Brian Madden, Chief Investment Officer, First Avenue Investment Counsel
Focus: North American Equities
Top Picks: Booking Holdings, Alimentation Couche-Tard, Apotex Health
MARKET OUTLOOK:
Stocks have surged over seven per cent since my last appearance on the show in early June, with the S&P 500 and the S&P TSX Composite hitting all-time highs early this week.
Now, as then, investors show rabidly enthusiastic demand for stocks, sufficient to absorb unprecedented new supply of stock, with the record-breaking SpaceX IPO successfully completed, the US$85 billion Alphabet secondary offering and sizable secondaries from Celestica and others completed as well.
Second quarter earnings for Canadian and U.S. companies validate investors enthusiasm with S&P/TSX composite aggregate earnings plus 15 per cent versus last year and S&P 500 aggregate earnings plus 35 per cent.
Meanwhile, investors shrug off high oil prices with their attendant risks to inflation and the increasing likelihood of interest rates - at best - holding steady, or potentially even rising in coming quarters. Thus, it seems, in the tug of war between supply and demand, demand is winning. In the tug of war between interest rates and earnings, earnings are winning.
What’s also interesting – and encouraging – is what’s happening “under the hood”. Since my last appearance, the Russell 1000 Value index has outpaced the Russell 1000 Growth index by a margin of 8.7 per cent to 1.1 per cent, while the equally weighted S&P 500 has outpaced the conventional index by a margin of 6.2 per cent to 4.8 per cent and both have outdone the once Magnificent Seven, which has advanced only 2.3 per cent.
Market leadership is broadening out and trickle down effects of the artificial intelligence (AI) arms race are becoming broadly apparent, as we expected they would over time.
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TOP PICKS:
Booking Holdings (BKNG NASD)
Booking operates a three-sided ecosystem involving travellers, travel providers and a sophisticated internal payments/AI engine.
Operating as agent or increasingly as merchant, and going to market under various banners including Booking.com, Agoda, Priceline, Kayak, and OpenTable, the company’s addressable market spans hotels, flights, car rentals and restaurant meals that we expect will surpass US$200 billion in value transacted this year.
Booking earns commissions from travel partners that average 15 per cent of the transaction value, modest advertising revenues and interest on prepaid travel bookings when it acts as merchant in transactions.
With earnings before interest, taxes, depreciation, and amortization (EBITDA) margins just below 40 per cent, returns on invested capital above 50 per cent, prolific free cash flow, an aggressive and longstanding share buyback program, Booking since 2024 has paid a modest dividend, increasing it twice by 10 per cent.
It’s competitive edge stems from intelligent use of AI to reduce operating expenses and to enrich user experience, a pragmatic approach to partnering with third party traffic origination platforms like Google, Meta and the large language model (LLM) developers and its “Genius” loyalty rewards program.
The 35 per cent pullback in the stock from June - March - alongside other supposed “victims of AI-disruption” – afforded us an excellent entry point, with the price-to-earnings ratio (P/E) multiple compressed down towards its COVID lows just below 15 times, creating a “baby thrown out with the bathwater” opportunity in this secular grower which has generated a 30 per cent compounded total shareholder return over the last twenty years.
The second quarter results released this week re-affirmed our confidence in the near and medium prospects for the shares.
Alimentation Couche-Tard (ATD TSX)
Alimentation Couche-Tarde is the world’s second largest convenience store operator with nearly 14,500 stores across Canada, the United States, Europe and Hong Kong.
The company earns returns on equity just under 20 per cent and has grown earnings per share at a 11 per cent compound rate over the last decade.
The company uses procurement scale to price sharply on fuel, drawing traffic to their sites and then luring shoppers into attractive, modern, well merchandised stores where merchandise gross margins are three to four times higher than their profit margin on gasoline.
The company is a very capable acquirer with a demonstrated pattern of realizing significant synergies from acquired businesses in this still highly fragmented industry and is currently in friendly pursuit of its largest target to date – Zabka Group SA, Poland’s largest convenience store operator with over 13,000 owned and franchised sites in that country and in Romania.
Trading at 19 times expected earnings, we see an excellent combination of value and growth in the shares.
Apotex Health (APTX TSX)
Apotex Health is Canada’s largest manufacturer of conventional generics, specialty generics, biosimilars, and brand name pharmaceuticals.
The company recently had its initial public offering (IPO) on June 10, raising roughly $850 million in what was the largest life sciences IPO in Canadian history and the largest IPO of any kind in five years.
We see a compelling opportunity given its dominant domestic market position, strong balance sheet post-IPO, and margin expansion opportunity as revenue mix shifts to the more profitable specialty generics and biosimilar drugs. The near-term catalyst for Apotex is the Canadian GLP-1 market - primarily the semaglutide molecule as the patent has expired.
According to IQVIA, Canadian sales of semaglutide were $3.5 billion in 2025 and are estimated to grow at almost 14 per cent annually.
With its first mover advantage, we believe Apotex can garner a approximately 20 per cent market share of semaglutide products in Canada. Beyond this specific opportunity, an increasing number of branded drugs will be coming off patent in Canada in the coming five years, further increasing the size of the addressable market for Apotex.
Moreover, in the much larger U.S. market, Apotex is growing both organically and via acquisitions like their recent acquisition of a portfolio of drugs from Cumberland Pharmaceuticals which closed July 1.
Finally, post-IPO “seasoning” and inclusion in the S&P/TSX composite index - likely around mid-2027 - should also drive healthy demand for the shares.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BKNG NASD | N | N | Y |
| ATD TSX | Y | N | Y |
| APTX TSX | N | N | Y |
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| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TSM NYSE | N | N | Y |
| AGI TSX | N | N | Y |
| TFII TSX | N | N | Y |
