Paul Harris, partner and portfolio manager at Avenue Investment Management

Focus: North American and global equities
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MARKET OUTLOOK
The stock market continues to make new highs. Just a year ago, the world economy seemed trapped in a cycle of low growth and inflation. Markets recoiled at the possibility that the Federal Reserve would raise rates. Now interest rates are rising in the U.S. and there are expectations of higher rates in Canada, and the market is shrugging off these concerns. We are seeing some real improvements in the global economic data. For example, the ISM index is expanding and we have seen positive readings in retail sales, industrial production, the job market and consumer confidence and small business confidence. We are also seeing strong earnings growth and top-line revenue growth, which continues to drive markets higher. We believe we will see low inflation and low interest rates for some time.

TOP PICKS

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 11 times earnings and has a dividend yield of 2.2 per cent, and has free cash flow of $50 million per year.

CVS HEALTH (CVS.N) is an integrated pharmacy and health care company. It operates through three segments: pharmacy, long-term care, and corporate consulting services. The stock trades at 13 times 2017 earnings, has a free cash flow yield of seven per cent and a dividend of 2.57 per cent. The stock has had poor same-store sales over the last few quarters but we are seeing an improvement and stabilization of margins. We think the intrinsic value is $95.

BLACKSTONE GROUP (BX.N) is a private equity firm. The stock trades at 10.9 times earnings and a 7.2 per cent dividend yield. We believe that this is a great environment for private equity firms at 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. We think the intrinsic value of the company is around $60.
 

PAST PICKS: JUNE 16, 2016

KRAFT HEINZ (KHC.O)

• Then: $85.28
• Now: $89.12
• Return: 4.50%
• TR: 7.39%

POTASHCORP (POT.TO)

• Then: $21.45
• Now: $21.85
• Return: 1.86%
• TR: 5.29%

BAYERISCHE MOTOREN WERKE AG (BMWYY.PK)

• Then: €68.30
• Now: €84.17
• Return: 23.23%
• TR: 28.17%

TOTAL RETURN AVERAGE: 13.61%