Brian Madden’s Top Picks for June 25, 2025

Brian Madden, Chief Investment Officer, First Avenue Investment Counsel

Focus: North American equities

Top picks: Tourmaline Oil, JPMorgan Chase, Costco Wholesale

MARKET OUTLOOK:

With the first quarter drawing to a close, Canadian and U.S. stocks have rallied mightily off their mid-April lows as the aggressive U.S. trade and tariff policy was walked back and focus shifted towards attempting to pass an ambitious budget bill through the U.S. House of Representatives and Senate. More recently, the U.S. has intervened in the Middle East conflict, although we believe this conflict is likely now mostly in the rearview mirror, with very low likelihood of further escalation or serious disruption to global trade and energy security.

We do nevertheless expect some of the key macroeconomic data to worsen in the coming months. Notably, tariffs and ongoing normal course inflationary pressures will likely keep inflation too high to embolden the U.S. Federal Reserve to lower overnight rates this summer. Policy confusion and uncertainty, while certainly off the elevated extremes of a few months ago, are likely to hamper business confidence and slow hiring, capital spending and major merger and acquisition decisions, pending greater clarity.

We have added a few best-of-breed names to portfolios across sectors on both sides of the border over the past month, and very recently reduced our exposure to U.S. oil producers, taking advantage of the recent rally and the large geopolitical risk premium implicit in the oil price. We remain mindful of some of the “back-burner” flashpoints on the U.S. policy agenda (trade and tariffs and Section 899 “revenge tax”) that are still largely unresolved and that could easily come to a boil once more.

• 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:

Tourmaline Oil (TOU TSX)

Tourmaline is Canada’s largest natural gas producer, accounting for 13 per cent of all the natural gas produced in Canada, primarily from the Alberta Deep Basin and the B.C. Montney Basin. The company holds the largest natural gas reserves in Canada, and takes a manufacturing type of approach to produce their reserves: optimizing drilling and completion techniques to lower operating expenses, owning and controlling midstream gas processing plants directly via their 21 per cent stake in Topaz Energy, and finally, by securing market access at delivery hubs in B.C., Washington, California, Louisiana and elsewhere away from the AECO delivery point where realized pricing is typically much higher.

An upcoming catalyst for the whole Canadian natural gas sector is the first shipment of cargoes from LNG Canada’s export terminal in Kitimat. This $40B investment is the largest foreign investment in Canadian history and was over 10 years in the making. The start-up of the terminal promises to tighten up natural gas supply and demand balance meaningfully by providing incremental Asian demand of two billion cubic feet per day (Bcf/d) in a local market that produces 19 Bcf/d. Tourmaline is very cash generative and returns free cash flow to shareholders via an increasing stream of regular cash dividends and variable special dividends.

JPMorgan Chase (JPM NYSE)

Headquartered in New York, but global in scope, J.P. Morgan is the world’s largest private sector bank. It is very possibly also the best bank in the world, with its domestic and global peer-leading net interest margins and efficiency ratios. It is the number one domestic market share in deposits and credit card transactions. It is the number one global market share in investment banking debt and equity fee pools, secondary market trading volumes and treasury services revenues. The wealth and asset management businesses are relatively smaller, but they are a focus area for market share gains via a number of strategies and tactics. Banking is increasingly a scale advantaged business and the secular market share shift in core lines of business from community and regional banks to money centre banks reflects these forces and is an ongoing competitive advantage for J.P. Morgan.

The company has abundant organic growth opportunities and accordingly pays out a modest 25 per cent of its earnings as dividends. As such, the shares offer a lower yield than the Canadian banks which typically pay out half their earnings. Currently the company is yielding two per cent versus roughly a four per cent yield for Canadian banks. Rare is the American bank that can consistently outperform the big 6 Canadian banks, with their well regulated, insular and profitable oligopoly, but J.P. Morgan has managed to do just that in the hyper-competitive U.S. home market and globally over the past five, 10 and 20 years, courtesy of its rapid growth, with a 13 per cent compound growth rate in both in its earnings and dividends over the past decade.

Costco Wholesale (COST NASD)

Costco is the third largest retailer in the world with its pioneering presence and its undisputed leadership in warehouse club retailing. With over 900 stores globally, serving 80 million loyal paying members, Costco enjoys high traffic and repeat business alongside the recurring membership fees, with 93 per cent-member retention despite periodic fee increases. Stores stock a narrow assortment of 4,000 branded and Kirkland (private label) items and rely on an efficient supply chain, procurement clout and rapid inventory turns to price sharply while maintaining healthy gross margins of 11 per cent and robust returns on equity above 30 per cent.

Steady store expansion, superior same-store sales growth and a growing e-commerce capability have led to a nine per cent compound growth rate in sales over the past decade while earnings have compounded at 13 per cent over that time frame. The shares themselves, which almost always trade at a premium to peers, have nevertheless generated a compound annual return of 17.5 per cent since the initial public offering in 1985 via price appreciation, regular and occasional special dividends.

PAST PICKS: June 21, 2024

Bombardier (BBD/B TSX)

Then: $89.56

Now: $114.89

Return: 28%

Total Return: 28%

Broadcom (AVGO NASD)

Then: US$1658.63

Now: US$268.47

Return: 61%

Total Return: 63%

Lennox International (LII NYSE)

Then: US$543.00

Now: US$566.81

Return: 4%

Total Return: 5%

Total Return Average: 32%