John O’Connell, CEO of Davis Rea, shares his outlook on North American Large Caps.
John O’Connell, CEO, Davis Rea
Focus: North American large caps
Top Picks: JPMorgan Chase, American Express, Charter Communications
MARKET OUTLOOK:
‘Same as it Ever Was’
The recent “regime alteration plan” in Iran—following a similar playbook in Venezuela—signals a shift toward a “short-war” scenario that, while volatile today, points toward long-term regional stability. Oil prices may spike on jitters, but the fundamental trajectory is lower. one could argue this is ‘peak threat’, and the adage; ‘sell the news’ is fair warned today. Lower energy prices are the ultimate economic lubricant, bolstering consumer power and anchoring disinflation.
A spike in gold may also prove to be a good selling opportunity. Treasuries bonds are catching a bid causing interest rates to fall, a supportive market soothing event. The real risk isn’t the Middle East, but the opaque private credit markets. If a credit crisis emerges there, expect the Fed to revert to its familiar “Whack-A-Mole” strategy, lowering rates to prevent a systemic seizure. “Same as it ever was” to quote Davis Byrne of the Talking Heads.
Despite geopolitical theatrics, and now well socialized AI temper tantrums, the underlying economy remains robust and corporate profits are soaring. The market’s recent movements have improved valuations significantly. While the “rental” crowd frets over the cooling AI bubble, the “ownership” class should find certain sectors increasingly compelling. Specifically, profits have surged but prices have plummeted, due to what some would argue are hysterical AI concerns. The margin of safety has widened not narrowed. We remain focused on the fundamentals, favoring a long-term ownership stake in high-quality companies over the frantic trading of headlines.
Leading technology giants and the banking sector now appear exceptionally attractive. Recent reactionary losses, sparked by transient AI skepticism rather than fundamental decay, offer a rare entry point for those focused on ownership.
TOP PICKS:
John O’Connell’s Top Picks: JPMorgan Chase, American Express & Charter Communications John O’Connell, CEO of Davis Rea, shares his top stock picks to watch in the market.
JPMorgan Chase (JPM NYSE)
The “Fortress” of Wall Street, and frankly, the walls have never looked higher. While some treat bank stocks as a temporary rental, we view JPM through the lens of long-term ownership.
The bears keep looking for a credit monster under the bed, but it simply isn’t there. Credit quality remains pristine, and with a capital ratio north of 14 PER CENT, their balance sheet is a global gold standard. We aren’t just seeing “strong” earnings; we’re seeing a masterclass in scale, with 2026 net investment income (NII) guidance recently raised to $104.5 billion.
The true competitive differentiator is their $20 billion technology budget. That isn’t just a line item—it’s a massive commitment to AI and digital transformation that effectively outspends the total market value of many regional competitors. In a resilient economy where the consumer refuses to roll over, JPM is leveraging that tech to dominate.
If you’re waiting for a “perfect” entry, you’re likely just watching Jamie Dimon eat everyone else’s lunch from the sidelines. It’s a foundational buy for those who value compounding over speculation.
American Express (AXP NYSE)
Currently caught in a whirlwind of “AI hysteria,” with critics fearing that high-end service roles will vanish into the silicon. This is classic short-termism. In reality, AI is the ultimate key to unlocking American Express’ greatest asset: its gilded vault of proprietary customer data.
Unlike competitors who rely on fragmented third-party info, American Express owns the entire closed-loop relationship. This data moat makes them virtually “un-disruptable” by new entrants; you simply cannot replicate decades of high-net-worth spending patterns overnight. While the “renters” worry about headcount, long-term “owners” see American Express using AI to sharpen fraud detection and hyper-personalize the “membership” experience—turning a perceived threat into a massive productivity engine.
Regarding the Credit Card Competition Act of 2026, the fear of a government-mandated fee collapse is overblown. Amex’s integrated model—acting as both issuer and network—provides a unique structural shield against the routing changes targeting the Visa/Mastercard duopoly.
At a forward price-to-earnings of roughly 21 times, you are buying a “Fortress” balance sheet and a premium brand at a significant discount to the pure-play payment rails. Stop fearing the future and own the compounding machine. Even if an AI is booking the travel, Amex will still be the one collecting the fees on the Champagne.
Charter Communications (CHTR NASD)
A textbook example of a “rented” stock where the market has completely lost sight of the “owner’s” reality. While the narrative focuses on short-term broadband losses, we see a business “quietly going private”. Since 2016, Charter has retired over half its shares outstanding, and as prices trade lower, the pace of this massive compounding machine only accelerates.
The market is currently pricing in a “price war” that isn’t coming. Telecom giants like AT&T and Verizon are staggering under massive debt loads while attempting to overbuild fiber in regions where Charter already owns the customer relationship. These entrants cannot logically underprice Charter after paying exorbitant installation costs for rural fiber.
Crucially, the “Big Capex” era is ending. As the Network Evolution and rural builds wind down after 2025, capital spending will drop by roughly $4 billion annually. This flows directly to a free cash flow yield that is projected to hit a staggering 70 per cent by 2029. Furthermore, the noise around broadband losses is stabilizing as the impact of expired Affordable Care Act subsidies fades.
With a fortress-like coverage of the U.S. population and a video strategy that just delivered its first subscriber growth since 2020, Charter is an elite cash-flow play hiding in plain sight.
DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDJPM NYSEYYYAXP NYSEYYYCHTR NASDYYY
PAST PICKS: JAN. 14, 2025
John O’Connell’s Past Picks: Meta, Synopsys & Alphabet John O’Connell, CEO of Davis Rea, discusses his past stock picks and how they’re doing in the market today.
Meta (META NASD)
Then: US$594.25
Now: US$648.41
Return: 9%
Total Return: 9%
Synopsys (SNPS NASD)
Then: US$490.36
Now: US$412.05
Return: -16%
Total Return: -16%
Alphabet (GOOGL NASD)
Then: US$189.66
Now: US$304.10
Return: 60%
Total Return: 61%
Total Return Average: 18%
DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDMETA NASD YYYSNPS NASDYYYGOOGL NASDYYY
