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

Absolutely. But remember that it's just like any government, where there are people behind the leaders that do all the thinking. The leader at the top is really just the talking head. 

Yes. Volume counts, but especially on up days. One of his favourite indicators is money flow. It compares positive volume days with negative volume days, and assigns a significance to the bigger volume in that move. The MFI is a momentum indicator, so you can see if there's money building in a stock.

As far as timeframes, use the weekly charts. His typical holding time is 3-6 months. Use weeklies to pick possible resistance and support points. When looking at long-term support levels, the older the support the less it matters.

As far as indicators go, there's no magic answer. He has his favourites. Any indicator on a daily chart is more of a short-term indicator. Stochastics is a really good one for short-term stuff. Otherwise, find the ones that work for you.

He, and a lot of other people, use stockcharts.com. But if you're a young investor with $20-30K, you're probably not going to take out a subscription to that. But once you get around $100K or so, it's worth spending $200 or so for the base subscription. You get all the indicators, you can store your charts, lots of wonderful stuff.

If you're going to get serious about investing on your own, and not use a money manager, you need to step up your game.

We've seen economic data really start to slow down. The government's being a bit slow on rate cuts, and that could be an increased risk to investors, but probably not for another year or so. As some of these numbers come down, it means a higher likelihood of rate cuts, which the market's pricing in right now.

We're in one of those weird markets where poor economic data is probably good for investors; it means rate cuts are probably coming, and stocks should move up if that's the case.

That conundrum does make it difficult for the Fed to deliver on rate cuts. Some inflation has proven to be a lot stickier than traditionally expected. The hope is that data on the price side gets revised down as has a lot of other data. Something to monitor over the next few months. 

He expects that inflation and pricing points will start to fall, opening up the avenue to rate cuts.

Without a doubt, it hasn't been a broad-based rally. Mega-cap companies and those in AI are the leaders, and he expects this to continue. Later in the year, perhaps in the last quarter, we'll see a bit of evening out. So maybe some of the small caps and underperformers will catch a bid and move up.

Realistically, the top-performing companies continue to do so. It makes it easier from an investment perspective, because you don't necessarily have to go chasing too far to get returns. You can own the S&P 500 or some of the mega-cap ETFs and, assuming you get in when they're not too elevated, you should be able to make profits through the rest of the year.

While history doesn't repeat itself, it often rhymes. Normally, when markets are as strong as they have been in the US for the first half of the year, that should continue over the last half. Possibility for positive returns from now until the end of the year is quite high. His target for the S&P 500 would be somewhere between 5800-6000, which means 8% or so in upside gains.

It will still come from the leaders that have been paving the way so far. Traditionally in a bull market, you can just keep buying the winners because they continue to perform the best. So he'd be looking at mega-caps, chips, and AI. Some financials are starting to show a few interesting characteristics.

Don't overthink it. Look at what's been working, and you can follow that template for the next 6-12 months.

In lower interest rate environment, growth will generally outperform value. Might get periods of sector rotation, but growth will probably outperform in next 6-12 months.

What to do with winners in a short timeframe?

Have to be prudent. Take stock of the risks you're holding within a portfolio. At the end of June, he did some rebalancing where a lot of targets had been achieved. You don't want to get too greedy. Sometimes it does hurt as you watch a stock continue to go up.

For the tax implications, talk to a qualified tax advisor. Unique to each individual. Not a lot of upside for Canadian banks, though they are nice for an income stream. Look elsewhere for growth, such as in the US, despite debt and economic headwinds.

Company Highlight: Alimentation Couche-Tard (ATD) 

ATD is a global leader in the convenience store sector. It operates under different brands including Couche-Tard, Circle K, and Ingo. It provides food and non-food items, as well as fuels. It has a large network of convenience stores through company-operated stores and franchise stores. We consider it to be one of the highest-quality businesses that trades on the Canadian markets, and it has the ability to grow predictably over a multi-year period. 

In terms of its financials, it reported recent results which were weaker than expected, but fuel was the main factor, which is a volatile component of earnings. Inflation may put some pressure on consumers at the lower end, but the long-term prospects for ATD have not changed. It recently signed a deal with Too Good To Go to increase foot traffic. It pays a small yield of 0.9%, it has a history of margin expansion, and it trades at an attractive forward P/E of 18.5X.

We believe that ATD can continue to grow its free cash flow, acquire and integrate more convenience stores, and integrate them effectively while expanding its profit margins. We can see that its profit levels have largely grown over the years and its stock price performance has been excellent, proving itself to be a quality compounder. 
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It's all about interest rates. When the Bank of Canada recently cut rates, bond prices started to rise in Canada. Since November, when the US Fed announced it will stop raising interest rates, Wall Street cheered, expecting six rates, which have not happened. Mega tech stocks continue to rule because the hedge funds have piled into the AI trade. When Powell last month said that inflation is still a concern, the hedge funds started migrating out of megatech and the market has done sideways. Earnings are at the end of this month; this is the worst quarter of the year, so expect things to stay sideways. The US dollar is artificially high, because foreign investors must buy US bonds in USD, and the US has the highest interest rates in the G7. The strong USD is hurting emerging markets. He's holding both stocks and bonds. 70% Canada's stocks amount to financials and resources, so you need to look abroad to diversify. The mismatch in interest rates between Canada and the US means a weaker Canadian dollar. China is not attractive given its aging population and economic problems.

In AI, software has taken over from the chips, because of valuation. Semis have run up recently and now investors are locking in some gains (but still in tech). Therefore old tech and software are benefiting now. 

Company Highlight: Brookfield Renewable Partners (BEP.UN)

The top performer of May was Brookfield Renewable Partners whose stock price rose 32% on the month, 9% year-to-date, but was still down 7% from the year prior. One year ago, at the end of May 2023, BEP.UN stock’s price had unknowingly been peak trading at $38.89, just shy of 52-week high levels of $39.90 which were achieved in June 2023. Things have been up and down since, with the stock hitting a 52-weeek low of $27.43 in October 2023 but the recent recovery bodes well.

BEP.UN is one of the largest pure play renewables companies in the world. BEP.UN has a 23-year history as a publicly traded operator and investor in renewable power and sustainable solution assets, currently employing approximately 4,770 workers. BEP.UN’s portfolio of assets spans hydroelectric, wind, utility-scale solar, and other sustainable solutions assets, including distributed generation solar and storage. BEP.UN’s portfolio of sustainable solutions assets includes investments in Westinghouse (a leading global nuclear services business), investments in an operating portfolio of carbon capture storage (CCS), renewable natural gas, and over one million tons of recycled materials annually.

The big pop in share price was driven by news that BEP.UN had entered into a contract with Microsoft as their renewable partner. BEP.UN will deliver an incremental ~5,200 GW hours per year of generation under the finalized partnership with Microsoft to deliver over 10,500 MW of renewable capacity between 2026 and 2030. First quarter earnings also came in in May which were decent and pointed to potential fundamental changes with positive tailwinds from electrification and data center demand trends. The company also increased its distribution by 5%.
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