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

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MARKET OUTLOOK

Many pundits have told us the market is expensive, and we agree. On an absolute basis, the S&P 500, which is the best diversified index in North America, isn’t cheap, although it is nowhere near the expensive levels that were seen during the late 90s and early 2000s. However, asset prices should only be discussed in context of relative valuation, and a discussion of relative valuation begins and ends with the current level of interest rates.

Warren Buffett recently said it's "a terrible mistake to stay out of the market because you think you can pick a better time to enter.” If interest were seven or eight per cent, the current valuations would be exceptionally high, but if measured against current interest rates, stocks are actually on the cheap side. If interest rates continue to stay at these levels, over the next 10 years you will regret not owning stocks.

Even with all the worries, U.S. market returns are higher because of low interest rates and record corporate profits. We are seeing a synchronization of economic growth around the world and that is driving markets higher. As long as inflation remains tame -- and there is good reason for that to happen, given that Amazon is causing deflation in every sector -- then interest rates will stay low and that should keep asset prices at high levels. Watch the yield curve and what central banks do for clues to what happens to asset prices in the future, but for now we are in a goldilocks environment that could last for years. 

TOP PICKS

Barry Schwartz's Top Picks

Barry Schwartz, chief investment officer and portfolio manager at Baskin Wealth Management, discusses his top picks: BlackRock, Enercare and Visa.

BLACKROCK (BLK.N) - NTM P/E: 19x, dividend yield: 2.2%
BlackRock is the largest asset management company in the world with almost US$6 trillion under management. It is best known for its iShares ETFs, which is the largest ETF franchise in the world with around 40 per cent of global ETF assets. iShares make up around 30 per cent of Blackrock’s current AUM and is growing at double digits each year. There are secular trends benefiting the ETF business, including their low fees and ease of which they can be bought. ETFs have a long runway of opportunity given the global ETF market is about US$3 trillion vs. US$16 trillion managed by mutual funds.

ENERCARE (ECI.TO) - NTM EV/EBITDA: 10x Dividend Yield: 4.8%
Enercare generates most of its profits from renting water-heaters in Ontario. Renting water-heaters is a stable business that generates significant free cash. Enercare has been using this cash flow to invest in electricity sub-metering as well HVAC sales, rentals and other services. The company is excited about the long-term opportunity to build scale in these new businesses. Investors can collect a healthy 4.8 per cent dividend while they wait for Enercare’s growth plans to deliver results.

VISA (V.N) - NTM P/E: 26x EV/EBITDA: 18x Dividend Yield: 0.7%
Amazon gets all the glory for its sales numbers on Black Friday and Cyber Monday, but it’s Visa that's the big winner. Most online purchases are made with a credit card and Visa, along with Mastercard, do not care if you buy your video game at Amazon, BestBuy or through Microsoft’s Xbox network. Visa will benefit as digital payments continue to grow. Digital payments are currently at nine per cent of retail spending, and connected devices such as mobile payment and digital assistants will help to drive future growth. With over 80 per cent of global transactions still using cash, there is a long runway of opportunity for more transactions to go through Visa’s payment network. 

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
BLK Y N Y
ECI Y N Y
V Y Y Y

PAST PICKS: DECEMBER 20, 2016

Barry Schwartz's Past Picks

Barry Schwartz, chief investment officer and portfolio manager at Baskin Wealth Management, discusses his past picks: Stella-Jones, Hardwoods Distribution and Priceline Group.

STELLA-JONES (SJ.TO)

  • Then: $43.60
  • Now: $50.42
  • Return: 15.64%
  • Total return: 16.52%

HARDWOODS DISTRIBUTION (HWD.TO)

  • Then: $18.00
  • Now: $19.09
  • Return: 6.05%
  • Total return: 7.57%

PRICELINE GROUP (PCLN.O)

  • Then: $1,502.25
  • Now: $1,768.90
  • Return: 17.75%
  • Total return: 17.75%

TOTAL RETURN AVERAGE: 13.94%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
SJ Y N Y
HWD Y Y Y
PCLN Y N Y

TWITTER: @BarrySchwartzBW
WEBSITE: www.baskinwealth.com