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A Comment -- General Comments From an Expert

No shortage of news to digest. Front and centre recently has been all the inflation data coming out of Canada, US and, this morning, a bit more out of Europe. All that's tempered market expectations a bit for this year. 

People have been forecasting rate cuts with exact timing, and that's pretty difficult. Looks like Canada and Europe are on a slightly different path then US. What makes it unique for Canada and the US is that a rate divergence could create some volatility in the currency.

Where might we find outperformance?

Always hard to predict where the outperformance will come from. With a portfolio, you're exposed to a variety of different factors. In a diversified portfolio, you do want to be opportunistic and take advantage of opportunities that are presented.

US vs. Canada.

He doesn't think of it so much as Canada vs. the US. His portfolios are constructed to be more global in nature. Canada is a really good market for certain things like income stocks. US is great for a number of other things. Typically, he'd use the US to get things that you can't get at home, such as technology and healthcare.

He doesn't think of them competing. In the end, they each provide different opportunities.

Growing idea of zero US rate cuts this year, and that's OK.

For different types of investors, this could be positive as well. For clients who have a balanced portfolio, prior to the last few years it was really hard to get anything on a bond portfolio. Now, you're able to get something in that 3.5-5% range on fixed income securities.

In terms of the rate cut picture in the US, their economy is a bit less sensitive to rates than Canada is. Their mortgages don't reset; they're able to lock in 30-year mortgages, and the refinancing option rests with the borrower. In Canada, we reprice typically every 5 years, so we're much more rate sensitive. That's where you're seeing our economy more sluggish than in the US, because of that rate pressure.

Portfolio allocation.

There definitely seems to be a lot more value on the income side right now rather than on the growth side. Of the names that he uses in portfolios, almost every single income name would be a Buy. Growth is more challenging, as that's where everyone has run to. 

Roughly around 1/3 of the growth names in his portfolios are Buys. For clients who don't own them yet, he'd typically wait. For clients who do own them and got in at a better price, he's willing to let them work. Still, more value in the income names today.

Add more at current levels?

Wonderful company. He took advantage of recent weakness to add. Global. Good at capital allocation. Generates tons of cash, with lots of options for what to do with it. Last quarter was choppy by company's standards. Very attractive valuation.

Unique, because this business is hard, and not many can generate the margins they do. As they've gotten bigger, can consolidate sourcing and this further helps margin profile. This is their unique advantage over competitors.

food stores

Steer clear. Generally, retail is a tough industry. Not good insulation from online competition. Wary of retail that's not specialty. Would prefer HD, ORLY, or dollar store segment, but wait for pullback.

Tends to be a more economically sensitive retailer. Could benefit from rate cuts and an uptick in discretionary spending. But rate cuts would intensify competition. Good portion of profitability comes from its financial services (credit card) business. 

specialty stores
Home Depot

Generally, retail is a tough industry. Wary of retail that's not specialty. Look at HD and ORLY, which are specialty retail, but wait for a pullback.

specialty stores

Generally, retail is a tough industry. Wary of retail that's not specialty. Look at HD and ORLY, which are specialty retail, but wait for a pullback.

GE Vernova

Recently started to take a look, but he's not ready to buy yet. Opportunity, even if topline business stays relatively flat, will come from margin improvement. Unique business. Beneficiary of power demand from data centres, hard to handicap the odds of upside right now.

BCE Inc.
Get in for the dividend?

Doesn't think dividend will be cut, company has always been firm on this. Don't get in right now, dividend yield has risen dramatically to 9% as stock's come down. Intensified competition, financial performance of all telcos will get worse. More bad news to come in subsequent quarters.

telephone utilities

Probably one of the best capital compounders in the world. But the secret's out. Very few years that it hasn't had a positive return. (Research reveals that going back to 2006, 2022 was the only year not positive.) Excels at small deals that private equity firms won't do, and this lets them keep growing. Spins off lots of cash. Loves it. Valuation is rich.

Don't focus on PE. There are some nuances to amortization that make earnings look quite low, and PE look in excess of 100x. Look at price-to-cashflow or FCF yield. Trades somewhere around 30-32x cashflow, fairly reasonable multiple, comparable to a MSFT. Wait for a pullback, if you can get it.

Everyone wants it, so they pay up for it. There hasn't been a year in his career that he hasn't been able to add it to client portfolios. Take advantage of volatility on a bad quarter or headline news. Don't chase, just be patient.

computer software / processing
Tesla Inc

Ultimate hype stock, speculative. If you look at the operating fundamentals, margin profile isn't good and FCF is less robust. Those fundamentals are weakening. Last quarter was negative, expects disappointment in upcoming reporting. If your heart's set on it, wait for that, may drop further. 

Previously, always able to overcome negative sentiment with growth. Competitive pressures, especially out of China, are intensifying. Valuation always implies that its future is more than just a car company, and this is too tough for him to handicap. Consumer preferences have changed, tilting more to hybrids.

Consumer Products
Walt Disney Co.

Lots of upside as they restructure and optimize operations. Valuation still quite reasonable. FMV somewhere between $140-160. Good amount of upside.

entertainment services

Broad market driver now is AI. To benefit from, and optimize, AI, you need data. Only the Mag 7 have massive data. Both are plays on digital advertising. 

He's chosen GOOG, as it's a bit more essential than META. Both have a fairly reasonable valuation, though META is a bit more of a value play right now. To buy GOOG, wait for pullback.

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