David Baskin, president at Baskin Wealth Management

Focus: North American large caps
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MARKET OUTLOOK
Seldom have we entered a new year with so much uncertainty in the macroeconomic environment. Nobody has a clear idea what the Trump administration may do in the next few months, but the potential exists for substantial disruption of trade relations, capital markets and currency markets. Equity markets in the U.S. have been buoyed by hopes for substantial cuts to corporate taxes. The bond market has seen substantial rises in yields, based in part on an assumption of increased U.S. infrastructure spending coupled with lower tax revenues. To the extent that these projected changes have been priced in, the potential for significant drawdowns is obvious should actual policies differ from these assumptions. We believe long-term investors would be wise to focus on companies with strong balance sheets, significant competitive advantages and a history of profitable operations. These companies will thrive regardless of the political machinations.

TOP PICKS

VAIL (MTN.N)
Vail is an operator of high-end ski resorts including Vail, Keystone and Breckenridge. We received our position after the Whistler acquisition, which gives the company significant geographical diversification. Vail’s strategy is to acquire ski resorts and to add them onto their Epic season pass. Season-pass holders visit more often, are more likely to purchase ancillaries and, importantly, insulates Vail from bad snow years. This strategy is working well, and early season-pass sales are up 20 per cent for the third year in a row.

MOODY’S (MCO.N)
We’ve talked before about Moody’s as a firm protected by a high moat, with strong margins and very good free cash flow generation. Moody’s revenue has historically been strongly correlated with real GDP, and Moody’s should benefit from a favorable business environment under Trump. We are happy to continue to hold such a high-quality company at a market valuation. The key uncertainty is the DOJ complaint arising from the 2007-08 period, but we think this is priced in to the market.

AIG (AIG.N)
America insurance giant AIG is a company we like, Trump or no-Trump, as it has made significant progress over the last few years. The firm has divested over $12 billion of non-core and unprofitable assets, and reduced expenses by over $1 billion since 2004. Management expects to generate a ROE of nine per cent, while returning a mind-boggling $25 billion of capital (reminder, AIG’s market cap is $67 billion). We remain buyers at 0.8x tangible book value. An added bonus will come if AIG’s SIFI designation gets removed, but we don’t expect this to happen before 2018.
 

PAST PICKS: NOVEMBER 18 2015

H&R REIT (HR_u.TO)

• Then: $21.05
• Now: $22.56
• Return: +7.17%
• TR: +14.78%

MAGNA INTERNATIONAL (MG.TO)

• Then: $59.83
• Now: $60.30
• Return: +0.78%
• TR: +3.79%

MORGUARD CORPORATION (MRC.TO)

• Then: $142.36
• Now: $175.74
• Return: +23.44%
• TR: +24.04%

TOTAL RETURN AVERAGE: +14.20%