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

The question was on life insurance stocks. He would lean towards the banking sector which has better valuations. However he is underweight in the financial sector with expectations of a weaker economy and a trend to lower interest rates.

US corporate earnings strong last week - tech contributing majority of growth. 5% grow with tech sector (~1% without tech). Markets have been stable with higher than expected earnings. Recent US Treasury announcement a concern, with rising debt levels. US bonds selling off slightly which creates uncertainty. Old US Fed bonds maturing will require new issuance of debt - very eye popping. More bond raises will draw capital of out other sectors of economy (harder for companies to raise capital from investors).  

Alexander Hamilton (first US Treasury Secretary) suggested prudent use of leverage was good for society. However, politicians have abused debt in order to buy votes. Rising debt levels in the USA a major concern. Every recession in the past 50 years has followed with record debt levels. Current deficit comprised of 6% of GDP is set to rise. Fiscal outlook for US Fed is in terrible shape. Approximately $1 Trillion of debt expected to be raised by the US. US Fed competing with private companies for capital - investors will give their capital to government - which reduces amount leftover for entrepreneurs etc. Higher inflation will also require increased interest rates, which will increase the costs of servicing debt (money that could be invested elsewhere). Overall, is bad state to be in with colossal debt levels. 

Company Highlight: Prime Water Corporation (PRMW)

The second best performer was Prime Water Corporation (PRMW) whose stock price was up 12% on the month, 24% YTD and 24% over the past year. It is a leading direct provider of bottled water to consumers and water filtration services in North America and Europe, having withdrawn from Russia in the 2nd quarter of 2022.

The low for the stock price during the  past year was $16.58 in mid June 2023 from where it rose strongly  near the close to $24.64. The stock ranked no 3 performer in August 2033

Management notes that 2023 was a year of transformation and strong financial performance. PRMW continued to execute against its transformational strategy to become a pure-play North American company, achieving a major milestone as it completed the sale of a significant portion of the international businesses. On December 29, 2023 the European business was sold for $575 million. This plus cash on hand enabled PRMW to redeem in full $750 million of 5.5% senior notes. Cash on hand at year end was $507.9 million

Year end results were announced on February 28,2023: Revenues at $1.772 billion up 4.7%; net income at $238.1 million was up $208.5 million, of which $174.3 million came from discontinued operation.
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Cautious on state of economy. Similar to past economic cycles when markets crash. Yield curve has been inverted for a long time. Longer the inversion occurs - generally the worse the recession is. Believes investors should take preventative measures. One strategy is to diversify into a broad variety of asset classes (gold, real estate, stocks etc.). Unsure on the future of markets, so would recommend defensive portfolio. 

April Market Update:

The US treasury yields advanced strongly due to the escalation in Middle East tensions between Israel and Iran, putting pressure on the global equities market. On the other hand, the US economy grew at a 2.5% annualized rate, a slowdown from 3.4% last quarter, falling below the Fed’s estimate for the first time in two years, posing a dilemma of slow growth and high inflation. The Canadian dollar was 72.95 cents USD. The U.S. S&P500 ended the week flat, while the TSX was up 0.2%.

It was a mixed week of greens and reds. Consumer staples rose 2.9%, while energy and consumer discretionary gained 2.0% each. Financials added 0.6% while real estate edged up by 0.5%. Industrials slid by 0.8%, while materials gave up 0.3%. Technology ended the week flat. The most heavily traded shares by volume were Bank of Nova Scotia, Royal Bank of Canada and Kinross Gold Corporation.
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Yes. He heard a speaker last week, who defined risk as what remains after you've accounted for all the risk you can think of. 

There's quite a bit of risk in the world right now with respect to geopolitical disruption. Conflict in Middle East is escalating instead of abating. The invasion of Ukraine is in its third year now and going strong. US election year, and a lot is riding on those results. 

Canada, relative to the rest of the world right now, is economically and politically stable. Inflation's coming down, so the bite of higher rates is beginning to take effect. At around 16x earnings, valuation multiples of the TSX continue to be very attractive relative to many markets around the world. Whereas the S&P 500 trades at about 22-23x earnings. TSX has a great yield of about 3.1%, compared to the S&P 500 at less than half of that.

He's finding a lot of opportunities in the interest-sensitive stocks, which includes telcos, banks, and utilities. These groups tend to have higher dividend yields so, in a higher rate environment, investors shift funds from these higher-yielding equities to fixed income for the better-perceived risk. This shift has made the higher-dividend payers attractive.

Energy sector continues to be very defensive. High dividend yields by returning cash to shareholders through share buybacks. Energy share prices are supported by the higher price of the commodity, oil.

See his Top Picks.

Lots of moving parts in the global economy. Want to invest in high-quality companies with strong balance sheets. Have a diversified portfolio. For more on portfolio diversification, go to his article for the National Post at goodreid.com.

Most efficient way to move goods. Most environmentally friendly way. Economic moat, as you can't outsource the service they provide to areas of the world where labour tends to be cheaper.

All these fundamentals should exist for the next 10, 20, even 50 years.

Overall, view on pipelines fairly bullish. Shipping energy off is to capture a higher price, a good idea. Does have favourites in the space, the order shifts over time based on fundamentals. He doesn't get attached. The business looks very positive going forward.

Favourite right now is TRP, as it's the most contrarian of TRP, ENB, and PPL. PPL is great, but trades at a higher multiple. ENB has considerably more debt, a concern especially with higher interest rates.

Last week, it was sell the rallies. This week, it's buy the dips. Who knows what happens next week? This year is all about active management. You have to go with the flow, go with the momentum. 

In these volatile markets, stick to your discipline of buying in thirds. Not only buy in thirds, but also sell in thirds. Sell 1/3 within 5% of price target, another 1/3 at price target, and then re-examine and re-evaluate the price target for the final 1/3.

He'd have thought that if we were in danger, it would have happened already. Whereas all we had was a 5-6% pullback. 

We started the year with expectations for 6-7 interest rate cuts in the US. Then it went back to 3-4, and now it's probably 1 or 2. Some are even saying none until next year. With that backdrop, it's pretty amazing that the stock market, particularly the NASDAQ, has hung in there. 

However when you look at the Russell, it's a different story. Smaller-mid caps are more sensitive to interest rates. Large caps have a lot of debt, and interest rates influence them, but they have constant cashflow. 

There's a benchmark provided by the American Association of Individual Investors. It very much shows when things get overheated or oversold. As of a couple of weeks ago, it was overbought. The end of last week, it was oversold. So the pendulum keeps swinging faster and faster, and you just have to keep your eyes on the overbought/oversold benchmark.