David Baskin, president at Baskin Wealth Management

Focus: North American large caps
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MARKET OUTLOOK
While Charles Dickens was not a market analyst, the opening sentence of Great Expectations is a great summation of the current market: “It was the best of times, it was the worst of times.” It’s “the best of times” because all of Europe, the U.S. and China appear to be enjoying stable growth. Interest rates remain low and while central banks are making hawkish noises, so far the moves have been tiny. Corporate earnings in the latest quarter showed the best gains in years and shareholders are enjoying increasing returns of capital by way of dividends and stock buybacks.

It’s “the worst of times” because an unpredictable, petulant and arrogant president may guide the U.S. in ways that will damage its economy and that of its neighbours. Threats to NAFTA and to world trade, destabilization of a fragile truce in Korea, and evident difficultly in passing legislation in crucial areas such as health care and tax reform have put investors on edge. The so-called Trump effect has waned, with the S&P 500 up a scant 1.5 per cent in the past three months. However, uncertainty can be an investor’s friend when it leads to good companies selling below their value, and we are still finding things to buy at what we believe to be excellent prices.

TOP PICKS

CCL INDUSTRIES (CCLb.TO)
CCL Industries is the world’s largest maker of specialty labels and is perhaps the only company able to supply labels on a global scale for multinational companies. CEO Geoffrey Martin is a skilled capital allocator who has branched CCL out into a variety of adjacent verticals including office labels, retail security tags, and banknotes through acquisition in an extremely opportunistic manner. Despite the massive run-up, we still think the stock is trading at a reasonable price at 21x earnings.

CINEPLEX (CGX.TO)
Cineplex has an 80 per cent market share of the Canadian theatre market. We think the management is skilled, and is able to squeeze out a lot more food and video game revenue per visitor than theatre chains in the US. Cineplex will benefit from a strong Disney film slate over the next two years which includes two Star Wars films, Frozen 2, Toy Story 4, and four Marvel movies. Cineplex has done a good job repositioning their theatres in the Netflix era to provide experiences that are harder to replicate at home, with about half of their tickets sold for premium products such as IMAX and VIP.

MAGNA INTERNATIONAL (MG.TO)
Magna is an auto parts supplier and manufacturer. The main concern over Magna is that the car cycle is peaking in North America, but we think it is well positioned even if car sales fall a bit. Magna is well capitalized with debt/EBITDA at 1.2x, and continues to repurchase stock aggressively and raise dividends. Magna has worked to shift the portfolio to more profitable segments over the years, by selling the low margin car interiors business, and is also a leader in autonomous vehicle technology, providing systems for automatic braking, sign detection, and vision-only cruise control. We think the stock is not expensive at 7x earnings.
 

PAST PICKS: MARCH 2, 2016

GENERAL MOTORS (GM.N)

• Then: $30.15
• Now: $32.42
• Return: 7.52%
• TR: 13.94%

BERKSHIRE HATHAWAY (BRKb.N)

• Then: $136.73
• Now: $161.26
• Return: 17.94%
• TR: 17.94%

GOLDMAN SACHS (GS.N)

• Then: $154.20
• Now: $213.72
• Return: 38.59%
• TR: 40.49%

TOTAL RETURN AVERAGE: 24.12%