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Stock Opinions by Paul Harris, CFA

COMMENT
Markets and the substantial rally so far in 2024.

We've seen an expectation of rates coming down, or at least not going up, and people are more comfortable with that. That's why we've seen a rally in stocks over the last little while. Earnings numbers were reasonable.

People have slowly come to terms with rates not coming down immediately. There's some volatility around that, but the market's getting used to it, which means that it can continue to do well given that the expectation is that sometime down the road, rates will come down again.

Unknown
COMMENT
A Comment -- General Comments From an Expert
Earnings.

They were reasonable. It's the quality of earnings that's important in the long run. And the quality was reasonably good in the US. Decent revenue growth, bringing down cost structure to more normalized levels for their particular businesses. This is what people are happy with, as opposed to "beating" a particular number, since that's a little game that management can play with analysts.

The quality of earnings being better means that companies are adapting to the existing environment and are comfortable with it.

Unknown
COMMENT
Biden vs. Trump.

What's important about this year is that a lot of high-population democracies, such as India and Indonesia, are also having elections. The US one is going to have an overwhelming impact on the global economy.

Hard to tell this early on what's really going to happen. It's going to be a bit of a bun fight, with everyone saying all kinds of nasty things about each other. In the US, all comes down to whether you win the Senate and the House. Very difficult with the structure in the US for a president to get anything done unless they win both those bodies, or at least get ones more likely to compromise. This has not been the case of late.

So whoever wins, it will depend on how the House and the Senate are set up. That's the important part. It's how the economy and politics works there. Or doesn't work there. 

There are also a lot of issues in the US with the fact that either would be sort of a "lame duck president", as neither can run again.

Unknown
BUY
Merck & Company

Absolutely a reasonable choice in the sector. Beat numbers last quarter. Lots of cash, ability to buy assets in areas of growth or where they want to add expertise. Increased guidance. Worth owning.

biotechnology / pharmaceutical
BUY
Northland Power Inc

Utilities suffered through 2022 because of high debt and high interest rates. Big projects coming online, would help the stock if those can get done on time. Ran up on expectations of renewables taking over fossil fuels, but these things take a long time to work out. Plus, heavily weighted to debt, same as all utilities. 

One of the major players in clean energy. Stock will move sideways for a while until clarity about interest rates. Good opportunity to buy. Utilities can be defensive in a slowing economy. Nice yield of 5.1%.

Utilities
BUY
Zoetis Inc
Net income to free cashflow conversion went down.

That conversion metric is a good one. Transitioning some drugs, so growth has slowed, impacting free cashflow. Increase in R&D taking up capital. New drugs in pipeline. Story still stands. Good value compounder over time.

Consumer Products
BUY
TC Energy

Interest-sensitive pipelines have all had a rough time. He owns ENB. 

These companies have great assets that aren't going away. CEOs of these companies feel it's difficult to do business in Canada. ENB, for example, is dedicating all its capital to the US. That's going to be the strategy if these companies want to grow. 

Good time to buy. Though rates aren't going down as quickly as people think, they're not going up from here. That's the value proposition. Over the next 6-9 months or so, rates will come down at the short end and the yield curve will look differently. These companies will benefit from that.

oil / gas pipelines
BUY
Enbridge

Interest-sensitive pipelines have all had a rough time. ENB had to issue equity and debt to finance an acquisition, caused stock to collapse, an opportunity to buy.

These companies have great assets that aren't going away. CEOs of these companies feel it's difficult to do business in Canada. ENB, for example, is dedicating all its capital to the US. That's going to be the strategy if these companies want to grow. 

Good time to buy. Though rates aren't going down as quickly as people think, they're not going up from here. That's the value proposition. Over the next 6-9 months or so, rates will come down at the short end and the yield curve will look differently. These companies will benefit from that.

oil / gas pipelines
BUY

Interest-sensitive pipelines have all had a rough time. He owns ENB.

These companies have great assets that aren't going away. CEOs of these companies feel it's difficult to do business in Canada. ENB, for example, is dedicating all its capital to the US. That's going to be the strategy if these companies want to grow. 

Good time to buy. Though rates aren't going down as quickly as people think, they're not going up from here. That's the value proposition. Over the next 6-9 months or so, rates will come down at the short end and the yield curve will look differently. These companies will benefit from that.

pipelines
BUY
Keyera Corp

Interest-sensitive pipelines have all had a rough time. He owns ENB.

These companies have great assets that aren't going away. CEOs of these companies feel it's difficult to do business in Canada. ENB, for example, is dedicating all its capital to the US. That's going to be the strategy if these companies want to grow. 

Good time to buy. Though rates aren't going down as quickly as people think, they're not going up from here. That's the value proposition. Over the next 6-9 months or so, rates will come down at the short end and the yield curve will look differently. These companies will benefit from that.

oil / gas
BUY ON WEAKNESS
Dollarama Inc.
Add before or after earnings?

Unique business, big player. If you see a dip, buy it. Even at these levels, if you're buying for the long term, has proven itself to execute incredibly well on its vision. Will continue to grow across Canada. Keep an eye on possible hiccups with international operations down the road.

Consumer Products
BUY

Homes not only for seniors, but also for those transitioning from owning their own home. Flexible format for this is key. Good job of providing support through the living transition. Fell during Covid, doing better since then. Quality is very good.

One issue is the risk of an event such as Covid. Good story. Good dividend. REIT sector, but in a niche area that has demographic tailwinds over the next several years. We need more of this housing.

property mngmnt / investment
DON'T BUY
Tesla Inc

It's true that a TSLA is more like an iPhone than a car. Price erosion, margins have come down. Distracted by making trucks. Best EV company in NA today. Ford and friends have trouble getting their act together, because they have 2 different businesses on the go.

The big issue is that they need to come out with a car that's smaller and cheaper. Biggest competition is from Chinese companies, with smaller cars of pretty good quality. Similar to what the Japanese car industry did in the 1970s.

Consumer Products
PAST TOP PICK
Apple Inc
(A Top Pick Apr 05/23, Up 4%)

Difficult 2023 with iPhone sales in China. People are too focused on this. Good upgrade cycle coming along. Was trading around 35x earnings, now around 27x. Several quarters of slow or no growth. Wearables and services continue to do well. Lots of free cash. Will continue to do well. Buying opportunity, though it could fall more.

electrical / electronic
PAST TOP PICK
Alphabet Inc
(A Top Pick Apr 05/23, Up 27%)

Still likes the story. Leader in Search, good growth in YouTube. Largest player in advertising. AI hiccups will get solved. Key player in AI and advertising.

Technology
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