Gordon Reid is president and CEO of Goodreid Investment Counsel Corp. His focus is on U.S. equities.
Home Depot Inc.
Home Depot has positioned itself perfectly to participate in the housing recovery. While revenues are growing briskly on the back of a long-term recovery, the company’s execution is stellar, with margins expanding and ROEs driving towards 40 per cent. Recent earnings exceeded expectations and guidance is favourable.
Time Warner Inc.
Time Warner’s growth engine is their digital platforms, which will capture the growing mobile market for film (Warner Bros.), television (HBO, CNN) and publishing (People, Time). With a valuation of 15x this year’s earnings, exciting growth opportunities, and strategic moves (Time Spin-off), this issue is excellent value.
Home builders are taking a breather during this season’s extraordinarily cold winter, but are set up to excel in 2014. KB Homes’ average selling price and operating leverage should propel earnings as the slow but steady recovery from the 2008/09 trough continues. New home construction is still running at less than 1 million units annually while closer to 1.5 million are needed to keep up with annual household formation.
Past Picks: February 05, 2013
Then: $765.71 (U.S.); Now: $1,220.17; Total return: +59.35%
Then: $75.89; Now: $126.61; Total return: +71.14%
Briggs & Stratton Corp.
Then: $23.90; Now: $22.44; Total return: -3.95%
Total return average: +42.18%
The U.S. equity market had a short, sharp, yet shallow correction in January and our expectation is that this pattern will play out in 2014. As a group, stocks are fairly valued, suggesting that broad indexes can work higher in 2014 but at a rate that correlates more closely to earnings growth than we witnessed in 2013. Additional opportunity lies in highlighting undervalued industries and specific situations.