Gordon Reid is president and CEO of Goodreid Investment Counsel. His focus is on U.S. equities.
Boeing Co. (BA NYSE)
At 16 times 2014 expected earnings and a very predictable growth rate of cash flow and earnings through the end of the decade, Boeing represents an excellent opportunity. Fuel efficiency is the key to commercial aerospace. New aircraft are 10-15 per cent more fuel efficient than older fleets and in a very competitive airline space are necessary to survive and grow.
CVS Caremark (CVS NYSE)
CVS benefits from the longer-term positive catalysts of an aging population and easier access to prescription medication because of health care reform. When combined with the trend toward much higher margin generic drugs and an active management who are unafraid to make controversial decisions such as the discontinuation of the sale of tobacco products, we believe CVS will prove to be a long-term winner.
American Axle & Manufacturing (AXL NYSE)
American Axle engineers and supplies driveline products to manufacturers of a wide variety of vehicles. AXL was spun off from GM in 1994 and while GM is its major customer, AXL is actively diversifying and by 2016 expects GM to represent less than half of its revenue (from two-thirds today). At 8 times 2014 estimated earnings and with a long-term growth rate of 15 per cent annually, this company represents a compelling value.
Past Picks: July 17, 2013
Apple Inc. (AAPL NASDAQ)
Then: $430.31; Now: $97.03 +57.84%; Total return: +61.67%
Home Depot (HD NYSE)
Then: $80.44; Now: $81.20 +0.94%; Total return: +3.17%
The Hanover Insurance Group (THG NYSE)
Then: $52.51; Now: $62.73 +19.46%; Total return: +22.48%
Total return average: +29.11%
A massive amount of liquidity, constantly being deployed into equities on any hint of weakness, is keeping markets on a steady upward trajectory. Fortunately there is sufficient fear amongst investors to suppress a runaway market, so we continue to trade in fair value territory. Price inflation fears are surfacing after a period of credit expansion and Fed-sponsored asset growth. Beneficiaries of this stage of the economic cycle are normally smaller companies as well as commodity-driven stocks versus those that are paper-based.