Brian Madden’s Top Picks for March 21, 2025

Brian Madden, chief investment officer, First Avenue Investment Counsel

FOCUS: North American equities

Top picks: Alimentation Couche-Tarde, Vistra, KKR

MARKET OUTLOOK:

This year has begun with an ironic twist: the clumsy, on again/off again start to the MAGA economic agenda has unsettled investors. None more unsettled than in the United States, with the S&P 500 Index dipping into 10 per cent correction territory briefly last week, while every other major equity index worldwide has outpaced the S&P 500, with most in positive territory year-to-date.

Our two North American equity mandates have long been more diversified than the S&P 500 and have been underweight the beloved and widely owned Magnificent Seven stocks that drove equity indices in 2023-24. The group has fallen sharply this year, down in aggregate 15 per cent.

Recently, we have increased our exposure to gold, and to defensive and interest rate sensitive sectors like consumer staples, utilities, telecom and real estate. This is because we expect a slowdown in growth amidst widespread confusion on the part of businesses and households on both sides of the border, while trade and tariff posturing and negotiations play out. All the while though we are maintaining and, in some cases, adding to core positions in other sectors, underpinned by our extensive research and ongoing conviction in the secularly favourable forces advantaging those companies we own.

We do expect higher volatility in stocks this year than in either 2023 or 2024. Note that volatility is “a feature, not a bug” within equity markets occasionally shaking stock out of weak hands and offering up bargain prices for patient, disciplined and long-term focussed investors to take advantage of.

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TOP PICKS:

Alimentation Couche-Tard (ATD TSX)

Alimentation Couche-Tarde is the world’s second largest convenience store operator with nearly 14,500 stores across Canada, the United States, Europe and Hong Kong. The company earns returns on equity just under 20 per cent and has grown earnings per share at a 12 per cent compound rate over the last decade. The company uses procurement scale to price sharply on fuel, drawing traffic to their sites and then luring shoppers into attractive, modern, well merchandised stores where merchandise gross margins are three to four times higher than their profit margin on gasoline. The company is a very capable acquirer with a demonstrated pattern of realizing significant synergies from acquired businesses in this still highly fragmented industry and is currently in “friendly” pursuit of its largest target to date – Japan’s 7&I Holdings – parent company of the globally ubiquitous 7/11 stores. Trading at 16 times expected earnings, we see an excellent combination of value and growth in the shares today.

Vistra (VST NYSE)

Vistra is a leading independent power producer serving five million customers across 20 states including 15 competitive, unregulated markets. With half its power generation capacity in Texas, home to current and future extremely electricity-hungry data centres, Vistra should benefit from industry leading demand growth. Vistra’s appeal is further enhanced by its relatively modest carbon footprint, as the second largest U.S. operator of nuclear power plants. Likely catalysts include announcements of power offtake agreements with data center operators, higher power prices given tight market conditions with demand accelerating, and a potential upgrade in its BB+ credit rating. The recent pullback in the shares affords a compelling entry point, with Vistra trading at an enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple of 10.3 times – discounted nearly 10 per cent versus its generally slower growing U.S. utility peer group.

KKR (KKR NYSE)

KKR is a long-established leader in the growing alternative investment space, growing its assets under management at an 18 per cent compound rate to $640 billion since its 2010 initial public offering. The strong balance sheet and A credit rating enables it to invest as principal alongside third-party investors, aligning shareholder interests with outside investors. The recent acquisition of Global Atlantic, a life insurance and annuity business brings additional stability to smooth out the large private markets investment business. A rapidly growing capital markets business further augments its stream of recurring management fees. While succession planning was set in motion four years ago with the naming of two co-CEOs, both career KKR executives, two of its namesake founders, Henry Kravis and George Roberts continue to each own 10 per cent stakes valued at $10 billion apiece in the business. Private markets are more prone to mispricing than public markets, thus affording skilled and well-scaled investment teams to generate high returns, justifying relatively high management fees plus “carry” or a share of fund profits. The asset classes in aggregate have been outgrowing public market investments by a wide margin in terms of institutional and private client funds flows for decades. The nearly 40 per cent drawdown since January affords a timely entry for these shares which generated a compound total return of over 1800 per cent since the initial public offering (IPO).

PAST PICKS: MARCH 8, 2024

Pool (POOL NASD)

• Then: US$415.06
• Now: US$319.04
• Return: -23%
• Total Return: -22%

Hershey (HSY NYSE)

• Then: US$194.56
• Now: US$16613
• Return: -15%
• Total Return: -12%

Shopify (SHOP TSX)

• Then: $102.87
• Now: $147.31
• Return: 43%
• Total Return: 43%

Total Return Average: 3%