Gordon Reid’s Top Picks for May 13, 2025

Gordon Reid, president and CEO, Goodreid Investment Counsel

FOCUS: U.S. equities

Top Picks: Elevance Health, Leonardo DRS, JPMorgan

MARKET OUTLOOK:

We are living with very nervous equity, fixed income, and currency markets­­­­­­ –­ a reaction to U.S. President Donald Trump’s approach to different areas including tariff policy, geopolitical disruption, aggressive foreign policy, and isolationist tendencies. Event-driven market action historically has often quickly resolved because root problems get solved. The best example of that was the COVID-19 pandemic. Studies of past incidences of equity market turnarounds such as we experienced in April, indicate that a year out markets are positive about 80 per cent of the time and the average gain is greater than a one-year average market move.

However, the source of the volatility is rooted in Trump and his style, so to assume that the tariff issue and the market’s reaction in April/May was isolated ignores the cause. The next four years are likely to be more volatile than normal, so investors must make sure that their investment approach and portfolio construction can be sustained through highly emotional periods. Earnings for the first quarter have been largely positive. As of May 9, 90 per cent of S&P 500 companies had reported, with 78 per cent of companies reporting a positive earnings surprise and 62 per cent reporting a positive revenue surprise. The earnings growth rate of 13.4 per cent year-over-year would mark the second straight quarter of double-digit growth. Of course, much has happened since the first quarter period, but it is important and comforting to know that corporate America entered the turbulent tariff situation on firm footing.

The 12-month forward price to earnings ratio (P/E) is 20.5 times versus a five year average of 19.9 times and a ten-year average of 18.3 times from a sector standpoint. Healthcare, communication services and technology are growing the fastest annually, while energy, materials and consumer staples show negative annual comparisons. Domestic companies are growing earnings slower than foreign focused companies but are growing revenues faster, resulting in internationally focused companies expanding margins. Net profit margins remain elevated at 12.7 per cent, up from 11.8 per cent in first quarter 2024, but down from record levels of 13.9 per cent.

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TOP PICKS:

Elevance Health (ELV NYSE)

Elevance, formerly named Anthem, is a managed care operator with 47 million members. The industry has been under duress as lumpy results after the pandemic and worries about government reimbursement rates pressure stock prices. ELV is trading 27 per cent below its all-time high, but more importantly its valuations are attractive, both in absolute terms and from a historical relative standpoint.

Leonardo DRS (DRS NASD)

DRS is an amalgam of Leonardo, an Italian defense company, RADA, an Israeli electronics company and the US based DRS, a defense concern specializing in propulsion technologies for naval equipment. With greater geo-political tension worldwide, expanding U.S. defence spending and a decoupling of NATO alliances, DRS’ backlog is growing, and business is robust.

JPMorgan (JPM NYSE)

JPM is best of breed. Current prices reflect concern over the health of the U.S. economy. Greater confidence and a growing economy, combined with a favourable regulatory environment should propel earnings and allow book value to advance sharply.

PAST PICKS: May 14, 2024

Apple (AAPL NASD)

• Then: US$187.43
• Now: US$209.74
• Return: 12%
• Total Return: 12%

Euronet Worldwide (EEFT NASD)

• Then: US$114.95
• Now: US$110.99
• Return: -3%
• Total Return: -3%

Uber (UBER NYSE)

• Then: US$65.32
• Now: US$89.20
• Return: 36%
• Total Return: 36%

Total Return Average: 15%