Gordon Reid’s Top Picks for Feb. 3, 2025

Gordon Reid, President & CEO, Goodreid Investment Counsel

FOCUS: U.S. equities

Top Picks: Amazon, Bank of America, Chubb

MARKET OUTLOOK:

Equity markets woke up last week to a new reality: there may be curves in the road to the artificial intelligence (AI) promised land. DeepSeek, a Chinese-based group that was totally unknown to most of the investing world, is a large language, open-source AI model that claimed to be as efficient and effective as competitors like ChatGPT and Llama, but at a fraction of the cost. There are still many unknowns and there is evidence that some corporate espionage may be involved, but the investing lesson is clear. Outcomes in the equity market rarely follow a straight path, and success (and failure for that matter) is rarely a permanent state. Goodreid has some exposure to the AI revolution - being on the sidelines of a seismic secular move would be foolish - but it makes sense to us to hedge exposure with ownership of non-correlated positions. The carnage of that particular day was largely avoided by Goodreid portfolios.

The month of January produced strong returns across the board in the equity space. We continue to favour a broadening of stock ownership from the concentrated Mag 7 names, on both the risk and reward scale. The “S&P 493” is less expensive and more broadly diversified, and quite frankly has been neglected as all the attention has gone to the tech mega-caps.

For now, the tariff issue is political in nature. For it to affect equity markets there would have to be evidence of long-term damage. Given the personalities involved, it is highly likely that this is a negotiating tactic. The damaging effects of high tariffs for long periods are evident on both sides, which will likely lead to this episode being labelled a skirmish rather than a trade war.

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TOP PICKS:

Amazon (AMZN NASD)

Even though Amazon’s price has risen steadily and dramatically over the past two years (roughly a triple), the valuations are becoming more reasonable and comparable to peers. Expect 20 per cent+ annual earnings growth over the next few years on this juggernaut’s three-legged stool of e-commerce, cloud offerings and artificial intelligence (AI).

Bank of America (BAC NYSE)

Money centre banks are in a sweet spot. The economy is strong, leading to expectations of accelerating loan growth. Interest rates are falling gently, but more importantly for bank earnings, the yield curve is steepening, giving hope of an expansion of net interest margins. Finally, the regulatory environment has turned favourably for deal making and capital markets should be strong.

Chubb (CB NYSE)

Chubb is the largest property and casualty insurer in the world. Insurers make money in two ways, from their underwriting business which sports margins of almost 15 per cent, and in CB’s case, on their US$127 billion investment book of mainly bonds. Counter intuitively, higher catastrophe costs lead to pricing power, which historically has been positive for insurers.

PAST PICKS: March 13, 2024

Freeport-McMoRan (FCX NYSE)

Then: US$43.41

Now: US$35.68

Return: -18%

Total Return: -16%

IBM (IBM NYSE)

Then: US$196.70

Now: US$257.19

Return: 31%

Total Return: 33%

Meta (META NASD)

Then: US$495.57

Now: US$696.25

Return: 40%

Total Return: 41%

Total Return Average: 19%