Zachary Curry, COO and portfolio manager, Davis Rea
FOCUS: North American large caps



A sustained global economic expansion is under way. The global economy is supportive for corporate earnings and commodity prices and underlying inflation is likely to remain low even though rising commodity prices will give headline inflation a temporary lift.

Rising commodity prices will give the Canadian dollar some additional upside over the remainder of 2017 and into 2018. An expected scaling back in expected Bank of Canada interest rate hikes likely to trigger a correction in the loonie.

Short term interest rates are expected to rise a little more in Canada and the U.S., but not by enough to put either economy at risk.

There is considerable enthusiasm for higher Canadian short-term interest rates on the back of a good run in Canada’s economy. This sentiment is likely overdone, given the surge in the Canadian dollar, a number of important changes in government policy (small business tax reform, higher minimum wages in Ontario and Alberta, and tighter mortgage lending standards) and ongoing NAFTA discussions.

The U.S. Federal Reserve is expected to tread carefully on additional increases in the Fed funds rate given surprisingly low inflation readings. However, it is expected to begin letting its balance sheet start to shrink in the very near term. 

European and Japanese short-term rates are also likely to remain very low. Low inflation and short-term interest rates imply low government bond yields as well.

Our valuation measures suggest that corporate bonds and equities are expensive. However, the combination of low inflation and short-term interest rates alongside continued earnings growth suggest more upside than downside for equity and corporate bond prices over the remainder of this year and into 2018.

Low yielding, fast growing S&P500 technology hardware, software and services, and biotechnology are favourably valued.

S&P500 energy and banks are very attractive from a valuation perspective. Easier regulatory environments for both groups are also supportive. Banks have excess capital that is available to return to shareholders via buybacks and increased dividends.

Canadian energy stocks have become somewhat richly valued. However, this reflects analysts scaling back earnings expectations in spite of a strong recovery in actual earnings. This shift appears excessive. High yielding, low growth telco and utility stocks are very expensive in Canada and the U.S.

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Zachary Curry's Top Picks

Zachary Curry, COO and portfolio manager at North American large caps, shares his top picks: Apple, AltaGas Subscription Receipts and Accenture.

APPLE (AAPL.O) - Last purchased June 6, 2017 at US$154.79
The iPhone 8 and iPhone X introduction should be positive given the refresh cycle, with AAPL’s higher-end products traditionally performing well. The addition of augmented reality (AR) capabilities will position the iPhone line up (iPhone 6S and higher) well for the continuing shift to mobile data consumption. The addition of a cellular-enabled watch should increase uptake on what is already the world’s best-selling watch. Apple recently announced that it will be investing US$1B in original video content over the next year, and while late to the online programming game, we think it will continue to keep users in the Apple ecosystem – and result in increased revenue for the company. A very healthy cash position allows for financial flexibility – including a recent increase in the dividend (to yield 1.6% currently) and share buyback

ALTAGAS (ALAr.TO) - Last purchased June 21, 2017 at $28.90
AltaGas is an energy infrastructure company with operations that include natural gas gathering and processing, extraction of ethane and natural gas liquids, transmission, power generation and rate-regulated utilities. The company's operations are primarily based in Western Canada with select businesses throughout North America. Earlier this year, AltaGas announced an agreement to acquire WGL Holdings Inc. for $8.4 billion. WGL is a diversified energy infrastructure company with headquarters in Washington, D.C. WGL has regulated utility assets as well as midstream, power and energy marketing businesses throughout the United States. The company expects the acquisition to be accretive in its first year, and expects the transaction to close by Q2/2018. In 2016, the company grew EBITDA by 20% year-over-year, and for 2017 we expect high single digit EBITDA growth compared to 2016 across all 3 of the company’s business lines (gas, power & utilities). From a defensive point of view, we favour the subscription receipts over the common shares, because in the unlikely event that the WGL transaction does not go through, holders of the subscription receipts will have their initial capital returned to them (at the issue price of $31). In the meantime, the subscription receipt holders receive the same monthly dividend as the common shareholders.

ACCENTURE (ACN.N) - Last purchased July 10, 2017 at US$124.14
Accenture is the world’s largest consulting firm that provides management and technology consulting services and solutions to clients globally. The company has been pivoting since 2014 to focus their consulting and outsourcing business on newer areas such as digital experience, data analytics, cybersecurity and cloud services, which now collectively comprise about 50 per cent of their revenues. They have achieved this through organic growth and a combination of tuck-in acquisitions, which have been funded through free cash flow generation. It carries a pristine balance sheet with almost zero debt and generates an abundance of free cash, which is allocated to acquisitions to grow the business and to shareholder returns through dividends (currently yielding 1.8%) and share repurchases. As the world focuses more on digital channels, Accenture is well positioned to benefit from the ongoing shift to cloud computing and focus on data-driven digital insights and experiences. They have a strong long-term track record of integrating their acquisitions into their consulting practice, and continue to win market share.



PAST PICKS - JUNE 21, 2016

Zachary Curry's Past Picks

Zachary Curry, COO and portfolio manager at North American large caps, reviews his past picks: Keyera, Concordia International and McDonald's.


  • Then: $37.70
  • Now: $38.63
  • Return: 2.46%
  • Total return: 7.45%


  • Then: $29.60
  • Now: $1.50
  • Return: -94.93%
  • Total Return: -94.91%


  • Then: $122.63
  • Now: $159.28
  • Return: 29.88%
  • Total return: 34.49%



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