Barry Schwartz, president and CIO, Baskin Wealth Management
FOCUS: North American large cap stocks
Top Picks: Apple, Berkshire Hathaway, Constellation Software
MARKET OUTLOOK:
After a very rough April, many markets rebounded strongly in May and have decided to ignore the short-term geopolitical uncertainties. Although tariffs will put a damper on some industries, overall, the tariff worries do not seem to be affecting Bay Street and Wall Street too dramatically. Corporate earnings for the first quarter came in very strong and we are hopeful the impact of tariffs will be limited going forward. U.S. markets have under-performed year to date and rightly so. Valuations and expectations were on a high after U.S. President Donald Trump’s inauguration and the rebalance to other markets is healthy, especially given how U.S. stocks have dominated for over a decade.
We are taking advantage of the pullback in U.S. stocks on a relative basis to increase our weightings. Even though valuations are cheaper outside the U.S., in our opinion, no country has been able to produce the type of quality businesses that the U.S. has. We think the U.S. Federal Reserve will start lowering rates significantly later this year, as they say, don’t fight the Fed! We are actively looking to increase our exposure to A.I., which we believe will power tremendous growth for U.S. markets.
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TOP PICKS:
Apple (AAPL NASD)
Sentiment as bad as it’s been for Apple. It is facing tariffs, antitrust lawsuits, slow rollout of Apple Intelligence. Big picture customers still like their iPhones and Macs, 88 per cent of teens still want iPhones. Overall, expect Apple to be the winner in AI: closed ecosystem, customer reputation, and vertical integration (increasingly proprietary Apple silicon) will provide superior performance of AI on Apple devices. Expects tariff threats to be manageable: Tim Cook’s background is in supply chain management and has many levers to offset tariff impact. Valuation trading at multi-year low: 27 times earnings and unlike other big techs, has virtually no capex obligations.
Berkshire Hathaway (BRK.B NYSE)
Still like it as a defensive name even without Warren Buffett as CEO. Portfolio is largely made up of stable companies that provide inflation protection (railroad, utilities, insurance). Also has $350 billion of cash to deploy in a downturn. Expect greater focus on operations and organic investment under Greg Abel, may also see more investments in Canada. Stock currently trading at 1.7 times book value, reasonably attractive.
Constellation Software (CSU TSX)
Remains one of the most unique companies we follow and admire the management’s initiatives to keep deploying capital at high rates of returns and incentivize employees: includes new channels to source large deals, broadening acquisition coverage beyond VMS into new geographies, payments, and data. It is conducting spinoffs to increase employee alignment and use stock for deals. Has begun experimenting with new compensation schemes. Expect more spin-offs from Constellation, it has rebranded some end-markets in the last few years (i.e. Volaris grouped together their supply chain companies into “Omegro.” Strong performance from last few years is all from earnings growth, stock not any more expensive today than before at 35 times earnings.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| AAPL NASD | Y | Y | Y |
| BRK.B NYSE | Y | N | Y |
| CSU TSX | Y | N | Y |
PAST PICKS: June 7, 2024
MSCI (MSCI NYSE)
- Then: US$491.69
- Now: US$562.72
- Return: 14%
- Total Return: 16%
CoStar Group (CSGP NASD)
- Then: US$76.21
- Now: US$73.10
- Return: -4%
- Total Return: -4%
Visa (V NYSE)
- Then: US$278.67
- Now: US$364.61
- Return: 31%
- Total Return: 32%
Total Return Average: 15%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FFUND |
|---|---|---|---|
| MSCI NYSE | Y | N | Y |
| CSGP NASD | Y | N | Y |
| V NYSE | Y | Y | Y |
