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

Believes recent under-performance in tech due to sustainability of A.I. spending, and ability to continue to generate increased profits. However, if tech companies continue to deliver, performance will continue. The recent market volatility has created opportunities for investors to invest in quality names. Earnings expectations and stock multiples will be most important factors impacting stocks in the next few months. 

Company Highlight: Boralex Inc. (BLX)

BLX is a Canadian developer, owner, and operator of renewable energy power facilities in Canada, France the United States, and United Kingdom. BLX has been working in renewable energy for the past 30 years and has a workforce of over 790 people. The company operates primarily across three types of renewable energy: wind, solar, and hydroelectric (including energy storage). It has 102 Wind Farms, 13 Solar Power Stations, 15 Hydroelectric power stations and 2 storage units. This gives the company an installed capacity of 3,133 MW across 132 sites. BLX has 264 MW under construction expected to be commissioned in 2024 & 2025, and a pipeline of 587 MW.
Unlock Premium - Try 5i Free

Yes. We're all about being as conservative as we can, especially in a market like this. Focus on returning as much of the return as possible up front in the form of dividends, so not relying as much on market-price return. We don't know if the market's going to be up, down, or sideways. But collecting that dividend, and reinvesting and compounding it, provides a good stable base. Any market return they get on top of that is a bonus.

Absolutely not :)  Part of it is that there's not much dividend yield. Also, those valuations are unsustainable. She looks for recurring and stable revenues. NVDA, for example, doesn't make its own chips; it's just the brain power behind its product. So what happens to that market price if another company comes along?

She's already in the interest-rate sensitive sectors. Wasn't so good last year, but now seeing some positive moves. Market's been teetering. Poor jobs numbers mean market panics that we're going into a recession. Next day, same data generates thoughts of rate cuts and that's great.

Market's been more volatile since early August. Her portfolios have been doing really well. She's invested in critical infrastructure like pipelines, and lower interest rates are helping. Defensive nature of her portfolio will continue to do well in further market weakness.

Not just about the dividend yield. Also about consistency of cashflow. She likes contracted revenue, such as a utility that has regulated earnings. Pipelines have long-term, take-or-pay contracts. Those companies are able to generate a stable cashflow that's consistent, and pay a portion in the form of a dividend. She also expects that dividend to grow over time.

Most of the companies she owns increase their dividend every year, based on the increase of their free cashflow.

The OPEC+ decision is not a surprise. Most of the companies she owns focus less on the commodity price, and more on volume. Think pipeline volume for the likes of ENB and TRP.

Yes, it seems very clear. June was the first month where there was no central bank tightening anywhere in the world. Only Japan tightened in July. And now clearly we're into a liquidity cycle, which will go on for a while. An interesting time.

Liquidity is the most important thing to think about for asset valuations. 

Rates peaked in October 2023. Since then, bond index in Canada and US rallied 10-11%. If you were in dividend growers, and more recently higher dividend payers, the returns are 30%. 

A lot of people looked at this loosening period and said that you better buy bonds, which is fine. But he thinks there are other alternatives. Longer term, he likes dividend growth as the strategy. At this point in the cycle, not a bad thing to have staples, utilities and pipelines in your portfolio.

Remember that everyone is driven by different decision-making processes. Most important thing to take away is that we've moved from a market where, in June, only 24% of S&P companies were beating the index. And a small number had a big portion of that. In August, 63% of companies were ahead of the index. So the market is broadening, including groups that had not been participating. 

From mid-October 2022 until this summer, financials clearly have led along the way. Industrials have done very well, along with tech. But now pharma is doing well, and so are REITs depending on where you're looking. Utilities, pipelines. Seeing participation from a lot of different sectors, mid-caps are doing better as are value-oriented sectors.

When you have a broadening in the market, that's healthy. Money is being put to work.

A lot of people are very committed to large-cap tech. He is less committed. His weight in tech is less than 10%, about 1/3 of his usual weighting. Not because he doesn't think they're great companies. When you look at the history of semis, when they get really stretched above their 200-week MA, they have a tendency to correct -- either by going sideways, or by price coming back to the MA. Both would be significant.

You need to own companies that generate excess cashflow and don't need a lot of financing. The cost of capital is going up. A friend phrased it as: We've had 40 years where the borrower was in control, and now the lender's in control.

He will never pick a bottom -- there are people who are really good at it, but it's not his strength. Weak RSI and broken technicals are not your friends. He looks for fundamentals to show that something is changing for the better, accelerating numbers, and price behaviour that supports that view.

He's targeted insurance, largely P&C because it's had a great ability to raise premiums. He also owns large capital markets banks. Both of those get lots of leverage out of a strong market cycle. Fintech like Visa tends to do better when those other companies aren't.

Should get a lot more information in the next month or so. Copper price has come down to 200-week MA. The producing index is at the rising 200-week MA, should find support there. Technically, copper producers are looking better.