Lyle Stein A Comment -- General Comments From an Expert A Commentary COMMENT Jul 18, 2025

Yes. Since April, the breadth of stocks performing well has been slowly improving. More importantly, markets around the world (not just the US stock market) are doing this. The US stock market is about the weakest of the major markets, as the USD has been weakening. 

Great to see participation in a broad base of sectors. Most of the leadership is in economically sensitive sectors, which belies the idea that we might have some kind of recession. In general, there's lots of liquidity in the market. Central banks around the world, aside from the US, have been loosening. It's not a market where you want to fight the tape.

Still his firm's largest sector holding at almost 30%. Includes banks, insurance companies, and the TSX. Financials really benefit when short rates are low and long-term rates are sticky and high, as there's an opportunity to make $$ there. Capital markets have been strong.

There was this moment where you thought maybe, just maybe, some spending might get cut. Of course this "big, beautiful bill" comes along and all of that goes out the window. Clear that governments are going to continue to have populist policies and the bond market's telling you it doesn't love that. But ultimately, that's stimulus in the economy, and it makes its way to the stock market.

If there are going to be more dollars out there, people have to be able to protect their purchasing power. Companies that have had an ability to raise dividends, or generate lots of cash, are able to put their prices up tomorrow if inflation is up today. And those are the ones that are winning. So his team is focused in those areas.

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.

Five Signs Of A Good Financing:

Investors should generally dislike companies that issue stock because it's better if they are self-financing and don't need to dilute their shareholder base.

However, companies do need to grow, and financing is one of the prime reasons the stock market exists in the first place. Rather than dismiss all financings, here are five points to consider in determining whether one is good or bad.

A new share issue should be priced higher than the prior one

This seems so basic, but stocks are supposed to go up. When a company issues stock at a lower price than its previous issues, it just makes us mad.

No increase in the deal size

Companies should take what they need in a financing and nothing more. Enterprise thought it wanted to raise $12-million. What suddenly changed to dictate that it now needed $24-million?

Insider participation

We like to see insiders buy new shares alongside other investors. If we are going to recommend a stock, we want management committing their personal funds as well.

No sweeteners

We just cringe whenever we see warrants or other sweeteners attached to a financing. Issuing such attachments is, to us, akin to a bribe to potential shareholders. “You don’t want just common shares of our company? How about we throw in half a warrant as well?”

Warrants bring out a different type of buyer, typically hedge funds that short the stock against the warrant, or shorter-term players looking for a leveraged pop from the warrant.

We also don’t like most convertible debentures, because they include the obligation to pay interest. We prefer that a company issue regular, plain old vanilla common shares. Nothing fancy: straight equity with no commitments.

A clearly defined use of cash

It always makes us wonder when a company raises money for ‘general corporate purposes,’ and not in a good way. We know that the line is often just thrown out as a tag in a press release, but a company should know exactly what it wants to do with its new cash.

Many companies raise cash as a cushion, which is fine, but too much cash can be a drag on the returns a company makes.

It's preferable if a company issues stock for something specific, say, bridging an acquisition with debt. Shareholders then know where the proceeds of the issue are going, and do not have to hope that the company does something smart with their money.
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