By: Michael Hakes, CFA, MBA 

The current market, with a few technology giants driving U.S. equities to record highs and the excitement surrounding Artificial Intelligence (AI), has led many to question whether we are seeing a repeat of past irrational exuberance, or if this rally is built on a solid foundation. In our view, a financial bubble is defined by rapidly rising asset prices, extreme valuations disconnected from profits and increased systemic risk. The central thesis of this analysis is that the current bull market is being primarily propelled by an extraordinary expansion in corporate earnings and cash flow rather than a widespread investment in unprofitable ventures.  

Today’s market’s leaders, which now account for 40% of the index’s market capitalization, possess immense financial strength and are funding innovation sustainably through their own cash flow, establishing a crucial anchor to value. The engine of this growth is clearly the “Magnificent 7” ,which in 2023 were responsible for the entirety of the S&P 500’s net earnings growth; without them, aggregate earnings would have been negative. This highlights that the market’s strength is not from broad-based speculation, but a concentrated surge in the profitability of a select few dominant enterprises. This two-tiered market indicates that the primary vulnerability of today’s market is a downturn in a few key names rather than the systemic froth of a speculative bubble.  Read

By: Bruce Murray, CFA

Canadian banks have rallied to the highest multiples since 2011. At that time, our Canadian banks were viewed as a safe bet as much of the rest of the world faced the hangover from a global financial crisis triggered by excessive real estate pricing and lending in the U.S. housing market. Canada, which avoided the 2008 crisis, may now face the consequences of overvalued housing here at home. Banks have traditionally commanded lower P/E multiples due to the substantial leverage inherent in borrowing and lending large sums.  Given the leverage built into global banking systems, when things go wrong, they can unravel quickly, with equity capital disappearing within weeks, as happened in 2008.
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By: Bruce Murray, CFA

The markets have had an impressive year to date despite the panic associated with “Liberation Day” and the massive tariffs imposed on so many of the USA’s trading partners. While fear of economic collapse mounted, it has thus far not materialized. Delays in implementing the tariffs and corporate stockpiling have kept the economy moving along. As you are aware, here at The Murray Wealth Group, we wrote about the panic selling in the late spring a buying opportunity.
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Following the announcement of tariffs earlier this year, the Canadian economy has slowed, as some export businesses were forced to pass higher costs on to U.S. buyers. News reports have highlighted auto plant closures and layoffs at steel and aluminum fabricators.
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The stock market is a wonderful place to grow your wealth if you are investing for the long term. However, it can be a very vicious place in times of increased economic uncertainty with the world reacting to the USA’s tariff announcements and consumers boycotting American products and vacations. The U.S. consumer is also reacting to the uncertainty and concern over growing inflation by reducing spending.  It is fair to say that the corporate sector has put capital spending on hold. Thus far, Trump’s bark is more fearful than his bite. Canada was threatened with tariffs that would have set industry back decades, but when the actual policy was released, it left access to the U.S. market largely unchanged. While tariffs on steel, aluminum and completed automobiles remain, I suspect these will be repealed as well. Read

Investor Update: U.S. Tariffs and Global Trade Tensions
Written by President, Jamie Murray, CFA.

Yesterday, the Trump Administration enacted an executive order imposing tariffs ranging from 10% to 54% on imports from most countries. Canada and Mexico were spared in this latest round, continuing to trade tariff-free under USMCA for most goods — though steel and aluminum remain exceptions. Equity markets responded sharply, posting their worst single-day performance since the early days of the COVID-19 pandemic. In light of this, we wanted to share our perspective with investors.
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We own units of Northwest Healthcare Properties REIT (NWH) in our Income Growth Fund. NWH is a globally diversified healthcare real estate investment trust (REIT) focused on owning and managing a portfolio of healthcare facilities such as medical office buildings (MOBs) and hospitals. The REIT has operations in Canada, the United States, Brazil, Australia/New Zealand and Europe (it recently divested its operation in the United Kingdom). Read

This month, MWG Senior Portfolio Manager, Michael Hakes is featured in Stockpick.com’s Investor Club Series! Read

September started off as a very volatile month. Markets closed lower every day in the first week of the month, with the S&P 500 displaying its worst first week of September performance since 1953, only to bounce back (surging 4%) and recover almost all of its lost ground for its best weekly performance of the year the following week. Read

We recently increased our investment in Uber to 3% in our Global Equity Growth Fund. On the surface, Uber looks expensive, trading at 75 times the US$0.96 in earnings per share the company generated in the past 12 months. However, we believe Uber is at the inflection point where its global scale, dominant market position and utility-like demand could create a half trillion-dollar company in a decade (from $150B market cap today). Figure 1 (below) highlights Uber’s projected free cash flow growth, per Morgan Stanley estimates. After several money losing years, the company has crossed the profitability threshold and appears to have a sustainable business model to build on this early success. Its long-term success rests in maintaining its leadership in public mobility as its markets mature and autonomous vehicle technology develops further.

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This month, we are taking a break from our usual discussion of individual stocks. What better time than now, during a new paradigm (Gen AI), economic uncertainty, political uncertainty and climate change to talk about market timing? Read

Qualcomm was founded in the mid-1980s and emerged as the leading cellphone technology company with its branded “Snapdragon” line of communication chips in the 1990s. Its CDMA (code-division-multiple-access) technology, patented in 1986, became the standard for leading cellphone networks. Cell phone manufacturers such as Apple and Samsung became Qualcomm’s major customers. Ericsson’s competing TDMA (time-division-multiple access) technology fell by the wayside as it could not match CDMA’s network capacity. CDMA can carry a massive volume of wireless data and differentiate by assigning a code to each call or data user, simultaneously allowing large numbers of network users. TDMA assigns network time to each user thus restricting volumes. Qualcomm’s fortunes moved forward with each leap (generation) of cellphone technology. The rally in the stock price from 2020 to 2022, as seen in Figure 1, was reflective of the rollout of 5G technology, which you likely have in your cellphone if it was purchased in 2020 or later. Read

The three broad drivers of long-term growth in earnings per share (EPS) for any company are 1) revenue growth, 2) margin trajectory, and 3) capital management. This is not to dismiss qualitative factors like management strength, corporate governance or insider ownership but factors like these need to translate into EPS growth for a stock to outperform. We will examine Aritzia on these three vectors.

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We recently added Kingfisher to the Income Growth Fund at a 2% weight and 5% Yield. Read

 Thirty years ago, we were witnessing the adaptation of the internet in the early stages of acceptance as a tool to enhance work and leisure. This led to a plethora of ideas as to what this new technology could do! All it took was an idea and the ability to code and you too could change the way the world worked. By the year 2000, we were at the peak of the dot-com bubble. Like a horse race, Yahoo, based upon “search” software developed in Waterloo by OpenText, surged to the lead, only to be overtaken by a better idea, Google. For a while, @AOL.com was the hottest email host to have, but it then crashed and burned as internet service providers offered complementary addresses as part of their service. Everything was moving online, and providers were going public. By the spring of 2000, it became clear that many of these ideas were not commercial and even the good ones were overvalued. Shareholder enthusiasm quickly plunged into despair. Read

3i Group plc is a U.K. private equity company with investments in 39 mid-market companies across the consumer, healthcare, and industrial technology sectors. The company has been shaped from the top by CEO Simon Borrows, who we credit with much of its success over the past decade. When he took on the top role in 2012, the company was struggling with poorly performing investments, bloated management, and high debt. In short order, 3i cut 40% of its headcount, shrank its investment portfolio by 100 companies to 30-40 and worked with its underperforming investments to improve their results. The outcome is evident in 3i’s share price performance with the value rising 10-fold in that time. Unlike traditional private equity firms that raise third party capital and manage on behalf of limited partners/outside investors, 3i invests its own capital (the main exception being 3i’s Infrastructure fund, which is structured as a traditional fund). It targets companies with holding periods of about five years and a goal of doubling its money, equating to a 15% return per annum. Read

As we begin 2024, it’s prime time to strategize and ensure you’re making the most of available tax-saving opportunities. Read

Whitecap Resources dollar cost averaging into its inventory.

Dollar cost averaging (DCA) is a simple investment strategy first coined by Benjamin Graham in his book The Intelligent Investor. A DCA strategy calls for investing an equal dollar amount every period, which helps diversify the purchase price (or book value) of an investment. It reduces the effect of market timing and ensures new purchases are made throughout the investment cycle. It has been shown to be an effective strategy for generating steady long-term returns when used consistently. Read

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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