Skip to main content
bnn market call

John O’Connell.Tibor Kolley/The Globe and Mail

John O'Connell is chairman and CEO, Davis Rea. His focus is North American large caps.

Top Picks:

Walt Disney Co. (DIS-NYSE)

Disney is a high quality international family entertainment and media enterprise that continues to outperform in the discretionary sector. We like its diversified streams of revenue, ranging from its best-in-class media networks (e.g. ESPN, ABC), their ability to capitalize on their intellectual property and franchises (through the studio, television, consumer products and parks and recreation), and their strong pipeline for the upcoming year. They posted an impressive quarter, beating on both top line and the bottom line and increasing the dividend. It now yields 1.11 per cent and trades at a forward multiple of 18.7x 25016 earnings, which despite being an 11-per-cent premium to its competitors, still looks attractive given the growth trajectory. We feel that Disney is a great way to play the recovery in consumer spending both in America and globally.

Google Inc. (GOOGL-Nasdaq)

Google is a global technology company focused primarily on internet search and advertising, but is expanding into hardware and enterprise software. Despite fears of advertising revenue slowing, growth in this segment has been consistent. The company is able to successfully continue growing its core business organically and maintaining dominant market share in both traditional internet advertising and newer advertising segments like YouTube and mobile, while expanding emerging non-ad businesses. Google continues to be an innovator and has lagged some of its peers over the year, but trades at an attractive valuation relative to peers.

Cash (third pick)

Past Picks: April 14, 2014

Apple (AAPL-Nasdaq) * Stock Consolidated * 7 for 1 on June 9, 2014

Then: $521.68; Now: $124.75 +67.39%; Total return: +70.56%

Spartan Energy (SPE-TSX)

Then: $3.87; Now: $2.77 -28.42%; Total return: -28.42%

Google (GOOGL-Nasdaq)

Then: $545.20; Now: $560.68 +2.84%; Total return: +2.84%

Total return average:

Market outlook:

The global economy is beginning to show signs of improvement, especially in the U.S., driven by easier monetary policy and the stimulating effect of a lower oil price for consumers. However, the emerging markets remain a cause for concern, given the strength in the U.S. dollar and the amount of U.S. dollar denominated debt held by emerging market economies. All eyes are on the Fed as it is no longer a question of if an interest rate hike is coming this year, but a question of when. We feel that investors should remain cautious as the valuations remain rich in North America, with all sectors screening as expensive and volatility increasing. Thus, security selection is now more crucial than ever as no bargains are imminently obvious. An improving economy combined with both the strength in the currency and the benefit of lower oil prices drives our expectation for the U.S. to outperform other economies this year. We have increased exposure to growth in the U.S. through both our U.S. holdings in the Equity Fund and our U.S. cash position. In addition, our cash position allows us to capitalize on the strength of the U.S. dollar and maintain flexibility to capitalize on opportunities that may arise in the near future due to short-term volatility.