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

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.

That's right. They've been severely beaten up over the last few years. Massive outflow of funds out of Canada, and it hits the smaller stocks even more. A lot of retail investors put in fund redemptions last year, so that created many bargains.

Over the last 6 months, he added to many of his small- and mid-cap positions. Companies like QTRH, JWEL, and EQB.

Yes. He certainly wouldn't buy them all, but likes Telus and ENB a lot. As rates come down, the higher-yielding stocks that are still beaten up should start to stage a nice rally between now and the end of the year.

Real estate in the public markets has probably been the most unloved sector since the beginning of 2022. Record underweight fund flows into the sector. But all that's changing.

Fall 2023, with pivot from the Fed signalling the end of Fed rate tightening, was very constructive for publicly traded real estate. Historically at the end of a Fed rate-hiking cycle, REITs typically outperform to the tune of 24%, on average, in the 4 quarters after the cycle ends. 

Looking at the private markets, fundamentals in the right sectors continue to be quite strong. Pricing is now becoming more evident with interest rates no longer going up, companies can figure out their cost of capital. Public market should be a winner coming out of this.

Thinking about real estate valuation, so much focus is on interest rates. Why? Because interest rates dictate the cap rate, which is the going-in yield when a property is bought. There's nothing you can do about the cap rate, so you have to apply the cap rate to the net operating income of the property. Meaning where is income going in the future?

That's all he focuses on. Supply/demand fundamentals of different markets. He's intensely focused today on industrial warehouse real estate, such an easy call. Canada, US, globally. Rents today are 40% above where in-place rents are in leases, so that's a tremendous opportunity.

Also focused on housing including manufactured, and grocery-anchored shopping centres with defensive income and strong internal growth.

Definitely. You have to go asset by asset, bottom-up. Typical office building? Large-block user? Multiple users? Law firms? Tech?

For example, AP.UN's bread and butter has typically been the smaller tenant that typically will stay in their space but doesn't take as much space.