Paul Harris, partner and portfolio manager at Avenue Investment Management

Focus: North American and global equities
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MARKET OUTLOOK
The global economy continues to see some real improvements and economic data continues to improve. For example, the ISM index is expanding and we have seen positive readings in retail sales, industrial production, the job market, consumer confidence and small business confidence. We are also seeing strong earnings growth and topline revenue growth — not the deterioration in margins that some have been expecting. As a result, many of the central banks around the world are looking to slow QE or increase rates. However, we believe we will see low inflation and low interest rates for some time as central banks will not want to run the risk of pushing the economy into a recession.

TOP PICKS

LOBLAW (L.TO)
Loblaw is the largest grocery chain in Canada and owns Shoppers Drug Mart. The company invested heavily in IT and supply chain systems over the past several years, which has allowed the company to gain strong operating leverage in the current environment. The Shoppers acquisition in 2014 enhanced the amount of free cash flow that the overall company generates. Loblaw has also invested heavily in their online grocery shopping offering, which puts the company in a good position to protect its market share from other online grocery competitors.

ROXGOLD (ROXG.TO)
Roxgold is a Canadian gold company with a gold project in Burkina Faso. The company has an operating mine that presently has $60 million in free cash and an eight-year mine life. We believe with further exploration they will be able to extend the mine life; they recently found a significant hole at depth. We see this company going from its present market cap of $400 million to $600 million.

BANK OF AMERICA (BAC.N)
Bank of America is one of the largest banks in the United States, holding 10 per cent of all deposits in the country. The bank continues to reduce cost through reduction in headcount and technology. The company continues to improve its capital base with Tier 1 ratio at 13.60 per cent. The stocks trades at 1.0 times book value and 11.5 times 2018 earnings. The company is buying back stock and will be increasing its dividend over the next several years from its present yield of 1.2 per cent. We think the intrinsic value is $38.
 

PAST PICKS: AUGUST 4, 2016

BAYERISCHE MOTOREN WERKE AG (BMW)

• Then: €75.84
• Now: €84.36
• Return: +11.23%
• TR: +15.69%

KRAFT HEINZ (KHC.O)

• Then: $85.54
• Now: $84.85
• Return: -0.80%
• TR: +1.93%

JOHNSON & JOHNSON (JNJ.N)

• Then: $123.86
• Now: $131.86
• Return: +6.45%
• TR: +9.33%

TOTAL RETURN AVERAGE: +8.98%