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

It means that the things that benefited from falling rates, which are pretty over-owned, are not likely the places where you'll make money. Things like high-dividend-paying stocks, with lots of leverage and that generate a relatively small but steady return on capital, are not as attractive. Because as the cost of capital goes up, they're not going to grow their dividends. This includes utilities, REITs, telecoms, staples.

On the other hand, companies that have the ability to set price, and generate lots of excess cash, are more likely to return it to shareholders in the form of a rising stream of dividends. There's no question that we're going to have a higher cost of living, and so we need a rising stream of dividends. There are very specific companies and industries that are really well suited to that. You just have to get your head around the fact that the world is just a different place than it was before 2020.

People have been waiting for this recession, and piled into defensive sectors, but they're just not working and are now over-owned. Sectors that didn't do well for a decade, like financials in the US and around the world, as well as energy, materials, industrials, are all under-owned and unloved. But that's where the relative strength is. 

If you look at a chart that depicts results from a Fund Manager Survey, you can see where investors are overweight. Bonds, in particular, are overweight, as investors talk about bond prices going higher when rates go lower. The truth is that other things will add more value. For example, in the last 12 months the aggregate US bond index has been up 1.7%, but the world of dividend growth stocks is up 24-25%. 

We're in a different world, and both institutional and individual investors need to do some repositioning.

For a year now, he's been talking about buying large, cashflow-producing, resource producers. Names like CNQ and TECK.B. They represent one important component where we can get inflation protection.

People think about risk as prices fall. You have to remember that risk is also inflation eating your money. So you need to own things that protect you from that risk, and it's something we haven't had to think of much for the last 15 years.

Tech is not the only place to be. A lot of people are really overweight. He has about a 50% weighting. There's been some deterioration under the surface in some of the weaker companies. Just know that there are other things you can do.

Yes, but relative strength has been weakening since December for the group. His firm is about a 1/3 weight in healthcare, so pretty underweight. He often finds that if a company has a questionable technical setup, a little bit of bad news goes a long way.

In a world where there's lots of choice and you only need 20 names to build a portfolio, perhaps you don't need to focus in this sector right now.

When is the right time to sell?

In the book “Common Stocks and Uncommon Profit”, the famous investor Phillip Fisher said that “if the job has been correctly done when a common stock is purchased, the time to sell it is almost never”.

For example, investors who are skillful and lucky enough to own shares of Constellation Software (CSU), selling or even trimming the name at any time have looked like a mistake so far.

Some common mistake investors make

Most of the time, investors would try the game of selling at the top and buying them back at the bottom, which very few investors (if any) have done successfully and consistently over the long term.

In addition, investors’ psychology is usually that stocks are in the red, and investors will get out as soon as the investments move back to the cost basis. However, this is one of the most common mistakes in investing, making investors hold a loser for too long, thereby missing other opportunities that could earn better returns in the meantime.
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Oil prices slid last fall into early winter last year because demand was weak, US shale production was surging, and the Saudis reacted by surging their own production which lead to price crash. Today, oil demand is at record highs, US shale production is starting to fall given consolidation, and the Saudi/OPEC production cuts working which has reduced price volatility. Now, oil fundamentals are strong and support $80 WTI. There's moderate political risk, but summer demand is coming. A price spike is possible ahead. He's bullish Canadian oil stocks which don't need the oil price to rise, at least for some stocks.

How to tell a value trap from a value stock: A trap has no catalyst to re-rate it. In a value stock, management has a successful track record, valuation, the company has a strong balance sheet, and asset quality where the company doesn't need to keep companies to add inventory. 

Markets ended Q1 a lot different than expected back in early January (TSX up about 6% and the S&P 10%). It was the teflon quarter, because news wasn't that great. There was a reversal in expected Fed policy, but the market didn't pull back. There's still optimism heading into Q2. Consensus says that rates cut start in June, but inflation data could change the Fed's plans and that would impact market optimism. Friday's job numbers if they are strong will push a June cut to later and impact stocks lower.

Believes Jerome Powell's comments reflection notable shift in opinion. Expects US Fed will change opinion on cutting interest rates (economy too strong). Gold and broader market is strengthening across the board. Not seeing growth at a reasonable price - ratios are way too high. Employment numbers a bitter/sweet factor, as most market crashes are preceded by record employment levels. 

Current stock market valuations very high which might indicate a soft landing - but is also concerning. 6 month spending reports pointing towards healthy US consumers. Employment numbers are very strong which also supports strength of economy. If job numbers start to fall - will indicate a recession. Will be interesting to see if US Fed cuts rates (believes economy is too strong). Inflation very high - believes US Fed needs to raise rates. 

Company Profile: Vitalhub Corp (VHI)

Vitalhub (VHI) develops mission-critical technology solutions for Health and Human Services providers in the mental health, long-term care, home health, community and social services, and acute care sectors. Their offerings include a wide range of software products designed to improve patient care, streamline workflows, and enhance operational efficiency within healthcare facilities. VitalHub's solutions cover areas such as electronic health records (EHR), case management, mental health management, and interoperability.

In terms of its financials, analysts expect 14% and 50% sales and earnings growth next year, respectively. It recently became profitable with a current net profit margin of 6.5% and a 4% ROE. It is expensive with a valuation of 47.9X forward earnings and 18.2X forward EV/EBITDA.

VHI is an interesting small cap (C$294 million) Canadian name that has seen sales, margins, and free cash flow growing nicely due to the expansion of its healthcare product portfolio, and further integrations into healthcare networks. It has been fairly acquisitive over the years and recently acquired BookWise solutions. Growth has been great and it’s multiple contracted significantly after it achieved profitability in 2022.
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Company Highlight: Palantir Technologies (PLTR)

Palantir Technologies (PLTR) is a software company specializing in data analysis and integration solutions. The company's software is widely used by government agencies, financial institutions, healthcare organizations, and other industries to make data-driven decisions, detect patterns, and gain insights from complex datasets. Palantir's primary product offerings include Palantir Gotham, which is tailored for government and defense clients, and Palantir Foundry, designed  for commercial enterprises. 

In its recent earnings results, PLTR beat both EPS and revenue expectations. Forecasted outlook is very strong with revenue and EPS respectively expected to grow at above 20% for each year till 2026. The company is a big benefactor of AI tailwinds and has long incorporated AI data mining in its product offering. The company has over $4 billion in cash and demand has been extremely rapid over the last year. It is does charge a premium valuation of nearly 75X forward earnings but there are plenty of positives such as: growth, balance sheet, market leadership, large contracts, long operating history, and growing cash flows. The one drawback that investors do not like is the extremely high levels of stock-based compensation.

Looking at its financials, we see price starting to breakout, while valuation remains at similar levels likely due to multiple expansion. PLTR is also starting to see a gain some momentum in terms of beating quarterly EPS forecasts recording back-to-back beats. PLTR was not profitable for its entire history up until 2023, but that swung in a big way and all the signs shows that this should continue.
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Yes. Inflation is coming down naturally, being caused mainly by pandemic's supply chain disruptions and central banks' hiking rates. Only a matter of time before bonds staged a big rally and stocks followed. That's what we're seeing now.

NA economy remains strong, as does employment and household savings. Moving toward a Goldilocks scenario where we could have disinflation, perhaps even deflation, with positive economic growth. Bonds have had a rougher time this year because rate cuts have been pushed out. Should get a really nice bond rally between now and year-end as the inflation data comes down more and rate cuts begin.