Paul Harris, partner and portfolio manager at Avenue Investment Management

Focus: North American and global equities
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MARKET OUTLOOK

The global economy continues to see some real improvements and economic data continues to improve. For example, the ISM index is expanding and we have seen positive readings in retail sales, industrial production, the job market, consumer confidence and small-business confidence. We are also seeing strong earnings growth and topline revenue growth — not the deterioration in margins that some have been expecting. As a result, many of the central banks around the world are looking to slow QE or increase rates. However, we believe we will see low inflation and low interest rates for some time as central banks will not want to run the risk of pushing the economy into a recession. With tax cuts and strong earnings growth, most do not understand that the impact of an extra per cent of GDP growth has on earnings is quite strong. We should get a pullback, and I would look to be a buyer.

TOP PICKS

FIRSTSERVICE CORP. (FSV.TO)
FirstService was recently spun out of Colliers International. The company focuses on residential property management and services. It has room to grow its market share in the U.S. in what remains a very fragmented business. Trades at 28x next year’s earnings and yields 1.0 per cent.

BANK OF AMERICA (BAC.N)
Bank of America is one of the largest banks in the United States holding 10 per cent of all deposits in the country. The bank continues to cut costs through reduction in headcount and technology. The company continues to improve its capital base with Tier 1 ratio at 13.60 per cent. The stock trades at 1.28x book value and 12.75x 2018 earnings. The company is buying back stock and will be increasing its dividend over the next several years from its present yield of 1.88 per cent. We think the intrinsic value of US$38.

CANADIAN NATIONAL RAILWAY (CNR.TO)
CN Rail is a rail-and-related transportation business with 20,000 route miles of track spanning Canada and Middle America. The stock trades at 18x 2018 earnings and has a yield of 1.86 per cent.
 

PAST PICKS: JANUARY 16, 2017

GILEAD SCIENCES (GILD.O)

• Then: $73.07
• Now: $83.49
• Return: 14.26%
• Total return: 17.60%

BLACKSTONE GROUP (BX.N)

• Then: $30.09
• Now: $36.35
• Return: 20.80%
• Total return: 29.79%

AUTOCANADA (ACQ.TO)

• Then: $25.75
• Now: $23.64
• Return: -8.19%
• Total return: -6.47%

TOTAL RETURN AVERAGE: 13.64%