Paul Harris, partner and portfolio manager at Avenue Investment Management

Focus: North American and global equities
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MARKET OUTLOOK
Since the Trump election, investors have cheered the prospects of tax reform, tax cuts, deregulation and fiscal stimulus. There has been a shift to equities as the bond market has performed poorly (yields up, prices down) with many pundits calling the end of the bull market in bonds. If Mr. Trump is able to accomplish the above agenda, we should see better equity markets. The equity markets will also be helped by better earnings growth, which turned positive in Q3, and since may companies have great cost structures we will see better leverage to the bottom line. I think the shift to a business-friendly environment is being underestimated, and this will have benefits to equities. We also believe that the Federal Reserve will be more aggressive on rates and raise them more than three times. We, however, believe that in the short term we may see a pullback, which would be a buying opportunity as the market has a lot of good news priced in. We would watch the 10-year bond yield and economic numbers and earnings over the next few weeks, which will help determine the direction of the market.

TOP PICKS

GILEAD SCIENCES (GILD.O) is a pharmaceutical company with drugs for Hepatitis C and HIV. The company trades at 6.5 times earnings, has a dividend yield 2.5 per cent and a free cash flow yield of 13 per cent.

BLACKSTONE GROUP (BX.N) is a private equity firm. The stock trades 10.5 times earnings and has a five per cent dividend yield. We believe that this is a great environment for private equity firms as they can harvest many of the investments they have made over the last several years. They raised $100 billion, which can be used if the market does poorly.

AUTOCANADA (ACQ.TO) is an auto dealership company. The company offers a diversified range of products from sales, services and financing. The stock trades at 12 times earnings, has a dividend yield of 2.0 per cent, and has free cash flow of $50 million per year.
 

PAST PICKS: FEBRUARY 11, 2016

FIRST SERVICE (FSV.TO)

• Then: $50.03
• Now: $65.63
• Return: +31.18%
• TR: +32.48%

BAYERISCHE MOTOREN WERKE AG (BMWYY.PK)

• Then: €67.18
• Now: €86.53
• Return: +28.80%
• TR: +34.39%

BANK OF AMERICA (BAC.N)

• Then: $11.16
• Now: $23.01
• Return: +106.18%
• TR: +109.35%

TOTAL RETURN AVERAGE: +58.74%