Paul Harris is partner and portfolio manager with Avenue Investment Management. His focus is on North American and global equities.
Microsoft has limited downside and good upside. We believe the risk/reward trade-off is compelling. We continue to see operational momentum improving with a raft of new products. The stock trades at 12 times earnings, has a 2.5 per cent yield and has free cash flow of $25-billion (U.S.) a year.
Goldman Sachs is one of the largest global investment banking firms in the world. The stock trades at 10.9 times 2012 earnings, 0.9 times book value and has a yield of 1.1 per cent. The company has been able to grow market share in all of its core businesses, as competitors have shrunk or disappeared in the investment banking landscape. Goldman is the top one or two in investment banking and securities and debt
Leisureworld is an integrated owner and operator of long-term care homes in the province of Ontario. The company has a strong balance sheet, a yield of 7 per cent and trades at 12 times price to funds from operations. It is a great long-term demographic play. High barriers to entry.
Past Picks: March 24, 2011
Total return: -25.77%
Total return: +20.32%
Bank of America
Total return: -26.48%
Total Return Average: -10.64%
We believe that the stock market is currently undervalued relative to debt markets, given corporate free cash flows and balance sheets. When choosing investments, we focus on asking two key questions of the businesses we own. First, do these businesses have the necessary balance sheet, competitive advantage and management to allow them to get stronger (vis-a-vis the competition) as the economy gets weaker and compound their internal growth at 8-10% annually? Second, what is the appropriate asset class to own of these businesses. We ask, 'should we today own the bonds or the equity in order to achieve the ideal returns with less risk that we target?'
Compiled by Franklin Cameron, BNN Market Call Tonight