John O’Connell, chairman & CEO, Davis Rea
FOCUS: U.S. Large caps
Top picks: Meta, Synopsys, Alphabet
MARKET OUTLOOK:
Investors are faced with a dilemma, economic activity in the U.S. remains robust and earning growth is expected to be strong this coming year. This backdrop has encouraged investors to finally embrace, some would say capitulate, toward a bullish attitude after two years of cautious behaviours. With few “bears” left and valuations pressing against the upper bounds of average valuations, investors are confronted with rising interest rates. Meanwhile bond investors worry about the new administrations' expected policy agenda, continued massive government spending and concerns that this cocktail of uncertainty could cause inflation to re-accelerate. This could cause the monetary authorities to halt further interest rate easing, which could instigate a series of cascading events that could cause disappointment at a time of heightened enthusiasm.
Investors are well advised to recall that market returns are often driven between the constant battle of balance between fear and greed. Greed is a more subtle evil and can linger longer than its ever-present adversary fear and at times these metaphors of human psychology can co-exist, pushing in the same direction, but inevitably the boundaries get pushed too far and a new equilibrium is restored.
Davis Rea would encourage you to ensure your risk tolerances and your investment objectives are properly re-examined after five years of above average returns.
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TOP PICKS:
Meta (META NASD)
Meta is a well above average compounder of shareholder equity trading at a market multiple, this despite its massive investment to ensure its leadership position is enhanced. There have been few better built mouse traps.
Synopsys (SNPS NASD)
Synopsys makes the picks and shovels for everything that anyone would want to design and build a chip. Soon they will control the picks and shovels to design, optimize and build virtually most manufactured and industrial process. Always a high value, volatile stock, but the biggest and best companies in the world beat a path to their door every day.
Alphabet (GOOGL NASD)
Google swings between investors fearing for their future and dreaming of their opportunity. Like Meta few companies have the intellectual and physical muscle to dislodge this profitable beast from its perch. Like Meta it is trading at market multiples but is anything but average when it comes to above average shareholder friendly attributes.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| META NASD | Y | Y | Y |
| SNPS NASD | Y | Y | Y |
| GOOGLE NASD | Y | Y | Y |
PAST PICKS: March 17, 2023
Amazon (AMZN NASD)
Then: US$98.04
Now: US$220.20
Return: 125%
Total Return: 125%
Accenture (ACN NYSE)
Then: US$250
Now: US$347.83
Return: 39%
Total Return: 43%
UnitedHealth Group (UNH NYSE)
Then: US$469.50
Now: US$539.44
Return: 15%
Total Return: 18%
Total Return Average: 62%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| AMZN NASD | Y | Y | Y |
| ACN NYSE | Y | Y | Y |
| UNH NYSE | Y | Y | Y |