David Burrows, president and chief investment strategist, Barometer Capital Management
FOCUS: North American large caps
Top Picks: M&T Bank, Motorola Solutions, Atkins-Realis
MARKET OUTLOOK:
The market is the best analyst on the street. Market health, measured by the percentage of stocks performing well, remained strong all through the most difficult months of the calendar and straight into the election. Market leadership clearly favoured themes that would benefit under the policies set out in the Republican platform. Financials and industrials along with small and mid-sized companies are most likely to benefit from proposed deregulation, trade and proposed corporate tax policy. Economically sensitive sectors (cyclicals) have been leading defensive sectors signalling that investors are positioning for the next business cycle and are now supported by central bank easing.
Today, there is less uncertainty than there was prior to the election. Seasonality for both the next two months and the next six months is supportive of further market gains. Barometer has been fully positioned through the year and coming into today with a notable underweight in technology and defensive sectors that are hurt by higher long term bond yields.
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TOP PICKS:
M&T BANK (MTB NYSE)
M&T Bank is a full-service regional bank in the North East with a strong wealth management business. MTB is likely to benefit on any relaxation to regulatory burden as it relates to onerous reporting requirements and opportunity to grow through acquisitions. Regional banks are uniquely tied to the domestic U.S. economy and should benefit both from the upcoming economic cycle and opportunity to increase net interest margins due to a steepening yield curve.
Motorola Solutions (MSI NYSE)
One of the largest security camera manufacturers - including police body worn cameras. It continues to benefit from a federal ban in the U.S. on Chinese-made security cameras and they continue to benefit from proliferation of body cams as well as land-based mobile radios. Sixty five per cent of revenue comes from product sales, 35 per cent of revenue comes from software sales and service revenue which is recurring and growing as a percentage of total revenue justifying continued multiple expansion.
Atkinsrealis Group (ATRL TSX)
Atkins-Realis is a leading player in the global energy transition and infrastructure sectors, offering a strong portfolio of sustainable services in engineering, design, and consulting. ATRL has global exposure with expertise in infrastructure, energy and environmental solutions. The new U.S. leadership will continue to bolster re-shoring in the U.S. as well as increased infrastructure spending. With 20 per cent of its revenue coming from the U.S., ATRL is positioned to benefit from these trends. Another interesting angle to the ATRL story is their exposure to the growing nuclear theme. ATRL’s nuclear segment represents approximately 15 per cent of revenue and has witnessed strong growth as investment in nuclear has seen a resurgence. ATRL will benefit from potential life extensions of current nuclear reactors as well as revenues they generate from maintenance and construction of nuclear facilities using the CANDU nuclear technology.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MTB NYSE | Y | Y | Y |
| MSI NYSE | Y | Y | Y |
| ATRL TSX | Y | Y | Y |
PAST PICKS: JANUARY 29, 2024
Canadian Natural Resources (CNQ TSX) (2 for 1 stock split 6/11/2024)
- Then: $42.83
- Now: $47.74
- Return: 11%
- Total Return: 15%
Teck Resources (TECK.B TSX)
- Then: $54.37
- Now: $65.44
- Return: 20%
- Total Return: 22%
iShares MSCI Japan ETF – (EWJ NYSEARCA)
- Then: US$66.17
- Now: US$68.83
- Return: 4%
- Total Return: 5%
Total Return Average: 14%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CNQ TSX | Y | Y | Y |
| TECK.B TSX | Y | Y | Y |
| EWJ NYSEARCA | Y | Y | Y |