A Comment -- General Comments From an Expert (A Commentary)

Consumer staples are outperforming in the last few days, and that speaks to the advantage of having a balanced portfolio. Companies like KHC, UL, KVUE, and Nestle. It's not that they won't be affected (their costs would go up), but they're far less cyclical than other businesses. Earnings will be much more stable. Earnings could fall 10%, but not 50%. Dividends will be sustained.

Companies like Unilever and Nestle are huge in NA, but huge globally as well.

Whatever happens in the US affects the rest of the world. He wouldn't recommend emerging markets, as they tend to underperform if/when there's a recession. 

Investors would be better off buying the best companies in the German market, rather than the whole German market. Germany's the 4th-largest economy in the world, but it's had a bunch of issues with its own deficit and economic slowdown. He owns specific stocks in Europe. 

He'd sell a stock today if he didn't think it offered upside. By owning a stock, and buying it for new clients, he thinks there's more upside.

He's going to paraphrase Andrew Coyne from Saturday's Globe & Mail: "We're seeing a period of unknown upheavals and, given what Trump's done already, we're talking about upheavals that could go on for 4 years." In the short term, then, what should we be worried about?

When he stands back and looks at the market and how to make money, outside of the fact that Trump is causing wiggles in market moves, what Trump says doesn't mean a great deal to him. 

Looking at the NASDAQ and the S&P 500, the last time that those 2 markets got up to where they just were before the selloff, was back in 2000. Valuations, in price-to-book terms, are back to those levels. Technically and  mathematically, those are very difficult levels to break through. To break through and get higher, you really have to have a very strong economy with something extraordinary happening.

People were expecting and hoping that AI would do all that. Unfortunately, it takes time, just as it took time for fibre optic cable uptake in the 2000s. AI platforms are overbuilt. We're going to have a setback, just like in 2000. So the economy isn't going to be as strong as people expect. With Donald Trump mucking around on the side, it gets even worse.

So it's more of a natural correction. We're at an all-time high, and he expects a fairly large correction.

Never look at them lumped together in a group. He's watched them for over 50 years, and a very interesting pattern emerges. RY and NA are up at the crest of the wave, trading at a good premium to book value, but on their way down. Down in the trough are BNS, BMO, TD and LB -- those are the cheap ones on their way up.

Trump wants Canadian energy; if he can get it as cheap as he can, all the better. He reiterated "drill, baby, drill". But American producers are sitting on their hands because prices aren't high enough. Prices need to get above $80-90 or even higher before it's going to get attractive again.

He's followed 3 excellent analysts over the years, and at least one is calling for oil at (hold onto your hat) $200 a barrel. That may be excessive, but if it got to $90-100, all the oil stocks would do very well.

He likes the oil patch broadly speaking, as it's fairly low risk. He prefers the junior oils, rather like the junior golds, as those names are overlooked and cheap.

Canadian Financial Companies Well Positioned for Tariffs:

Canadian banks and insurance companies that have high exposure to the domestic market. These companies are not dependent on importing/exporting physical goods. Although sustained tariffs could lead to an economic slowdown and weaken consumer health over time, this scenario is unlikely to happen overnight.

Sun Life Financial (SLF, Market Cap: $45 billion): A well-established Canadian insurance company with a decent track record of profitability and dividend growth.

The Bank of Nova Scotia (BNS, Market Cap: $87 billion): An international bank with main exposure in Latin America and the domestic market.

Goeasy (GSY, Market Cap: $ 2.6 billion): a small-cap consumer lending business with superior growth and return on capital profile.
Unlock Premium - Try 5i Free

What to do as the tariff war starts this morning? 1) Capital preservation. In recent years, easy money was made. Not now. 2) Be ready to buy names that fall and add them to your portfolio. 3) Raise cash so you can do #2. Extra 10% tariffs on China: When Trump imposed tariffs on China in his term, China devalued its currency, and those sanctions didn't work. Now, will China put sanctions on US companies? Wish list: Taking Nvidia for example, wait and watch for a floor before stepping in. If you've made huge gains, there's nothing wrong in taking some profits. Trim winners and raise some cash.

It's very interesting. The CAD fell hard on Friday, bounced back a bit today. He's shocked that the TSX did a lot better then the US market in February. If you were worried about the world ending tomorrow, why would that be?

He thinks the market's unsure whether these tariffs are going to happen. If you told him how long they're going to be in place, how bad they're going to be, and who's going to be most affected, he could tell you what playbook to follow. But he doesn't know those things, so he's not going to take any action.

We should find out later today what the impacts are going to be. He tells his clients that you have to be nervous every day when Donald Trump is president, but you don't have to react.

He'll watch the market reaction, seeing which companies and sectors will be most impacted. When Trump first announced tariffs for March, and then moved it to April, the biggest TSX losers were companies like BBD.B, MG, railroads, and oil/gas. Those stocks haven't recovered well. One of his Top Picks from last time has done really poorly because of tariff worries.

No company wants to invest any $$ right now, do M&A, or spend a bunch of money until there's clarity. The uncertainty has roiled the market and you can see it in the stock market performance for February.

No one has any idea what the stock market's going to do in the short term or the long term. The last 2 years for clients and for the S&P 500 have been spectacular. Over the last 5 years, the S&P has compounded 17% and that's not normal. No one should expect that going forward. The next 5 years has to be more muted.

He's telling clients that the S&P 500 does about 9.5% over the long term, and that should be your expectation. Hopefully, great stock-picking can beat that.

You have to invest to make money in your portfolio, not on how you want the world to be.

With RESPs, you really want growth until the student is closer to going to university. At that point, you then switch more to income or protection. He'd allocate to the NASDAQ, the S&P 500, and a bit to the TSX. Hard to buy individual stocks in an RESP, since the money available is not a huge amount.

We're just at the beginning. It'll be tremendous. You want to own the companies that own the highways and the railroads in the industry, and that's the hyperscalers.