Opinions
Kim Bolton A Comment -- General Comments From an Expert A Commentary COMMENT Jul 16, 2025
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It's always about what the market is going to deliver relative to expectations. The bar isn't particularly high this quarter. We normally get about 70% of stocks beating earnings.
The story is going to be what they say about tariffs and margin compression. Not sure enough companies know yet what that's going to look like. If you look at the 6.5% earnings growth estimated over the next year, it doesn't seem a stretch at this point. If we get nominal GDP growth of 5-5.5%, those numbers are achievable. But that nominal GDP growth number assumes no margin pressure from tariffs and a pretty decent economic outcome.
In the "big, beautiful bill" we get some current stimulus and tailwinds over the next year, though they're not what we saw in terms of tax cuts in the TCJA passed during the first Trump administration. But there's also massive bond supply being a headwind to future growth.
It's not going away anytime soon. If the tax revenues through tariffs are elevated enough to mitigate some of the need for bonds, that would be a good story from a debt finance perspective but a bad story related to margins. Either we're going to get inflation, or margin pressures, or bond yields are going to have to back up a little bit more. It's one one of those three things or some combination of all of them. To him, the market is priced for a more Goldilocks-type of outcome.
We've been in a situation like this before, where equity markets surprise to the upside. So we can't be too confused by that. See today's Educational Segment for some ideas to deal with that uncertainty and where to put your money if you're worried about growth.
There is. Speaks to the whole universe of Canadian Depositary Receipts that have come up. You can buy fractional shares with an embedded currency hedge in a lot of the big names in the US. If you feel the CAD is very low here, and you want that US exposure, you're probably better off buying it with a CDR that has currency hedge embedded as opposed to buying the stock on the US exchange.
If you like the stock and think the CAD is expensive and likely to get cheaper, then you want to own the US dollar version of that and keep your exposure to the USD.
Larry thinks the CAD is somewhat undervalued right now in the context of the next 5 years. Fair value for the CAD is probably somewhere between 75 and 80 cents. When it's below 75 or 70, you want something that's hedged. When it's above 80-85, you want the US dollar exposure. If it's somewhere in the middle, you're a bit indifferent to the currency risk.
You can buy an ETF that's listed in Toronto that has the euro exposure. For example, ZWP gives you exposure to the euro via a Canadian holding.
This question is probably prompted by the whole narrative around a weaker US dollar and the euro getting stronger. That's very much a USD-Euro story, than a CAD-Euro story. So you might need to look more for a US holding than something in Canada.
FLUR gives you international exposure. XEU gives you broad exposure to MSCI Europe.
The US economy is in fairly good shape. Labour looks good, though there's lingering inflation with the tariff impact yet to hit. Longer term, he's construction. AI will be deflationary in the long run, and the tariffs will be temporary. Valuations: markets are fully valued, though could rise on organic growth or greater expectations of future growth. He expected volatility this year, though not as deep as last April. Last quarter, the market didn't hold CEOs' feet to the fire when they said that they don't know what's happening because of tariffs, so they pulled guidance; normally, that hurts stock prices, but not last quarter. This time, investors want to know guidance. Last quarter was good, and he hopes this will be.
It is a very crowded trade, but for very good reason. As we go through the show, we'll see that things are within 5-10% of price targets. This means that it's probably a good time, maybe not to sell, but to sell some calls against a name and make some money -- certainly against the Mag 7 (which account for over 40% of the market cap of the S&P 500).
Still some pockets worth looking at. One area he really likes (and there seems to be movement toward it) is Edge AI. There's been a trend to Edge computing, getting closer to the devices out there. And you can do it these days with the computational power of the chips. It touches everything from smartphones to iPads to factory floors. Pretty well every generative AI stock out there has a considerable business in Edge AI.
Top Performers in June:
The best performer of June was Propel Holdings Inc (PRL) whose stock price was up 19.4% on the month, up 2.9% year-to-date, and up 48.5% over the past year.
PRL is an innovative fintech company operating through three main brands, MoneyKey and CreditFresh in the US, and Fora in Canada. It reported strong earnings in early May, which helped to improve its momentum, and since then, it has carried this positive momentum into June. The name was heavily sold off during the April Tariff turmoil decline, and since the market recovered, PRL has continued its climb higher. It trades at an 11X forward earnings, it has a 1.9% dividend yield, and with a strong growth profile, we feel this name can move higher in the coming year(s).
The second-best performer of June was Galaxy Digital Inc (GLXY), whose stock price was up 17.4% on the month, up 19.3% year-to-date, and up 74.7% over the past year.
It operates across a few main segments: global markets (trading, lending, derivatives), asset management (venture investing, passive ETFs, etc.), digital infrastructure (data centres for blockchain and AI). It has now completed its uplisting on the NASDAQ exchange, and in June, it closed its first external venture fund at more than $175 million. This fund aims to back early-stage blockchain and digital asset startups. The crypto market has been moving higher in general, and this has helped to improve its price action. Lastly, it has established a strong partnership with CRWV and this has helped to drive growth and diversify its operations.
The third best performer of June was Magellan Aerospace Corp (MAL) whose stock price was up 14.4% on the month, up 91.7% year-to-date, and up 140.9% over the past year.
MAL is a small ($1.0 billion market cap) aerospace name that pays a decent yield of 0.5%. It has a diversified customer base and long-term contracts, serving customers like Boeing, Airbus, and Lockheed Martin. In late May, TD Securities upgraded MAL and raised its price target, which helped its price action into June. It also announced a dividend increase and it gained momentum from the rising global military and defense-related spending. Given its forward expected earnings growth rates, its valuation of 17X forward earnings seems fairly attractive to us.
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Rumours of Trump about to fire Powell sent markets tumbling and interest rates rising. Then, Trump denied the firing, and market rallied. The market said that Trump is wrong about firing Powell. While Powell made mistakes in the pass, raising them in late 2018 and calling inflation transitory post-Covid, there's no reason for him to cut rates. Trump would be smart to leave Powell alone. Firing him would rock the stock market and raise long-term interest rates.
They're not Blackwell state-of-the-art, but the next best thing. A year ago, they were the cat's meow. It's why NVDA popped up another 4% yesterday. Gives more legs to the whole AI revolution going on out there, with China being such a large market.
He was surprised, but pleasantly, as he's pretty overweight in the AI ecosystem.