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

Unsure on how high gold prices can go. Record high gold prices due to the highest debt levels in USA ever. ~$35 Trillion balance sheet liabilities very worrisome. Canada in not much better position. Concerned that increased printing of money to cover debt costs will erode purchasing power. Long story short, high Federal debt levels, and record spending are the reason gold prices are rising. Gold remains a safe place for concerned investors as people look for a place to store value. In addition, the US Dollar might not be the leading fiat currency globally (another reason gold prices rising). 

 Company Highlight: Intuitive Surgical (ISRG)

Intuitive Surgical (ISRG) is an industry leader in the robotic-assisted surgery industry, well-regarded for its da Vinci surgical system. Its technology allows surgeons to perform complex procedures with enhanced precision, control, and visualization, which greatly helps with the recovery time for patients. Its da Vinci system is the most widely used robotic-assisted surgical platform in the world. Its sales are from a mix of da Vinci systems, ongoing sales of instruments and parts, and maintenance fees of the systems. 

ISRG has a strong track record of performance, with a 10-year total return CAGR of 25.0%. In terms of its financials, it is a large-cap healthcare name ($170.0 billion market cap), and it has grown its sales and earnings at a five-year CAGR of 13.4% and 11.6%, respectively. Forward analyst estimates call for a 13.7% next year sales growth rate and 16.6% earnings growth rate. Analyst estimates have been rising over the past few months, as optimism around its industry-leading healthcare robotics position continues, and it makes progress on the AI front. 

While its share price has risen dramatically since the peak of 20221, its valuation has stayed roughly the same or declined slightly. This suggests its fundamentals are improving and that we could see its valuation compress more in the future if earnings continue to grow and its share price grows at a slightly lower rate. It is not cheap at a 68X forward earnings multiple, but we feel this is the price for a high-growth, industry-leading name in the robotics-assisted surgery industry.
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Bottom line is that back in October 2022, there was a major market low. After that, you typically see a new 4-year cycle in a 3-5 year cyclical bull market. By time, that should take us at least into the first half of next year. So the answer to the question is yes, and we can talk about some targets later. For now, the path of least resistance for equity markets remains up.

In Phase 2, the leaders typically are industrials, info tech, and basic materials. That's played out for the most part this year, especially info tech. But what we're seeing here, and on the semiconductor index, are early signs that we're failing to make new highs on the NASDAQ. The point is that we're starting to see signs of rotation away from information technology. 

At the start of the year, he was telling clients that the target was 5400, or roughly 15% upside. But it's a moving target now so 6000 is his next target, which is above the previous target of 5800 that was broken a couple of weeks ago.

On the TSX, he's looking at around 26,000. Back in the summer, his big call was that the TSX would outperform the S&P 500. The reason is that we're getting late cycle, and that should favour resources and the resource-heavy TSX. So far, that story has played out.

In technical analysis, the similar theory is "Dogs of the Dow". Instead, he tries to put the best patterns and charts in front of clients. People like to vote for the underdog, but TD, for example, is not a dog he'd be voting for.

Really likes energy here. Next 2 months are a bit choppy, especially with WTI crude swinging quite a bit. However, January-April is a really strong seasonal period for energy. So he doesn't mind adding across the board, and make sure to stay through the choppy period. See his Top Picks.

If he's correct as to where we are in the cycle with rotation out of Phase 2 (industrials, basic materials, and info tech), Phase 3 typically sees resources lead. More importantly, we start to see energy come into the picture. When energy comes into the picture, inflation starts to rear its ugly head again.

Gold remains in an uptrend, past his target of $2600. He's a big fan of the Commitment of Traders data from the Chicago Board of Trade, which comes out weekly on Fridays at 3:30 pm. Commercial traders continue to reduce exposure on the way up. Though gold can push higher, we're getting to the end of this move in the intermediate term.

We've had a good move, but he's cautious at current levels. Vulnerable to at least a near-term correction. Some charts look great, such as OR, AGI, and WPM, and he'd gravitate toward those.

Pipelines have been great this year and he recently took the trade off, yet they've continued to run. Continue to look strong. If he's correct about rates going higher again, and bond proxies coming under pressure, people will still want yield. If inflation comes back, he thinks pipelines are going to be the new hot thing.

Quite positive sentiment. Really on the back of inflation numbers that came in for the last month, which were lower than expected. 

Lots of value in the rate-sensitives particularly in utilities and telecoms, and even in Canadian banks. If you look at higher-growth names where valuations are quite rich, compared to the interest-rate sensitives where the valuations are quite reasonable, it's justified that they've run a little bit.

Profits are profits. But on the multiple, you're definitely not willing to pay the same for wholesale earnings as you are for retail and business. What you've seen across the board is that every single money-centre bank has beaten. They've all been showing lots of strength. Citi might have been the outlier given that it was close, but it still beat.

Absolutely, and that's the thing. Valuations are really high. You have to look at your returns going forward. If you buy high, your returns are going to be low, though you could still get reasonable earnings growth. With Q2 earnings, we saw 80% of companies beat on the bottom line. But only 60% of companies beat on the top. That divergence is quite striking. 

At some point, earnings growth will slow down. You're going to get dividends, earnings growth, and multiple expansion. Given that multiples are where they are, you're not going to get that multiple expansion. On the flipside, when everything slows, you could get multiple contraction, and that could really hit your returns.

You always need to be valuation sensitive, but you also have to look at where we're at in the interest-rate cycle. Over the next 18-24 months, more interest rate cuts are coming. Is that already baked into the market? Will there be more upward pressure on equities? You have to strike a balance.

In this sector, you can't avoid it. It affects every single player. Look at AMZN and all the data centre providers. There are only so many customers. TSM also has massive concentration risk. The whole supply chain is massively vertically integrated, so there's customer concentration risk and supply chain risk the whole way through. If you want to be in the space, you have to accept it.