Paul Harris, partner and portfolio manager, Harris Douglas Asset Management

FOCUS: North American and global stocks

MARKET OUTLOOK:

I think we are in a recession and therefore we should see a decline in company profits. The bear market so far has been mostly multiple contractions. The S&P 500 P/E has gone from 24 to 16 but EPS and forward EPS have not changed.

I think we could see a further fall when earnings come down, as analysts readjust earnings after companies release second-quarter earnings and give forward guidance.

The risk premium contracted from 2009 until 2021. The unexpected inflation and the increases in interest rates have caused the risk premiums to widen, as a result, risk assets are being repriced. 

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TOP PICKS:

Bank of America (BAC NYSE)

Bank of America is one of the largest banks in the United States, holding 10 per cent of all deposits in the country. The bank continues to reduce costs through a reduction in headcount and technology. The company continues to improve its capital base with a Tier 1 ratio of 12 per cent. The stock trades at 1.0 times book value and 10 times earnings. The company has a yield of 2.9 per cent. We think it has an intrinsic value of $50 dollars and will be buying back shares.

FirstService (FSV TSX)
The company focuses on residential property management and services(California Closets). It has room to grow market share in the U.S. in what remains a very fragmented business. The company has grown through acquisitions and organic growth. It trades at 27.5x next year’s earnings and yields 0.60 per cent.

EssilorLuxottica (ESLOY OTC)
EssilorLuxottica is a global leader in the design, manufacturing and distribution of ophthalmic lenses, frames and sunglasses. Essilor is a market leader across the entire value chain in eyewear. The global eyewear market offers attractive long-term resilient growth, especially after the last months of the pandemic when screen use went up exponentially. We see the Grand Vision acquisition as transformational and Essilor will be a winner in the digital transformation of eyewear. The stock has a dividend yield of 2.3 per cent, has a strong balance sheet and is accelerating free cash flow growth.

PAST PICKS: June 17, 2021

Check Point Software Technologies (CHKP NASD)

• Then: $119.11
• Now: $121.29
• Return: 2%
• Total Return: 2%

Meta Platforms (META NASD)

• Then: $336.51
• Now: $164.35
• Return: -51%
• Total Return: -51%

Canadian National Railway (CNR TSX)

• Then: $130.98
• Now: $143.52
• Return: 10%
• Total Return: 12%

Total Return Average: -12%