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

Warning: viewers out West may not like this opinion. Energy is a late-cycle play. When the economy is running on all cylinders, that's when energy starts to run hot. Pandemic was a black swan event that forced a spike in the chart.

His view is that oil will be in a choppy, sideways trading range between $60-85 over the next 2 years until 2025-late 2026. Energy probably won't have negative performance, but it could be challenged in terms of performance relative to the TSX. Right now, we're 7 months into the cycle.

Basic Investing Metrics: Financial Notes. It is surprising how few investors read the notes in a financial statement. Sure, they can be boring and confusing, but they really do contain the best information and sometimes even hidden messages, either good or bad. We are reading the notes very carefully these days, looking for a company’s exposure to higher interest rates, rising costs and potential other bombs if we enter a recession. 

The notes will also provide further details on all the points we’ve noted above, and go into more details on line items. The notes are likely more important than the rest of the financial report, so we often start with the notes first when examining a company for investment.
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U.S. Large Cap Health Care Stocks include Manged Care, Pharma, Bio Tech, Medical Device makers. Health care is a huge chunk of the U.S. market. A lot of the big innovations and R&D happen in the U.S. Obesity drugs have been one of the hottest areas and a big drug development for Eli Lilly. Lots of exciting possibilities are in the pipeline.

Speaking in terms of health care generally, the managed care component may have more growth than the overall economy. There is a transition to more value based care which results in more efficient patient turn-around.

Believes pause in interest rate hikes will be good for gold prices (less interest rate yield is more reason to own gold).
Gold is protection against inflation for long term investors (US Dollar losing purchasing power). 
Expecting demand for commodities to continue to rise.  
Planning for gold prices to appreciate. 

Basic Investing Metrics: Debt and Leverage. These metrics can have a significant impact on a company’s financial health. Investors should examine a company’s debt levels to determine if they are sustainable and manageable. Areas to pay attention to include the debt-to-equity ratio, which measures a company’s debt relative to its equity. A company with a high debt-to-equity ratio may be more vulnerable to economic downturns and may struggle to make debt payments.

The interest coverage ratio, which measures a company’s ability to pay interest on its debt, is another key. A company with a low-interest coverage ratio may struggle to meet its debt obligations.

Also look at the maturity of a company’s debt, or the time frame in which it must be repaid. A company with a large amount of debt maturing in the near term may face liquidity issues. We always look at the debt-maturity schedule, which is typically revealed in the financial notes.
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Believes low unemployment rate in the USA (~3.4%) adding fuel to inflation.
Low unemployment rate correlated with under performing stock market.
Unemployment not a good indicator on state of economy.
Thinks economy and stock market in for a tough quarter. 

Basic Investing Metrics: Quality of Earnings. This refers to the sustainability and reliability of a company’s profits. Investors should examine a company’s earnings to determine if they are of high quality. A company with consistent earnings growth over several years is more likely to have high-quality earnings than a company with erratic earnings. And a company with positive cash flow from operations is more likely to have high-quality earnings than a company with negative cash flow.

Also, a company with a high return on equity is more likely to have high-quality earnings than a company with a low return on equity. And investors should remember that many companies do not pay much in taxes when they are growing, so it is important to know how earnings will change once a company becomes cash taxable. 
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He feels constructively optimistic about equity markets going forward. Inflation has been dropping for 9 consecutive months and will possibly continue into next year. Interest rates will stabilize and central banks will become much more dovish.

Historically when the Fed tightening cycle ends, 12 months later the S&P 500 is up an average of 14.3% with a win ratio of 80%. Despite volatility, markets are up since the October lows. We've had two 7%+ quarters. Those are signs of an uptrend.

Likes the cyclical areas. Opportunities in financials, especially given what's happened in the last couple of months. 

Despite oil being down, there are major constraints in supply, and demand remains steady. OPEC+ has reduced capacity and supply. Strategic petroleum reserve is down about 37% over the past couple of years. China's withdrawal from its zero-Covid policy is going to help names in the energy sector. 

Consumer discretionary is his third most preferred area. Inflation dropping, China back on board after almost 3 years of lockdown.

Buying high-quality Canadian companies at attractive valuations has historically done very well in inflationary environments like those we're experiencing now. For much of the past decade, growth stocks have done quite well. But growth stocks are longer-duration assets, so much of their value is based on expectation of future growth. When interest rates increase, valuation tends to drop by applying a discount rate. 

SHOP is an excellent example of this. Down 70% since November 2021. Despite that, the Canadian market has performed relatively well. In 2022, Canada had a strong return for developed markets. YTD, it's up about 5-6%, so it's starting out pretty well.

Looking at a chart of PE multiples for the last 20 years, right now there's a significant difference between the two in terms of multiples. The S&P is trading at 19x earnings, while the TSX is at 13x. That's about a 50% difference, and means that the Canadian market offers much better value right now relative to the US market. Other multiples such as price to book show the same thing. Dividend yield for the TSX is 3.2%, whereas in the US it's a paltry 1.7%.

Warren Buffett likes to say, "Be fearful when others are greedy, and be greedy when others are fearful." Now is the time to be a little bit greedy for Canadian equities.

Impressive profitability. High ROE and ROIC. Strong balance sheet. 

Barometer of profitability of the Canadian market is 12%, US is 14%. That's the average, and he wants companies that are better than average.

Energy is down 7% this week. It's a classic case of a sector going too way too far and must be belanced out.