Opinions
Jason Del Vicario A Comment -- General Comments From an Expert A Commentary COMMENT Jun 06, 2025
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They're fascinating. You look at some of the reports that have come out, and from an analysts' perspective they're good. But the stocks aren't necessarily behaving that way. Are earnings going to continue the upward momentum? We've already seen Q2 numbers almost halved in terms of growth from what they were at the beginning of the quarter. Now the question is what will 2025 look like and, more importantly, 2026?
We have a little more clarity on tariffs, but the clouds haven't cleared yet. We don't know what those numbers are going to be, and neither do the companies. So he's watching for indications that companies are giving on how they're dealing with the tariffs they think are coming down the road. Those are the numbers that are going to be the most important.
He and his team spend a lot of time talking to companies. What he's hearing is that there's a better sense that the painful, original, "liberation day" tariffs won't be there. They've had a better chance to respond in terms of diversifying supply chains as well as adjusting prices. The market wants to have it all done in the snap of your fingers, but it all takes time.
It's really a general discomfort with the US. It has been king, with the king dollar, and the US market has been 75% of global markets. Everyone talks about NVDA. Well, NVDA is bigger than most markets around the world with the exception of Japan.
If the bloom comes off the rose, the money will rotate. It's not that the US will be abandoned in total, but money will continue to flow to Europe on one side of the pond and Japan on the other. The notion of the US being the only place to be is falling off.
Size makes a difference. It's tough as you go down in market cap because different well experiences can have different implications. The most important thing to him is what do you like in terms of oil vs. gas vs. drillers. He likes gas. He owns VET, PEY, and TOU. He also looks for value, getting these names at a reasonable price.
Long term, he thinks gas prices are going up, particularly in Canada. The opening up of the pipeline to the West Coast brings next year's forecast for the differential down quite a bit. Canadian producers now have a second market in addition to the US. That's a catalyst to the Canadian gas names that you aren't going to find in other NA or global names.
Hallelujah! It's taken way too long. It's our best asset in addition to water. Best part about getting gas to market is that these pipelines will open up Asia, and maybe even Europe. The last prime minister rejected us selling our gas, but this is what we do well. We have to support this. The revenues that come from it support it. Great time to be in the gas patch, and it's good for Canada.
It's really a risk/reward assessment, not a market-timing tool to buy "now" or sell "now". It tells you your relative tradeoff. He looks at 11 factors, some are trend and some are value, such as sentiment and breadth. Each factor gets a score and the Bear-o-meter registers from 0-8.
0 means run for the hills, very risky on a relative basis. And 8 means back up the truck. We're at about 3 right now, which is OK but not wonderful. It's been pretty much there all year so far.
Note that this tool looks at the S&P 500, not at the TSX. All 11 factors are based on US markets.
S&P is up ~7% so far this year, rather a mediocre year. Really good for the TSX.
The Bear-o-meter hasn't been saying run for the hills, but it has been choppy. There's certainly the potential for continued volatility. We'll have to keep an eye on it.
August, September, and October typically show higher VIX levels (higher volatility) than at any other time of the year. So you want stocks with lower beta.
There's something called smart money/dumb money, which is data on stuff like insider or institutional buys/sells and commercial hedging. Big institutions hedge if they feel there's more risk. He gets data on all that.
If smart money (the more sophisticated investor) is less bullish and retail money is more bullish, that's generally a bad sign. If the Warren Buffetts of the world are selling, and Joe Schmoe is buying, that usually indicates not as good a risk/reward.
His big theory in the market is that hard assets are coming into a big cycle. Likes natural gas more than oil. Government in Canada is very encouraging on nat gas. European markets are very strong for nat gas.
Nat gas is making a nice bottom; higher highs and higher lows, has broken out from the base. Quite bullish on nat gas as a longer-term theme, and it should translate to the producers over time (with some lag). If you hold gas over the next year or so, it should play into that longer-term cycle.
Typically the commodity will lead the producer, because the market wants to see if the commodity move will add to profitability for the producers.
Among ETFs, equity ones remain the most popular with 1,800 in Canada. The newest ones are on the 0 day to expiry; we'll see how they do over time. The latter hold indices and sell puts to make short-term profits; are not for everybody, but this is the cutting edge in ETFs. Options volumes continue to grow. If you buy USD ETFs, make sure they are hedged. The market has been complacent. No matter the headline, the market rallies or dips have been very shallow. He expects a dip in the near future, but remains constructive long term.
They're very much bottom-up investors. They screen for their criteria, and they end up with businesses sort of putting up their hands saying "I'm a high-quality business, or a potential one, that you should look at". So he doesn't wake up in the morning and say he should find an energy, healthcare, or technology stock.
Typically, some sectors have a higher concentration of companies that could meet his criteria. Information technology is one area to which he has a fair amount of exposure. The flipside would be sectors where they don't find high-quality businesses; unfortunately, those tend to be the ones (like financials, energy, materials) that dominate the Canadian marketplace. They may require too much capital, or simply don't have the ROIC he's looking for.