Barry Schwartz, chief investment officer and portfolio manager at Baskin Wealth Management 
Focus: North American large caps
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MARKET OUTLOOK

We remain extremely positive on equities as we head into 2018, and we have prepared our portfolios in 2018 to take advantage of what we believe will be above average economic growth around the world. Almost half of our client’s investments are in U.S. securities. We believe that corporate profits in the U.S. will surprise to the upside as a result of tax reform, infrastructure stimulus and deregulation. We are finding lots of value in technology, health care, financial services and industrial companies. We will continue to build our international weighting as we are finding interesting opportunities in Europe and Asia. Currency risk is still a big factor and we shouldn’t be surprised to see the Canadian dollar remain above 80 cents US.

Interest rates are set to rise in 2018 in both Canada and the U.S. As a result, there is risk to holding long-dated fixed income securities and we are keeping our allocations to bonds and slow growing interest sensitive equities to a minimum. 

TOP PICKS

NATIONAL BANK (NA.TO)
The Canadian banks trade at a material discount to the overall market. Given the spectacular and consistent results from the Canadian banks since the credit crisis, we argue that the market should reward the group with much higher multiples on earnings. Our favourite Canadian bank is National Bank which should benefit from rising interest rates and the improving Canadian economy, stable energy prices and record stock market levels. National offers an attractive dividend yield of 3.6 per cent and we expect its dividend to increase by at least six per cent in 2018.

FIRSTSERVICE (FSV.TO)
FirstService offers property management outsourcing in North America. Its runway of growth is very long as it should benefit from the trend for condos and multi-family home owner associations switching to outsourcing, and from new condo build-outs that will require professional property management. FirstService’s brands segment should also grow as the U.S. economy improves and more people renovate their homes. The stock valuation is not cheap, but we think FirstService will continue to win market share and make profitable acquisitions to expand their scale.

KORN/FERRY INTERNATIONAL (KFY.N)
Korn/Ferry is the largest provider of executive search in the world. The concern a year ago was that the Hay Group acquisition was a failure, but the results have improved since then with 10% organic sales growth for the entire business in the most recent quarter.  Korn/Ferry should benefit from an improving US economy as which should lead to more job creation and employee turnover.  Korn/Ferry operates a capital light business and as a result it generates significant free cash flow which it has recently been returning to shareholders in the form of share buybacks. The company should also see a boost in earnings as a result of U.S. tax reform. 

PAST PICKS: MARCH 1, 2017

NATIONAL BANK (NA.TO)

• Then: $57.66
• Now: $63.63
• Return: 10.35%
• Total return: 14.88%

NEENAH PAPER (NP.N)

• Then: $74.25
• Now: $91.40
• Return: 23.09%
• Total return: 24.79%

TMX GROUP (X.TO)

• Then: $70.25
• Now: $71.56
• Return: 1.86%
• Total return: 4.10%

TOTAL RETURN AVERAGE: 14.59%

TWITTER: @BarrySchwartzBW
WEBSITE: www.baskinwealth.com