Paul Harris, partner and portfolio manager at Harris Douglas Asset Management

FOCUS: North American and global stocks

MARKET OUTLOOK:

The question now is what the world will look like in 2021 and beyond. While the vaccine development has certainly changed the outlook for the pandemic, its impact may be delayed by the escalating case numbers and the logistical challenge of its distribution, both of which might slow the economic and earnings recovery in the U.S. and Canada. Our best guess is that the U.S. and Canada will return to some semblance of normal by the fourth quarter of 2021. We do not, however, know what the new normal will look like. Will people travel as much? Will consumer behavior change? Will saving rates remain high? Will consumers behave as if the economy is in a depression or a recession? In a normal recession, most consumers forget the ill effects of the recession after about two years. With a depression, by contrast, consumer behavior is impacted for many years. This has implications for investing from commercial real estate, to internet infrastructure. We continue to believe that technology, healthcare and healthcare technology, consumer staples and discretionary- Amazon Costco and Walmart, will continue to do well.

TOP PICKS:

Zoetis (ZTS NYSE)

Zoetis is the largest public animal-health company. Zoetis was spun off from Pfizer in 2013. In 2018 U.S. pet owners spent 15.5 billion on over the counter medicine and supplies and double 6.2 billion in 2001. Healthcare for animals has a certain advantage over health for humans. The industry doesn’t have content with pricing pressure from insurance industry as most medical expenses are paid out of pocket.

Developing drugs for pets, compared with for humans, is generally faster and less expensive, since it requires fewer clinical studies involving fewer subjects Most companies try to find compounds that have worked in humans, so we don’t to start from scratch. Generic drugs are less of a threat. The company has strong free cash flow growth, generating 1.8 billion in 2021, a strong balance sheet and covers interest on debt 14x and high conversion rates in free cash flow to net income.

Costco (COST NASD)

Costco Wholesale Corporation is engaged in the operation of membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of Aug. 28, 2016, the company operated 715 warehouses across the world. The company's average warehouse space is approximately 144,000 square feet. The company has no debt, generates 3.7 billion in free cash flow. Has consistently beaten its cost of capital.

Facebook (FB NASD)
Facebook has more than three billion users and a still growing user base. The large amount of data collected from this user base is a unique and valuable asset for ad and content targeting. Facebook has growth levers with WhatsApp and Instagram. The company has high margins with EBITDA margins in the mid 50 per cent, trades at 23 times earnings, and is projected to generate 18 billion in free cash this year.

PAST PICKS: February 6, 2020

Walt Disney (DIS NYSE)

• Then: $142.70
• Now: $191.75
• Return: 34%
• Total Return: 34%

Royal Bank of Canada (RY TSX)

• Then: $107.63
• Now: $109.94
• Return: 2%
• Total Return: 7%

Amadeus IT Group (AMADY OTC)

• Then: $82.08
• Now: $72.97
• Return: -11%
• Total Return: -11%

Total Return Average: +10%