Barry Schwartz, executive vice-president and chief investment officer at Toronto-based Baskin Wealth Management.The Globe and Mail
Money manager Barry Schwartz is a proud Canadian, but when it comes to investing, he’s more red, white and blue.
“We’re all in on the United States,” says the executive vice-president and chief investment officer at Toronto-based Baskin Wealth Management, which oversees $2.7-billion in assets.
“The business models that exist today in the U.S. – stocks such as the Magnificent Seven – are such great quality businesses that you can’t ignore them.”
His equity portfolio today is about one-third Canadian stocks – many of which are dual-listed or have major operations in the U.S. – and two-thirds U.S.-listed companies.
It wasn’t always this way. Before the 2008 global financial crisis, Mr. Schwartz’s portfolio leaned toward Canadian-listed stocks. But he says there aren’t enough Canadian stocks today with “reasonable valuations” that fit his investment criteria, which include capital-light companies with recurring revenue, high returns on invested capital and strong management teams.
“The average U.S. company – the good ones – trade around 30 times earnings. That’s not cheap, but based on the double-digit growth the S&P 500 should deliver, they will start to look very inexpensive,” he says. “It’s quality over price.”
The investment strategy has helped his firm generate double-digit returns in recent years. The company’s maximum growth portfolio has returned 29.4 per cent over the past year. Its three-year annualized return is 14.2 per cent and its five-year annualized return is 13.7 per cent. The performance is based on total returns, net of fees, as of Jan. 31.
The Globe spoke with Mr. Schwartz about three stocks he likes and one he recently sold:
Name three stocks you own today and why.
MSCI Inc. MSCI-N, the leading provider of financial indexes, is a stock we bought in May, 2024 after the company missed earnings expectations. Its stock fell from the high US$600-range to the high US$400-range. We bought it for around US$480.
MSCI focuses on international markets and is a high-margin, recurring revenue business with strong pricing power. It has a proprietary information database and very little capital expenditures. It’s a great operator and generates an enormous amount of free cash flow.
What we like about the company is its management knows when to buy back stock, which it did in May. We think initiatives to diversify its customer base beyond mutual fund managers and extensions into ESG data and private markets provide growth opportunities.
TransDigm Group Inc. TDG-N, which sells aftermarket airplane parts, has been among the best-performing stocks on the U.S. stock exchange over the past 10 years. Our thesis is quite simple: Airplane travel is exploding, well above pre-pandemic levels, and we expect even more growth – especially in emerging markets – in the years to come. The more planes that are flying, the more parts are needed.
We started buying the stock in October, 2024 at US$1,375 a share. Shortly after we bought it, the company announced a special dividend of US$75 a share, which was nice. The stock has been impacted by Boeing’s production issues and concerns about the U.S. government’s DOGE [Department of Government Efficiency] initiative, but strong secular demand for commercial flight and travel should support results. TransDigm is run with high leverage, but it has enormous profit margins and generates a lot of free cash flow. We think it’s going to have a great runway of growth.
Meta Platforms Inc. META-Q, the operator of Facebook, Instagram and WhatsApp, is a stock we bought for US$600 in December, 2024. We owned the stock in the past. We made the mistake of selling it in 2022 at around US$200 a share after owning it for about four years. We were scared out of the stock when it changed its name from Facebook to Meta. We thought the company would blow its brains out on its Reality Labs division [which produces virtual reality and augmented reality products]. We felt smart and smug because the stock fell to US$99 not long after we sold it.
The company did blow its brains out on Reality Labs, but it didn’t matter because the core business is so good. We think this is one of the best businesses in the world. It has three billion daily users of its products. Meta has a large opportunity to invest in AI to drive engagement and advertising revenue throughout all its apps. The stock has done better than we expected since we bought it back.
Name a stock you sold recently.
We sold our position in Canadian National Railway Co. CNR-T in October, 2024 at $160 a share because of concerns about lower freight volumes from a weakening Canadian economy and the increased frequency of service disruptions from natural events and strikes.
In hindsight, we bought the wrong railroad. We should’ve bought Canadian Pacific [before it became Canadian Pacific Kansas City Ltd. CP-T]. When we purchased CN in 2018, it was trading at a discount to CP. We thought there was an opportunity there. I’m not going to make that mistake again. I’m not going to buy the cheaper company in the industry. Always buy the better, well-run business, even if it trades at a higher valuation. At least we made a small profit at an average cost of $125 a share.
This interview has been edited and condensed.