David Burrows, Chairman, Chief Investment Officer, Barometer Capital Management
Focus: North American large caps
Top picks: MDA Space, Hudbay, Vanguard FTSE World Ex US ETF
MARKET OUTLOOK:
Equity markets around the world entered a tricky seasonal period with solid market internals and trends in place. In a healthy market, there should be mix of leaders and laggards allowing investors to target. This market is showing relatively low correlations between stocks and sectors. This means markets are acting as a sorting hat and not being painted with a dominating, overarching macro concern.
Geographically, global developed and emerging markets are leading U.S. equities both from a breadth and performance perspective and this is a change over the last 18 months giving investors some variety in their list of portfolio options. This also applies to Canadian stocks.
While Barometer likes to have five to seven per cent cash coming into the fall, the portfolios are focused on dividend growth, cashflow producing, financials, industrials, communications, and materials.
Given the sticky nature of inflation, Barometer continues to hedge portfolios with gold as opposed to bonds which continue to be challenged around the world.
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TOP PICKS:
MDA Space (MDA TSX)
MDA Space is exposed to the growing theme of the space economy which is still in its early innings. The company operates on three key verticals: robotics and space operations, satellite systems and geo-intelligence.
Increased defence budgets could provide tailwind to Geo-intelligence business. It has a massive backlog which provides multi-year revenue visibility (US$6.4B backlog).
The pipeline of low earth orbit (LEO) satellite communication programs is approximately $13 billion currently. The space market is approximately $600 billion and expected to expand to $1 trillion in the coming years according to industry analyst Novaspace.
MDA has financial discipline with a clean balance sheet and generating positive free cash flow. The New Quebec facility is ramping nicely and should help with scale and efficiency in a growing market.
The recent strategic acquisition of SatixFy, manufacturer of satellite chip systems, is a good acquisition. That should see cost and revenue synergies from vertical integration and a sourcing of a key component for their product.
Hudbay (HBM TSX)
Hudbay is a multi-mine, multi jurisdiction operator focused on copper and gold production. Hudbay is a cashflow producing growth company with a development project in Arizona called Copper World.
The company recently announced a 600 million dollar financing with Mitsubishi which will provide to fully funding their buildout without having to raise any additional funds. The deal was priced more favourably than expected or priced in the stock and sets Hudbay for accelerated growth for many years in the US where Trump aims to fast track homegrown copper production. By de-risking this project it opens the doors to a larger cohort of investors.
Vangaurd FTSE World Ex US ETF (VEU NYSEARCA)
International and domestic investors have been concentrated in U.S. equities for several years due to a strong dollar and weak global markets. Given the new found outperformance and in global ex U.S. equities, such as a weaker dollar, we believe that flows will favour global markets for years to come.
Given that the sector makeup for this cohort closely corelates to current leadership in markets, discounted valuations and superior breadth characteristics, we prefer to be adding to this universe to diversify from the highly concentrated U.S. equity market.
DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
---|---|---|---|
MDA TSX | Y | Y | Y |
HBM TSX | Y | Y | Y |
VEU NYSEARCA | Y | Y | Y |
PAST PICKS: SEPTEMBER 4, 2024
Imperial Oil (IMO TSX)
Then: $96.04
Now: $115.72
Return: 20%
Total Return: 23%
Sprott Physical Gold Trust (PHYS TSX)
Then: $26.25
Now: $35.56
Return: 35%
Total Return: 35%
JPMorgan (JPM NYSE)
Then: US$219.33
Now: US$290.37
Return: 32%
Total Return: 35%
Total Return Average: 31%
DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
---|---|---|---|
IMO TSX | Y | Y | Y |
PHYS TSX | Y | Y | Y |
JPM NYSE | Y | Y | Y |