JULY Gems

BEST STOCK IDEAS

General Market Outlook

by Allan Tong

Summer’s here and markets are overheated. The S&P is trading near 30x PE, above the 25.5x reading during March’s tariffs war and the historic median of 15.05x. Even the TSX, which has been making new high after new high, is still trading at 21x, though is well above its five-year norm of 15.24x. After the tariff war of March and April which sank markets into correction territory, markets have astonishingly bounced back, recovering lost ground but making new highs on the Canadian index as well as the S&P and Nasdaq on June 30. In the first half of 2025, the S&P and Dow advanced 5.5% while the Nasdaq rose only 3.64%. Trumping them all was, surprisingly, the TSX, which climbed 8.6%.

Are earnings that good, guidance that strong? Rather, markets are running on euphoria. Likely, they can tick slightly higher, but face more downside risk. Why? Keep an eye on these dates in July:

July 6: U.S. jobs numbers

July 9: Trump’s next round of tariffs

July 11: U.S. inflation data

July 30: The U.S. Fed meets

July 9 will mark the end of the 90-day pause in global tariffs. Meanwhile, war could flare up again between Israel and Iran. The ceasefire now is fragile, and a new missile attack would catapult the price of oil 5% and, in turn, drive inflation. Countering this is the bullish call: If peace prevails and the numbers come in as expected, then the market is more likely to be rangebound or tick up a few points to make new highs.

Some questions: Can gold keep rising? By the end of June, it is stuck around US$3,333, while Bitcoin keeps flirting with US$110,000. If the bearish scenario plays out, for the reasons outlined above, we will likely see new highs in these assets. Gold, in turn, will benefit the TSX.

My gut feeling is that markets are more likely to tilt to the downside. On June 26, data revealed that U.S. GDP shrank 0.5% annually between January and March this year due to Trump’s tariffs. The Commerce Department was expecting 0.2%. Also, the last three months of 2024 saw a 2.4% increase under Pres. Biden. In a troubling note, Q1 was the first time in three years that the American economy contracted. How many trade deals with Trump sign by July 9? Will TACO man resume tariffs, pause them, then resume them again, throwing markets into another cycle of chaos?

These are interesting times.

This month’s Best Stock Ideas…

…collectively come from the Stockchase staff. As a general disclosure, some Stockchase writer(s) own the following stocks, though we have presented any caveats.

Amphenol Corporation

If and when we see a correction, APH should be on your list. It’s a forgotten AI play, an industrial company that makes connectors, boring stuff like fiber optics, circuit boards, coaxial cables and sensors. Boring, but all these data centres under construction need them. APH trades at 47.2x earnings, though 36.5x forward. It will report on July 23, and could extend its winning streak of EPS beats to four quarters. Q1 earnings topped 48% year-over-year and management affirmed guidance, so business will remain hot for at least the near future. If the next quarter does miss, then shares will plunge and that would be the time to step in. After all, shares have run up 40% in the first half of 2025. A few caveats: APH trades at a 1.13 beta and pays only a 0.68% dividend. Look for income elsewhere, if that’s what you want.

CarMax

Autos are in the crosshairs of Trump’s tariffs, with car prices rising 2.5% from March to April this year, more than double the typical 1.1% increase in that period. And that happened at the start of tariffs. Q2 will post higher prices and who knows where they will go after July 9. This makes the market for used cars more attractive. As spring began this year, CARFAX reported that used car sales have surged at more then double last spring’s rate. However, the ride has been bumpy—used car prices have also risen at this pace due to a shortage of used cars. Relatively speaking, though, with the prices of steel and aluminum rising, the prices of new cars will still make used vehicles attractive.

Harvest Equal Weight Global Utilities Income ETF

BMO Covered Call Utilities ETF

For these seeking income through a reliable dividend from a relatively safe sector–and traded in Canada for tax efficiency–either of these ETFs will do. They hold utilities around the world. The demand for energy from AI data centres is a rock-solid driver, while lower interest rates around the globe are another certain tailwind. HUTL holds nearly half its basket in utilities while communication services and energy round out the rest. Did I mention income? HUTL pays over 8% in dividend yields and offers a safe, low beta of 0.65%. Its average daily volume is 26,000, which isn’t huge, but better than many ETFs. The MER is a reasonable 0.5%.

ZWU attracts more investors at daily volumes close to 200,000 and also trades at a super-low 0.65 beta. Its dividend yield is slightly lower at 7.59%, but nothing to laugh at. It charges an MER of 0.65%, slightly higher than HUTL. Performance between the two ETFs is similar. These are pure income plays that offer a modest 1-2% appreciation in share price each year. Not for those seeking high returns anytime soon, but for those who want to sleep at night and something safe to augment their riskier bets.