Chris Blumas’ Top Picks for June 19, 2025

Chris Blumas, Portfolio Manager, Raymond James Investment Counsel

Focus: North American large caps

Top picks: Descartes Systems, Alphabet, Brookfield Infrastructure Partners

MARKET OUTLOOK:

During U.S. President Donald Trump’s first term in office, he imposed tariffs on China that did not result in higher overall inflation. This time around, his tariffs target all of his country’s trading partners and the proposed tariff rates are significantly higher. Despite this significantly more aggressive stance, inflation pressures in the United Sates remain muted so far.

Looking ahead, many economists believe that it could take up to 18 months for the higher costs to be fully reflected in consumer prices. However, many businesses could find it more difficult to pass along price increases as consumer budgets are showing greater strain after shouldering the most recent price increases associated with the COVID-19 pandemic.

All this uncertainty has the U.S. Federal Reserve sitting on its hands as it waits patiently to see how the inflation and employment landscapes transition over time.

Given this uncertain backdrop, financial market volatility is likely to remain elevated as investors react to economic data and geopolitical events.

While it’s difficult to know when this volatility will subside, history has proven that it pays to stay invested and remain mindful of company valuations. Over the long term, financial markets have rewarded patient investors and those who have stayed invested and taken advantage of market volatility have achieved significantly better results than investors that have come in and out of the markets.

Going forward, I think it’s important for investors to remain well diversified and defensively positioned. In addition, I think investors should focus on companies that generate positive free cash flow and are self-sufficient from a financing perspective. Companies with strong, investment grade balance sheets and access to credit markets control their own destiny. These companies can endure tough times and are well positioned to create additional value for their owners by operating in a counter cyclical manner.

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TOP PICKS:

Descartes Systems (DSG TSX)

Descartes is a logistics and supply chain management software provider with a global presence. The company generates more than 90 per cent of its revenues using a software-as-a-service (SaaS) pricing model. The United Sates is Descartes’ largest market and accounted for almost 70 per cent of revenues last year. Tariffs and trade uncertainty have been a big overhang on the company’s share price which is down by more than 20 per cent over the last six months. During prior periods of economic weakness, the management team at Descartes has been opportunistic and has acquired competitors with complimentary capabilities. Currently, the company has no long-term debt and more than $175M in cash available for opportunistic initiatives. The shares currently trade around 40 times trailing cash flows and have a trailing free cash flow yield of around 2.5 per cent.

Alphabet (GOOGL NASD)

Alphabet is an investment holding company. The company’s main asset is Google which accounts for more than 90 per cent of Alphabet’s revenue. Google generates around 90 per cent of its revenues from online advertising and generates the remainder from the sale of apps and content. As advertising dollars continue to move online, Google is uniquely positioned to continue growing revenues and cash flow. On the negative side, Google continues to face significant antitrust pressure to lessen its dominance in the online search and search advertising markets. In addition, increased competition from AI-enabled search providers could limit search growth and negatively impact Alphabet’s market share over the long-term. The shares currently trade around 20 times forward earnings and have a trailing free cash flow yield of 3.6 per cent. However, these valuation metrics do not account for the excess cash on the company’s balance sheet (~US$85B or ~$7 per share) or the hidden value associated with the company’s rapidly growing cloud services business and its portfolio of early-stage technology investments, which collectively generate negative operating income.

Brookfield Infrastructure Partners (BIP-UN TSX)

Brookfield Infrastructure Partners (BIP) is a global infrastructure company with a diversified portfolio of assets. It operates through the following segments: utilities, transport (rails & terminals), midstream (pipelines & processing), and data (towers & data centers). The utilities and transport businesses are the most significant and accounted for around two-thirds of cash flows last year. BIP’s size, sponsor support, diversified operating model, and global platform are unique and allow the company to recycle capital opportunistically and grow cash flows at an above-average rate. The shares currently trade around 10 times funds from operations and have a dividend yield of five percent with a funds from operations payout ratio of around 50 per cent.

PAST PICKS: JUNE 18, 2024

MAINSTREET EQUITY (MEQ TSX)

Then: $162.01

Now: $190.04

Return: 17%

Total Return: 17%

VISA (V NYSE)

Then: $273.62

Now: $340.38

Return: 24

Total Return: 25%

FORTIS (FTS TSX)

Then: $52.78

Now: $64.83

Return: 23%

Total Return: 27%

Total Return Average: 23%