Matt Kacur’s Top Picks for August 6, 2025

Matt Kacur, President, FSA Valuation Service

Focus: North American equities

Top picks: Amphenol, CBOE Global Markets, Microsoft

MARKET OUTLOOK:

I’m cautiously optimistic about equity markets heading into the end of the year, with potential for a 10 per cent gain. Strong earnings, particularly in technology and consumer discretionary, continue to support valuations. However, recent weak job numbers suggest the economy may be slowing down, which could eventually weigh on corporate profits and investor sentiment.

The labour market softness raises concerns about consumer spending and may prompt companies to revise growth forecasts downward. If earnings begin to deteriorate, the Federal Reserve could step in with rate cuts, offering some downside protection. For now, earnings remain stable, assuming trade tensions don’t escalate.

Tariffs are a key risk. While current rhetoric appears more political posturing than policy, full implementation could pressure margins, stoke inflation, and dampen market performance. Sectors like manufacturing and agriculture are particularly vulnerable, while tech and consumer discretionary have shown resilience.

In summary, while there are solid fundamentals in parts of the market, risks tied to labour trends, trade policy, and political dynamics warrant a cautious stance. If tariffs remain limited and earnings hold, the market could grind higher. But if jobs data continues to disappoint, and trade tensions remain, downside risks will grow.

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TOP PICKS:

Amphenol (APH NYSE)

Amphenol is one of the most quietly dominant companies in the S&P 500. It manufactures the connectors and interconnect systems that power everything from electric vehicles to smartphones, data centres, and aerospace systems. It’s not a household name, but it’s in every household.

From a fundamental’s perspective, Amphenol checks all our boxes. It has consistently earned over 20 per cent return on capital, and that figure has climbed steadily over the past three years to an impressive 36 per cent. APH is showing consistency and improvement and it’s exactly what we look for in our models.

The company runs a clean balance sheet with low debt, giving it flexibility to invest through cycles. While the valuation is elevated at 27 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), we believe it’s justified. Amphenol is the kind of company that can “beat the fade” delivering above-average returns now and in the future.

Strategically, Amphenol is exposed to multiple secular growth drivers: electrification in vehicles, 5G infrastructure, industrial automation, and aerospace modernization. Its decentralized operating model allows it to stay nimble and close to customers, which helps preserve margins and drive innovation. In short, Amphenol is a quiet compounder with exposure to the right megatrends, strong financial discipline, and a proven ability to outperform. It’s a name we’re confident in, even at a premium.

CBOE Global Markets (CBOE NASD)

CBOE Global Markets is a premier exchange operator with deep roots in derivatives, equities, FX, and market data. It’s best known for its proprietary index options like the VIX and SPX and has become a dominant force in the ETF space recently surpassing 1,000 U.S. listed ETFs, including over 40 crypto-related ETFs.

Financially, CBOE has been on a steady climb. Return on capital has risen from nine per cent in 2018 to 16 per cent in the trailing four quarters, signaling strong operational leverage. The balance sheet is robust, with just US$1.8 billion in debt against a $26 billion market cap, giving it ample room for strategic growth. At 19 times EV/EBITDA, the valuation remains attractive for a business with multiple secular tailwinds.

One of those tailwinds is digital assets. Through its CBOE Digital platform, the company offers regulated spot and derivatives trading in Bitcoin, Ether, and other cryptocurrencies. It recently launched margined futures on Bitcoin and Ether, making it the first U.S. regulated exchange to offer both spot and leveraged crypto trading on a single platform. This positions CBOE as a gateway for institutional adoption of crypto, with compliant infrastructure and capital-efficient products. CBOE’s blend of traditional finance credibility and forward-looking innovation, especially in crypto and ETF markets, makes it a compelling pick for investors seeking exposure to the evolving architecture of global trading.

Microsoft (MSFT NASD)

Microsoft continues to deliver exceptional performance across its core businesses, and we see further upside ahead. Revenue grew 18 per cent year-over-year last quarter, driven by strength in Azure, Microsoft 365, and its expanding AI infrastructure.

Azure alone posted 39 per cent growth, and Microsoft 365 Copilot adoption is accelerating across enterprise and consumer segments. From a fundamental’s perspective, Microsoft is a standout. Return on capital has climbed from 15 per cent in 2018 to 32 per cent over the trailing four quarters, reflecting consistent improvement and operational excellence. Our proprietary models prioritize both consistency and momentum and Microsoft delivers on both fronts.

The company maintains a fortress balance sheet and continues to invest aggressively in cloud and AI, with US$80 billion in annual CAPEX earmarked for data centres and supercomputing. While the EV/EBITDA multiple is 24 times, which is moderately high, we believe the valuation is reasonable under our “beat the fade” scenario.

Microsoft has a long track record of outperforming elevated expectations. Strategically, Microsoft is positioned at the intersection of several megatrends: enterprise AI adoption, cloud migration, productivity automation, and gaming. Its diversified revenue streams and global scale provide resilience, while its innovation engine continues to drive growth.

In our view, Microsoft remains one of the most compelling long-term compounders in the market. It’s a premium name, but one that earns its premium.