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

For sure. Market started out thinking there would be 6-7 cuts in 2024, and now it's down to 4-5. He thinks it will be more like 2-3.

Inflation will go down to 2%, that's the good news. But it's going to take a few years. This market is the reciprocal of what it was in October 2023. Then, people were positioned for a recession, leaning towards fixed income, under their asset allocation for equity. Now the crowd is very ebullient and looking for the next moves. 

We have a reasonable chance of some sort of selloff here, given all the optimism. It's really hard to see that big of a selloff when you have US earnings being so good, and inflation coming in line, even if rates don't come down aggressively.

All copper miners could be subject to a takeout, even some of the bigger ones like FCX. It's so time-consuming, expensive and cumbersome to build new mines, it's easier to just buy one. We need copper for the ESG revolution.

What do you do with a stock that doesn't work as soon as you buy it? If you buy it right and as part of a balanced portfolio, and it doesn't work in 3 years, it's not the end of the world. As long as you're getting your dividend, it hasn't fallen drastically, and you see a path to returning to where you bought it, keep holding. 

That should work with a name like ENB. Don't add right now, but don't have to sell either. A name like this can give you defensive qualities if markets go bust, as ENB probably won't do down that much from here.

To get a good return in a portfolio, you don't have to win on every position at all times.

Markets tend to be fairly placid or weak when it comes to what they want and need. For the last few years, it's all been rates. As a long-term investor of quality companies, he'd much rather have a strong economy with strong earnings, and let rates take care of themselves.

Good companies can navigate a variety of different scenarios. Historically speaking, rates, even where they are today, are lower than average. So the idea that the market's worried about whether a rate cut will come in March or June is completely incidental to him. He's looking for good companies, strong earnings, good revenue growth, moats to their business. All these things will lead him to good places in the long term.

Technology gets most of the headlines, and rightfully so. Another good earnings season by most companies, led by META, which has reinvented itself from the abyss and its fundamental numbers have proven that. We also got really good reports from AMZN. Though the market didn't react particularly positively, GOOG's report was solid, it's a great company.

Market weight on the Magnificent 7 is about 30%. At his firm, he has only about 15% exposure. He likes it very much, but doesn't want to overly concentrate and create undue risk for clients. The other 493 companies that aren't in the Magnificent 7 also have great value. Trading at 16-17x earnings, fabulous choice there from an industry, sector, and company standpoint.

Likes industrials. Still likes financials, though they're a quarter or two away from responding well. Lots of opportunity to look at.

Within the sector, there's really good fundamental growth and stocks are responding. Because they're somewhat cyclical, they tend to be more trading vehicles within a long-term portfolio, rather than growth stocks that you might own for multiple cycles and multiple years. You have to be on top of them and watch them. Make sure they don't grow themselves to a point where they're exposed from a valuation standpoint.

When you come across a company that you particularly like, make sure you don't just blindly buy it, and it turns out to be #3 or #4 in the industry. A tailwind can make a whole industry or sector do well. You want to buy #1. Do your peer group analysis and compare competitors to make sure you're making the best choice.

Not one unit. Different types such as digital, analog, PC cycle, phone cycle, AI applications. They'll act differently. Anything attached to AI has done extremely well.

Let's say a stock has done very well, the price is high, and you're thinking that maybe you've missed it. Price is just one element. The other inputs are equally important: company quality, earnings, earnings growth, cashflow. If fundamentals are keeping pace with the price, the price may be higher, but the stock isn't actually any more "expensive". Buy based on valuation rather than price.

What are the competitors trading at? What has this particular stock traded at in the past? Create a range of multiples. If you can buy at the lower-middle range of that valuation band, and know that the company is doing things that will allow the organic growth to accelerate, you might see the stock push through the top valuation level because the market recognizes that the company's doing something better than it has in the past.

This is a lot of information, but he wants to make sure investors aren't just price-centric. It's very important to analyze valuation and underlying fundamentals.

Market All-Time High Fears:

The fear of ‘too much risk’ and skepticism around new all-time highs is an innate human response that’s engrained into us. It is completely natural to feel worried about the potential downside risks when the market continues to roar higher and make new all-time highs, but, while this is a completely normal instinct, it is one that investors need to counter with facts and logic. Historically, when the market breaches a new all-time high, it tends to continue to make all-time highs. In fact, the number of times that we see the market mark a top and head 20%+ lower are few and far between compared to the market making a new all-time high.
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He sees more opportunities in the U.S. than Canada, below their 2021 peaks and/or offer secular growth. The two countries are diverging with the U.S. likely to avoid a recession and achieve a soft landing, unlike Canada which faces high household debt and higher mortgage rates when they renew. Also, commodities are expected to slow this year. U.S. companies are reporting better results than expected, averaging 4%  over last year, while analysts forecast -6% in profits from Canadian companies.

As investors know, the pipeline is long overdue and very overbudget. However, completing it will have lots of secondary benefits, such as Canadian western producers of oil, so that the WCS-WTI price gap will narrow as WCS reaches international waters. The rails could see a decrease of shipping volume, but both rails have been diversifying away from oil shipping to offset that. Most oil shippers prefer pipelines because they're cheaper than rails.

Believes recent US Federal Reserve comments with 60 minutes television show meant to lend confidence to statements and broader economic policy. High job numbers combined with strength from big tech leading markets. Investors should not try to time highs in market - is obviously a bubble. A.I. shows promise, but would advise waiting to invest. Increase of supply in bonds putting pressure on small cap stocks. Does not think market strength is evenly distributed (mainly in big tech). Believes US Fed would like to ease interest rates, but is a balance on over stimulating stock market. 

Broad diversified index in Canada is ~3% dividend yield. Concentrated dividend portfolio is ~4%, while covered call dividend fund is around 7%. Long term - covered call product will not return as much due to volatility + capital gains. Defensive investors should look towards concentrated or broad diversified index fund. Covered call options are the best option for tax treatments. Registered accounts are the best option for dividends who want to accumulate wealth slowly. 

Company Highlight: Saia, Inc. (SAIA)

SAIA is one of the largest less-than-truckload carriers in the U.S. The company provides transportation, logistics, shipments and other value-added services, and is known as one of the most efficient operators in the industry.

SAIA is a high-quality compounder with an impressive 10-year annualized return, its share price has compounded at approximately a 30% annualized rate, this is due to the high return on capital and positive operational leverage of the business model. Solid sales growth was mainly driven organically through heavy internal reinvestment. It currently has a market cap of $11.9 billion, a forward P/E of 29.6X, and a solid balance sheet with no long-term debt (other than long-term leases).

SAIA is an interesting case study for companies that retained the majority of their earnings. It does not pay any dividends or repurchase shares at a meaningful scale but consistently compounded EPS at double-digit rates.

The graph below shows that its share price has been steady over time. It is trading at a premium valuation as investors are optimistic about the long runway for reinvestment of the business.
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