Mar 20, 2018

Bruce Murray's Top Picks: March 20, 2018

BNN Bloomberg

Bruce Murray , BNN

Bruce Murray, CEO of The Murray Wealth Group
Focus: North American growth stocks

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MARKET OUTLOOK

At The Murray Wealth Group, we believe we’re in the midst of one of the great bull markets of our lifetime. Stock markets, as the old expression go, “climb a wall of worry.” In other words, there are always reasons — most of which aren’t really relevant — not to buy stocks. I believe that we may be seeing it now, with the current bout of political noise and interparty accusations currently focused on Facebook and exaggerating market fears. In about three weeks’ time however, we’ll be witnessing the start of a flood of impressive first quarter earnings reports fueled by a globally strong economy and a significantly lower U.S. tax rate.

Major, significant and enduring stock market declines are normally fueled by underperforming economies and the accompanying slide in profitability. We don’t see this at the current time even on the horizon, and forecast markets to continue to move up into the next decade. The major drivers of growth will be strong U.S. housing, better European growth and the continued introduction of productivity-based automation.

TOP PICKS

FACEBOOK (FB.O)

Facebook shares have been pressured recently by allegations of the illegal use of data by a customer, adding to existing volatility after the company’s acknowledgement of Russian involvement in the U.S. election via Facebook websites. Typically, these types of matters are eventually settled with the company paying a fine. It will be yesterday’s news at some point (just check out Equifax's share price recovery after its large data breach last summer).

The company continues to capture advertising dollars from traditional media as its ad platform offers the best return on investment in the industry. The company should continue to grow revenue at almost 30 per cent yearly over the next three years and is the best in the industry at turning revenue into free cash flow. It trades at a price-to-earnings (P/E) ratio of just 24 times 2018 earnings.

CELGENE (CELG.O)

Celgene is a large player in the biotechnology sector. Shares have been weak due to a number of recent setbacks in its new drug pipeline. Yet, the company still has a good number of potential drug approvals this year and in 2019. The shares are trading at a P/E ratio just 10.5 times 2018, with earnings per share (EPS) expected to grow at 20 per cent in the short term.

Celgene’s key blockbuster drug, Revlimid, will lose patent protection early next decade. The company will need to have further successes in its drug pipeline to help stem the decline in sales as generics enter the market. We believe this risk is priced into the shares at current levels. In the meantime, the company will continue to generate lots of cash to fund R&D efforts to advance its vast pipeline or make acquisitions, like its recent purchase of Juno Therapeutics.

LINAMAR (LNR.TO)

Linamar is a TSX-listed auto parts manufacturer which recently announced material wins for key componentry for electric vehicles. The company also, recently expanded its agriculture manufacturing with the purchase of MacDon Industries. Linamar also has an industrial access division, which builds scissor lifts and telehandlers. We believe the company is a world-class manufacturer with strong management and will continue to grow from outsourcing by auto original equipment manufacturers (OEMs) and new market share wins in its industrial and agricultural business. The shares trade at 7.5 times 2018 EPS despite the near 10 per cent growth expected over the next two years.