Target US$650.00 – Return 21%

We recently added Thermo Fisher Scientific (TMO) to the Global Growth Portfolio. Having completed over 100 acquisitions since 2006, TMO has consolidated the highly fragmented life sciences tool & diagnostics (LST&Dx) industry.

In so doing, it has created a virtual one-stop shop for the tools required to develop new products for the biopharma industry. TMO’s products and services cover equipment and tools for the medical industry to the management of research and patient care.  To fund the purchase, we sold our position in Intuitive Surgical (ISRG). As the chart below illustrates, ISRG (white) has massively outperformed TMO (blue) over the last year. Read

Airbus has been in the Global Growth portfolio for well over 5 years now, and we hold it at a 4% weight. Read

Gibson Energy (GEI) is a Calgary-based energy infrastructure provider. Having divested its more volatile business lines, the company has transformed its asset base over the past decade to focus on the provision of oil and liquids storage infrastructure at key pipeline terminals. A pipeline terminal is a large storage and processing facility that brings together inflow pipelines from various oil fields and prepares petroleum products for export on larger, long-haul pipelines or rail connections that ship products closer to endpoints (which could be a refinery or an export terminal). At the end of 2022, the company’s terminal assets were located in Hardisty and Edmonton, Alberta, which serve as major hubs for oil sands production. Other assets include a heavy crude refining facility in Moose Jaw, Saskatchewan, more than 500 km of feeder pipelines and an energy marketing operation that typically generates $50-100M per year of cash flow. Read

We recently added Prudential Plc to the Global Growth portfolio at a 2% weight.

Prudential Plc is a life and health insurance company with direct exposure to the rapidly growing markets of Southeast Asia and China. Having spun off its U.S. Jackson Financial division (Ticker JXN)) in September 2021, the company is now a pure play for the region. It has operated in Southeast Asia for almost 100 years and has over 19 million customers in the region. Read

Michael Lewis’ 2003 book Moneyball chronicles the use of improved data to better predict the probability of winning vis-a-vis the more traditional, outdated methodologies, and how the early adoption of statistical analysis by the low-budget Oakland Athletics helped the team triumph over large-market teams with far greater budgets. The movie version ends with Athletics General Manager Billy Beane (the main protagonist and proponent of the new statistics) being interviewed by Red Sox Owner John Henry at the iconic Fenway Park in Boston. Henry wants Beane to become his new GM. What was the significance of this meeting?  Moneyball was about to go mainstream.

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The technology sector had a difficult 2022 as share prices fell due to slowing revenue growth, higher interest rates and declining margins. This is exemplified on a sector basis by the 30% decline in the iShares US Technology ETF, which includes Alphabet, Amazon, Apple, Microsoft and other “FAANGM” stocks among its top 10 holdings. What caused the decline? Fundamentally, stocks rise and fall on two metrics, valuation (such as P/E ratios) and earnings (EPS), where the P/E ratio multiplied by the EPS = Price. Let us look at each metric separately. Read

As we approach the New Year, it is an opportune time for you to review your accounts to ensure you are achieving the most tax savings available to you. A few accounts that you should consider, if you do not already have them, include:

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Have you ever wondered where the video comes from when you stream a movie on Netflix? Or the audio when you listen to a song on Spotify? Typically, a nearby data center will house the server and infrastructure software needed to deliver cloud-based content. From there, the relevant data (audio or video) will travel over a broad network of telecom cables owned by various companies and finally over the last mile to the end user through their internet or mobile carrier’s network. While household name telecom companies like AT&T, Bell or Verizon own a large amount of telecom infrastructure, smaller players like Cogent also own network infrastructure that helps the modern internet function. Read

We added LVMH to the Global Equity Growth portfolio in the fall of 2021 and have been adding to it through 2022. We now have a 3% weight.   

LVMH is the world’s leading luxury goods group with numerous well-known brands across a variety of segments: Wines and Spirits, Fashion and Leather Goods, Perfume and Cosmetics, Watches and Jewelry and Selective Retailing. Its most prestigious brands include Louis Vuitton, Fendi, Givenchy, Stella McCartney, Celine, Sephora and TAG Heuer.   Read

Aritzia (ATZ-TSX) is a company we have held in our Global Equity Growth Fund since 2018. In our initial report, we compared Aritzia’s U.S. growth opportunity to that of Lululemon, given their similarities in target market and Direct-To-Consumer approach. As Aritzia has proven successful in gaining U.S. market share (revenue has grown at a 41% CAGR), we are extending our analysis to other successful retail growth brands by comparing Aritzia with not only Lululemon (LULU – NASDAQ) but Inditex (ITX – MC). ITX is a Spanish-based global apparel and accessory retailer with a collection of seven brands, most notably Zara, and 2021 revenue totalling €27B . Other ITX brands include Bershka, Massimo Dutti, Pull & Bear, Stradivarius, Zara Home and Oysho. Read

We are reviewing Linamar this month as we believe it represents a very timely investment opportunity. I have personally followed this company since it came public in 1986, when I was an analyst at what is now BMO Capital Markets. The company which generated about $40 million in annual revenue at the time, has grown by almost 200x over the last 36 years. Next year’s revenue is expected to pass the $8 billion mark.

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A liquidity analysis of our technology growth holdings.

After years of stimulus and low interest rates, the Federal Reserve has tightened its monetary policy. This has shortened investor time horizons and brought into focus current profitability versus future profitability. When capital is cheap and abundant (e.g., 2021), hurdle rates tend to be lower and companies can easily raise funds. This can result in an environment where companies have a long leash in terms of demonstrating profitability and cash flow. Many companies used this environment to grow at any cost and with no regard to profitability. With capital now more restricted, companies that exercised poor capital discipline may now find themselves lacking capital and needing to rethink their business models. Read

European Residential REIT (ERES) is a newer addition to the MWG Income Growth Fund, with a 4% weighting. We owned a prior edition of the REIT (one with a commercial focus) in 2019, exiting our investment after an acquisition/restructuring by CAP REIT, a large Canadian multi-family REIT that owns 66% of ERES units. We added the name back to the portfolio as the REIT emerged with a new strategy focused on multi-residential units in the Netherlands. We believe there are several tailwinds that should benefit the units. Read

This war is a human tragedy and breaks the world order that has held since the end of WW2, as did the Korean War and Vietnam War. All these wars were fought on the edges of the East/West political divide.

Ukraine has been part of the East for all of modern history until the removal of the last Russian puppet president, Viktor Yanukovych in 2014. Restoring a Russian puppet has been Putin’s focus for the last decade. His population is also suffering from a rapidly declining standard of living, and he must distract them. Russia spends 4.3% of its GDP on the military, the third-highest globally and ahead of the U.S at 3.7%. This has punished the population’s standard of living. Guns or Butter is the economic expression for this and refers to a governments’ allocation of military spending versus civilian spending. Putin may end up like Gorbachev, with an economy crushed by military spending and a very unhappy population. Putin’s only hope is Vodka and its tempering the enthusiasm for protest. Putin does have higher oil prices, decent foreign reserves and perhaps a supportive China on his side. Read

Aritzia has been a core holding in our Global Equity Growth portfolio for the past 18 months, having increased our position to a 4% target weighting from 2% during the depths of the pandemic. The position has performed particularly well in the past year with the shares up 125%. We have always been fans of Aritzia, first adding the name in the fourth quarter of 2018, and summarized our investment thesis in May 2019, when we highlighted the benefits of Aritzia’s direct-to-consumer (DTC) approach and its U.S. expansion opportunity. ”We are most bullish on Aritzia’s growing U.S. presence. The company has 25 locations, although currently those locations are mostly located on the West Coast.  The company has 12 stores from Seattle to San Diego, with the remainder mainly in Chicago (5) and New York City (5). This leaves ample room for growth, with blue sky potential in major markets. As Aritzia’s brand recognition grows in the U.S., it can more profitably add locations on an infill basis. For example, while St. Louis, MO, with a 2.5 million metro area population, could easily support multiple locations, the company can open in much larger cities such as Phoenix, Miami and Houston before looking at 2nd and 3rd tier cities, effectively de-risking its investment in distribution.” Two years and a pandemic later, Aritzia’s U.S. expansion strategy is playing out stronger than expected. First off, the pandemic has accelerated the adoption of eCommerce, with Aritzia’s DTC operations benefitting from this shift. Secondly, its brand strength, balance sheet and the fact that it is “under-stored” allows the company to stay on offence while other large mall retailers are on the ropes. This combination of factors helped Aritzia grow first half FY22 U.S. revenue 73% from the same period two years ago. eCommerce revenue increased 169% over that timeframe.We can evaluate Aritzia’s brand strength using Google Trends. Google Trends benchmarks weekly search activity to the highest level in a selected period. Figure 1 shows the 3-year trend for U.S. Google searches. The two spikes in the middle represent Black Friday searches in 2019 and 2020, indicating peak search interest in Aritzia. Interestingly, recent U.S. search activity has trended towards levels close to Black Friday even though Aritzia has not had any promotional activity in 2021. We believe this indicates increased interest in the brand and expect searches on 2021 Black Friday to achieve record levels.   Figure 1. Aritzia United States Search Trends (Oct 2018-Oct 2021)

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Zalando (ZLNDY) is a leading European ecommerce apparel company with 39 million active customer accounts that should generate sales with a Gross Market Value (GMV) of EUR14B in 2021. The customer value proposition revolves around Zalando offering a vast assortment of brands and products and provides an easy shopping experience that includes delivery and return of unwanted items. This value proposition and the company’s broad European reach have made Zalando the starting destination for fashion in Europe, with operations in 27 countries. Figure 1 demonstrates Zalando’s leadership and growth in active customer accounts. Read

Dollar Tree (DLTR) is the second-largest operator of discount variety stores across North America, offering a range of basic and seasonal goods. The company’s brands include Dollar Tree and Family Dollar, split between roughly 15,000 locations. This is our second round owning DLTR stock (we will refer to the corporate company as DLTR to distinguish it from its store brand). We previously exited in early 2019 as management failed to execute on its post-merger strategy after acquiring the Family Dollar brand in 2015. Ingrained in the DLTR culture at the time was a commitment to the $1.00 price point, and despite showing a willingness to adopt a multi-price point strategy, the previous management was stubbornly slow to implement. This led to sluggish growth at Dollar Tree and unrealized synergies with the acquired Family Dollar stores. Read

Amazon is a customer-centric company that strives to make life easy and convenient for customers. Although well known as an online retailer and e-commerce site, Amazon’s other business units are increasingly driving the profitability of the company. We believe Amazon is on the cusp of an explosion of profitability that will drive the share price higher. Read

Global electricity demand is expected to grow by 50% over the next 30 years. This demand, when combined with growing societal pressure to remove carbon from the atmosphere, will be a challenge for the world. Read

A big investment theme for the next decade is the shift to digital living from physical. We are learning that we can complete many tasks more effectively through computing intermediaries. Remote meetings and online conferences eliminate travel and commercial space requirements, telehealth provides safe and quick access to medical professionals, and perhaps the largest category, e-commerce allows us to shop an unlimited selection of goods from our couch. Read

Alliance Data Systems (ADS) is a provider of retailer loyalty solutions, most prominently through its white-label credit card program and the Air Miles rewards program in Canada. Let’s be honest – Alliance Data Systems has not been a stellar performer in the Global Equity Growth Fund. We originally purchased the shares in 2018, with our sights set on a turnaround through the streamlining of the business. However, its core business deteriorated more than we anticipated, and the pandemic-driven closure of physical retailers negatively impacted the company’s 2020 earnings. Entering 2021, we are encouraged by the improving physical retail environment as well as steps the company has taken to strengthen its strategic position. These have involved a renewed focus on growing with online retailers, hiring an outsider CEO and, most importantly, the acquisition of Buy Now, Pay Later (BNPL) company “Bread”. Read

The recovery progresses.

We believe economic activity will start to normalize in summer 2021 with multiple vaccines demonstrating efficacy in building immunity to Covid-19. Global GDP has already recovered to pre-Covid levels, although the composition has changed with a higher contribution from technology and consumer goods versus services. Morgan Stanley estimates point to strong rebounds through 2022, with GDP growth moving above its previous trendline. Read

Stelco is an Ontario-based producer of steel products with two facilities in Southern Ontario. The company has existed in some form since its original Hamilton Works facility was first commissioned in 1905! Stelco ownership has changed over the past 20 years, including a couple of stops through bankruptcy. So….what is so exciting about a commodity-producing company that has a history of bankruptcy?  Read

Intuitive Surgical is a leader of robotic surgical systems (you can find more information here). While robotic surgery sounds futuristic, Intuitive’s systems have been used for over 20 years. In 2019, its systems were used in almost 900,000 surgeries. Robotic surgery provides for increased precision, faster recoveries, and lower risk of complications as well as less stress on surgeons. Its growth revolves around increasing market share through the sale of additional devices, the increased training of surgeons, and the expansion of the type of surgeries that can be performed robotically.  The company is extremely profitable, with a razor/razorblade model. Once the units are placed on-site, they generate ongoing instrument sales and service revenue. Read

This week, Airbus, one of the world’s largest commercial aircraft manufacturers, announced a lowering of its expectations for aircraft deliveries due to the weak travel market. With the Coronavirus pandemic grounding global air travel, driving affected equities down 50-70% from their pre-COVID highs, it’s worth revisiting the sector to see if there is opportunity to invest for a rebound. In this piece, we will examine the issues at hand to see which factors are the most significant in figuring out when or if a rebound can be expected. Read

There is a lot of talk comparing the current market to that of 1999-2000. True, technology is eating the world, and while the current outlook for further penetration is favourable, the same arguments could have been made about the millennium market (the dawn of smartphones, expanding internet access, better compute efficiency). However, we believe there are substantial differences that make today’s sector much more defensive. As the world entered the new century, there was fear (Y2K) that the large base of installed computer and communications systems was not programmed to handle the new millennium. This was accompanied by the rapid rise of the internet and a plethora of new issues based on ideas for how to use the internet. Many went to large valuations without any real business traction. We also saw a complete rebuild of the world’s communications networks, with a shift from copper to fibre transmission, which led to massive overcapacity. Nortel peaked at about 35% of the S&P/TSX. Read

Have you ever taken an Uber? If so, after you open the Uber app and request service, you receive a text message when your driver accepts the request or when your vehicle is approaching. The app also gives you the ability to communicate with the driver through voice or text. Throughout the process, your identity and phone number remain private. Twillio provides the platform for this type of communication all over the world.   Read