Bruce Murray, CEO & CIO of Murray Wealth Group
Top Picks: Air Canada, Uber, Meta
MARKET OUTLOOK:
The market is at the higher end of its historical price to earnings (P/E) range, due to a very strong economy continuing to emerge as we pass the last of the pandemic shutdowns and the resulting inflationary outburst. With rising productivity and employment, I believe we are still in the early stages of a new business cycle. The recent rise of U.S. interest rates has been in reaction to stronger expected growth indicators in the U.S. The current political environment is shifting to more pro-business environments in both North America and Europe. Coming tariff negotiations may slow the recovery business confidence but once negotiated, business will work with them.
We continue to look for the “magnificents” to grow earnings at double digit rates which justifies their higher P/E rates. Many market sectors continue to reflect difficult outlooks which we feel are overdone as we believe a cyclical recovery is underway. Rising production will lead to potentially both flat or lower prices and better profitability. Most resource companies are cheap apart from uranium and some precious metals producers. We continue to look for these companies to pick up. Copper for example will have massive demand as we electrify the economy and build the data centres required for artificial intelligence (AI).
I expect the outlook for Canada to remain uncertain until our political situation clears. A potential Conservative government would support more export pipelines which would lead to higher living standards right across the country, which would spark our energy market nicely.
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TOP PICKS:
Air Canada (AC TSX)
AC.TO has recovered from the pandemic but the stock hasn’t. I see tremendous upside over the next few years as confidence recovers. Air Canada stock could double as it was trading over $50/share five years ago. Revenue is about 12 per cent higher than 2019, debt is similar and there are seven to eight per cent more shares. I was at a conference last week where they presented, and the outlook is very favourable. New Airbus 220’s are allowing more access to more U.S. cities which can also feed the trans-Atlantic and trans-Pacific routes. Air travel remains a growing part of Canadians' budgets. 2024 reported earnings per share (EPS) are expected to be approaching $6 a share so it’s selling at four times. With my favourable view on the economic outlook, Air Canada should be a three-to-five-year winner.
Uber (UBER NYSE)
Uber has languished for about a year on stories of driverless taxis in trial from Waymo (Alphabet or Google) and Tesla in several U.S. cities get raving reviews from riders. However, Waymo is using Uber in Atlanta and Austin. I believe that as driverless vehicles become more prevalent, the ubiquity of the Uber app will become more important than who’s vehicle it is. Turning to fundamentals, revenue growth is forecast to be 15-16 per cent in both of 2025 and 2026 with increasing margins as costs grow slower as the digital platform grows. While we are still looking at sub $1.9 earnings estimates for 2024, the next two years should be over 30 per cent and earnings will more than double by 2027. Of the three to four dozen analysts who follow the stock, the average target price is around US$90, and I found nobody willing to underweight the stock.
META (META NASD)
Meta is an aggressively managed company; Mark Zuckerberg takes aggressive action to keep growing earnings. Meta continues to come up with new ideas like the Ray-Ban Meta glasses, which some people I know use them for so much like phone calls and photos. Zuckerberg runs a tight operation focused on efficiency and productivity, and in 2024, the “year of efficiency,” EPS when reported will likely be over 50 per cent higher than 2023 and Morgan Stanley expects this is a structural change as recently indicated with a five per cent staff reduction this week. I think the next three year growth forecasts of low mid-teens will be easily surpassed as Meta increases subscription revenues and especially if TikTok is compromised. Over one million advertisers now use Meta’s gen AI creative tools to currently create over 15 million ads per month. Meta’s new AI play is a chatbot which will work through WhatsApp. A report yesterday from William Blair expects this addition to be worth from US$25 billion to over $100 billion by 2030. This represents some 15 per cent to the current consensus. In summary, I think at just over 20 times EPS, Meta is a low risk bet with good upside potential.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| AC | Y | Y | Y |
| UBER | Y | Y | Y |
| META | Y | Y | Y |
PAST PICKS: January 5, 2024
Amazon (AMZN NASD)
- Then: US$145.24
- Now: US$223.00
- Return: 54%Total
- Return: 54%
Pfizer (PFE NYSE)
- Then: US$29.47
- Now: US$26.19
- Return: -11%Total
- Return: -5%
Linamar (LNR TSX)
- Then: $63.17
- Now: $57.04
- Return: -10%
- Total Return: -8%
Total Return Average: 14%
| DISCLOSURE | PERSONAL | FAMILY | PORTFILIO/FUND |
|---|---|---|---|
| AMZN | Y | Y | Y |
| PFE | Y | Y | Y |
| LNR | Y | Y | Y |