David Driscoll’s Top Picks for June 2, 2025

David Driscoll, president and CEO, Liberty International Investment Management

FOCUS: global and North American stocks

Top Picks: TOROMONT INDUSTRIES, UNILEVER, MICROSOFT

MARKET OUTLOOK:

As of last Friday, European stock markets were up 8.1 per cent, Emerging markets were up 7.6 per cent and the S&P/TSX Composite Index was up 5.8 per cent. On the downside, U.S. small caps were down 7.3 per cent, Japan was down 4.8 per cent and Nasdaq was down one per cent (the Magnificent Seven stocks were still down 4.2 per cent overall). Why the discrepancies?

Valuations were much cheaper in Europe and the Emerging markets and a drop in the U.S. dollar has helped home currencies. Last August, the Euro traded around par with the U.S. dollar but is now at $1.14 to the U.S. dollar. That’s caused a move to safer and more liquid currency havens such as the Euro, Swiss Franc, and Japanese Yen.

Fear of higher U.S. interest rates caused by higher tariffs and inflation has slowed investments in small-cap stocks, especially in the U.S. Higher interest rates are Kryptonite for growth stocks such as small-caps and technology firms.

For investors, it’s important to have portfolio structure in place with a limited number of names in each sector. In a 30-stock portfolio, the average weight would be 3.3 per cent and if the healthcare or small-cap names drop to 2.5 per cent, we will buy more to bring it up to a neutral weight. We believe in the future of these companies and use current headwinds to dollar-cost average. This is prudent portfolio management, to swim against the tide and let pragmatic investing trump emotional decision-making.

• Market-moving news, fast: Get the BNN Bloomberg App now
• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe

TOP PICKS:

TOROMONT INDUSTRIES (TIH TSX)

It sells, rents and leases Caterpillar equipment from Manitoba east to the Maritimes. Its CIMCO subsidiary makes and distributes refrigeration and process systems throughout North America. Infrastructure building continues and if there’s a slowdown in urban construction, demand has risen among resource companies so revenue growth should continue. The stock trades in 2027 expected earnings of 17 times, its dividend rises about 10 per cent a year and the return on invested capital (ROIC) is 12 per cent versus nine per cent for its weighted average cost of capital (WACC), at a time when ROICs are falling due to higher interest rates and a slowing economy. Dividend yield is 1.75 per cent.

UNILEVER NVA (UNA NA)

It trades on the Amsterdam exchange is a consumer staples company that is refocused on selling detergent and personal care products. Cutbacks in consumer spending has hurt consumer discretionary companies but it still must buy what Unilever must sell. It trades at 16 times 2027 earnings and offers a dividend yield of 3.23 per cent. ROIC is 13 per cent and WACC is eight per cent. Margins are improving with the sale of their lower margin products.

MICROSOFT (MSFT NASD)

It provides software solutions for individuals and corporations and is involved in Artificial Intelligence, cloud computing and any future quantum computing efforts. Profitability appears to be unaffected by economic turmoil as demand continues for its products. The dividend yield is a meagre 0.72 per cent but it has been growing 10 per cent a year. Its ROIC is 23 per cent and its WACC is nine per cent, leaving with plenty of free cash flow to invest in future of technologies.

PAST PICKS: July 2, 2024

CARL ZEISS MEDITEC (AFX GERMANY)

• Then: €64.90
• Now: €54.80
• Return: -16%
• Total Return: -15%

ENGHOUSE SYSTEMS (ENGH TSX)

• Then: $30.56
• Now: $26.45
• Return: -13%
• Total Return: -10%

SPECTRIS plc (SXS LON)

• Then: £2820.00
• Now: £2014.00
• Return: -29%
• Total Return: -26%

Total Return Average: -17%