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

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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Editor's Note: This is the first appearance for Rebecca Teltscher who is a long term investor. She feels that markets are not reflecting the causes for concern regarding the economy. Canadian and U.S. banks are seeing labour disputes which could lead to pressure on wages and therefore higher inflation. She is being defensive and more cautious on the market at least in 2024 and is looking for the first shoe to drop this year.The threat of a recession or soft landing has not gone away and the market is pricing in too much perfection. Commercial real estate is a weight on the market as well as other real estate divisions. Also she is underweight in banks.

Utilities did well March of 2023 and then slowly fell. She is looking for a rebound along with economic weakness since there is lots of room to grow along with possible rate cuts. Utilities will benefit from increased (unprecedented) power demands including the need of AI for lots of power. She likes regulation in the industry. Utilities are inversely related to the 10 year bond. The yield on the TSX Utilities Index (STUTIL-IDX) is 4.9%.

Believes S&P 500 at risk of under performing in the next few quarters. Equities as a % of household financial assets is at a very high level. This metric indicates lower periods ahead for financial markets. Valuations overall - are very high right now. Canada presenting investment opportunities because assets are under valued (energy & lumber). Believes commodities will do very well going forward. Negative correlation between common stocks and commodities is negative - presenting opportunity to buy commodities. 

Company Highlight: Terravest Industries Inc. (TVK)

TVK is a Canadian company that operates as a serial acquirer of niche equipment and services for a variety of markets including transportation, mining, transportation, etc.

Over the past 10 years, its price has compounded at a 31.6% annualized rate, supported by healthy growth in fundamentals, and TVK’s sales growth during that period was 26.6% CAGR. Solid sales growth was driven through a combination of organic growth and acquisitions It currently has a market cap of $900 million, a reasonable forward P/E of 21.4X, and a decent financial position with a net debt/EBITDA of around 2.0x.

TVK has a disciplined and opportunistic approach to capital allocation. It has a dividend yield of 1.2% as TVK reinvested heavily back into the business. In 2021, TVK opportunistically reduced its outstanding shares by 6% while the valuation was cheap.
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