Zachary Curry
Zachary Curry is COO and portfolio manager, Davis Rea. His focus is North American large caps.
Top Picks:
Walt Disney (DIS-NYSE)
This is a best-in-class media franchise, with a strong pipeline of releases due over the next 1-2 years. Integration with merchandise and theme parks should produce additional revenue after years of capital expenditures. This could allow capital to be returned to shareholders through increased dividends; the shares currently yield 1.2 per cent. Disney has a very capable and experienced management team. We expect earnings per share growth greater than 10 per cent in both 2015 and 2016.
McDonald's (MCD-NYSE)
This is a strong, well-known franchise will be a beneficiary of increased consumer spending (due to lower oil & gas prices). The new CEO has the opportunity to make substantial changes, with the support of an engaged board of directors. McDonald's boasts an attractive dividend yield of 3.3 per cent with consistent growth. We expect earnings per share growth greater than 10 per cent over the next 2 years.
Spartan Energy (SPE-TSX)
Spartan has a very competent management team and a strong balance sheet, especially compared to their peer universe. The company should exit 2015 at 1.2x debt to cash flow. We believe they can grow production per share this year by 25 per cent while spending their cash flow. We expect Spartan to be an acquirer in this depressed energy market.
Past Picks: April 7, 2014
JPMorgan Chase & Co. (JPM-NYSE)
Then: $59.00; Now: $59.95 +1.61%; Total return: +4.36%
Stryker Corp. (SYK-NYSE)
Then: $81.23; Now: $91.18 +12.25%; Total return: +13.91%
Spartan Energy (SPE-TSX)
Then: $3.36; Now: $2.89 -13.99%; Total return: -13.99%
Total return average: +1.43%
Market outlook:
The global economy is growing at a moderate, below-trend pace of slightly above 3 per cent. Japan and the euro area are picking up slowly while the U.S. is likely to grow solidly over the final nine months of the year after another weather-related hit to growth early in the year. Canada is likely to expand only slowly, lagging the U.S. considerably. Emerging markets have been slowing and outside of India, lower growth rates are likely for most major emerging market economies this year.
The global growth environment will keep the demand for commodities growing but we will need to see more signs of adjustments in supply to see commodity prices rebound sustainably, a development that seems likely in the second half of 2015. This is also likely to contribute to a temporary rebound in the Canadian dollar up toward 85 cents (U.S.). A rebound in the Canadian dollar is likely to be part of a correction in the U.S. dollar after its virtually uninterrupted surge since mid-2014. The long-term trends remain in the direction of U.S. dollar strength and Canadian dollar weakness. The moderate global growth environment will keep underlying inflation trends low and both short-term interest rates and longer-term bond yields are likely to remain very low.
Equities are very expensive in North America outside of the resource sectors and large cap U.S. technology, making it very hard to find attractive places to invest. Our valuation indicators are much more attractive for non-North American indexes. The intermediate investment cycle (the cycle that runs for 6-12 months) is nearing its peak and we are likely to see some weakness later this spring and into the summer.