPS) forecasts. In the first-quarter, it didn’t matter what you reported, your stock was sold. This quarter, fundamentals mattered a bit more, if you beat on revenue and EPS, your stock might even have gone up! Earnings for the remainder of the year have been revised down to mid-single-digit growth from mid- to high-single-digit growth. 

Investors seem to be overwhelmingly focused on every word and gesture of Fed Chair Jerome Powell. It is clear that given COVID, Ukraine, China and the upcoming energy transition; there is no playbook that we can dust off to give us clarity into the future.     

We at Murray Wealth are focused on the companies we own and their long-term business prospects. Our concentrated Global Growth Fund has core holdings in leading growth stocks in technology, health care and social media, which we believe still have years of growth ahead.

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TOP PICKS:

Starbucks (SBUX NASD) 

Most recent purchase price: May 10, 2022, $73.20.  

Even though the stock has recovered from the lows, we still like it…. And expect it to deliver healthy returns as China reopens and costs come under control. We are looking forward to the investor day in a mid-September! 

AstraZeneca (AZN NASD)

Most recent buy: June 2022. $66.50 

Astra Zeneca is a global pharma company and its main segments are in oncology, respiratory and immunology and CVRM (cardiovascular, renal and metabolism). 

After seven years of flat sales and EPS growth up to 2019… the company has undergone a research and development overhaul and now this is one of the best growth stories in pharma and trades at a reasonable valuation.  

They have a strong and diversified pipeline in all their segments that should help drive double-digit sales and eps growth through 2025.  

Kneat (KSI TSX) 

Most Recent buy: Feb 2022. $3.00 

Kneat is a small software company based in Ireland and listed on the TSX. The market cap is about $230 million.  

Its expertise is within the validation and compliance processes of the life science industry. Its software has been shown to dramatically improve cycle times and reduce process steps and site acceptance testing times. 

Today, Kneat’s customer list includes eight of the world’s top 10 pharma companies and 62 total contracted customers and the largest pipeline in its history.  

They are beginning to scale at several of its large pharma clients and this should continue for some time.