Shane Obata, portfolio manager, Middlefield Limited
FOCUS: global large cap equities
Top Picks: Take Two Interactive, Sony, National Grid
MARKET OUTLOOK:
The tone of the market is much more sanguine than it was a month ago. The White House has sent a clear signal that it has a pain threshold when it comes to market volatility, effectively creating a U.S. President Donald Trump put. In recent weeks, the White House has backtracked on several aggressive policy fronts by announcing a 90-day pause on reciprocal tariffs (except China), carving out exemptions for electronics and auto parts, and dialing back threats to remove U.S. Federal Reserve Chair Jerome Powell. Meanwhile, early signs of a diplomatic off-ramp with China are emerging, with Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer scheduled to meet with their Chinese counterparts in Switzerland to de-escalate trade frictions. These moves suggest that the tariff escalation on April 2 may mark the peak of trade-related policy risk. Looking ahead, we expect the administration to continue managing sentiment by announcing preliminary trade agreements or memoranda of understanding with countries such as the U.K., India, Japan, and South Korea. While these agreements may be largely symbolic, they should nevertheless help stabilize markets and reinforce the view that the worst of the policy shock may be behind us.
- Market-moving news, fast: Get the BNN Bloomberg App now
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
TOP PICKS:
TAKE-TWO INTERACTIVE
Take Two Interactive (TTWO) is one of the world’s premier videogame publishers. TTWO has full ownership of Rockstar Games, which is arguably the best studio of all time. Rockstar is one of few that is known for producing not only “AAA” games but also 10/10 ones. We are just one year ahead of the release of GTA VI, which is arguably the most anticipated entertainment property of all time. We think the street is way too low on estimates for two reasons, being units and pricing. There is also upside from new monetization avenues. We think user-generated-content could be the big one (Roblox angle). The rest of the business is fine. TTWO overpaid for Zynga but mobile gaming is here to stay, albeit with lower growth prospects. Mobile business is in an upswing currently. 2K division remains healthy, with NBA 2K25 ranking in the top 10 on PS’s network. We think TTWO can deliver $11.34 of earnings per share (EPS) in fiscal year 2027 (ending 03/31/2027)…at a 30 times multiple that would give us a price target of around $340, representing nearly greater than 50 per cent upside.
Sony
Sony (SONY) is an entertainment company that was born in consumer electronics but has shifted its focus towards the highly attractive video game and music industries. SONY’s PlayStation 5 dominated Microsoft’s X/S in the last console war and is still benefiting from growth in online. Sony is also the second-largest of the “big three” record companies, behind Universal Music and ahead of Warner Music. Gaming and network services is the crown jewel. As we are well into this console generation, Sony’s revenues have now shifted in favor of software and services (two thirds) versus hardware (one third). Sony will be a key beneficiary of GTA VI given it takes a 30 per cent rake on digital sales. Music business should provide durable HSD growth for years to come. With streaming companies raising prices, the labels will follow suit to ensure they get their fare share. Image sensor business is a world leader. Upside from AI iPhones as well as automotive applications, etc. Continued simplification of business (e.g. Spin of Financial Services) will serve to isolate the best assets, which should unlock a higher multiple for Sony. We think Sony can deliver around 225 JPY in EPS for fiscal year 2027 (ending 03/31/2027). At a 21 times multiple that gives us a PT of 4,725 JPY, representing around 24% upside
National Grid
National Grid (NG) is the U.K.’s largest utility by market cap. The company – which is best known for its U.K. transmission and distribution assets – is also well exposed to the U.S. through networks in New York and New England. With robust asset growth driven by a well-funded capital plan, we anticipate a significant re-rating for NG, as it trades at a discount to global utility peer. High conviction into the company’s 60 billion GBP capital plan. This will drive asset growth of around 10 per cent per annum. And EPS growth of at least six per cent. Following the equity issuance and dividend re-basing, we think the market will have more confidence around funding / leverage for NG. U.S. business has completed 4/5 rate cases and the company is pleased with results. After the U.K. regulatory review, investors will have even more clarity around future growth. We expect NG to deliver around 80 GBp in EPS for fiscal year 2026. At a 15 times multiple, that gives us a PT of 1200, which represents a greater than 10 per cent upside
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TTWO | Y | N | Y |
| SONY | N | N | Y |
| NG | N | N | Y |
PAST PICKS: April 4, 2024
ALPHABET (GOOGL)
- Then: $150.53
- Now: $171.75
- Return: 14%
- Total Return: 15%
MICRON (MU)
- Then: $124.09
- Now: $96.40
- Return: -22%
- Total Return: -22%
TAIWAN SEMICONDUCTOR-ADR (TSM)
- Then: $139.66
- Now: $196.22
- Return: 40%
- Total Return: 42%
Total Return Average: 35%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GOOGL | N | N | Y |
| MU | N | N | N |
| TSM | N | N | Y |
