“Valuation is just a number.” I have been hearing some version of this cliché since I started in the business. A "value" manager would never utter such a phrase. But for an investor with a "growth" mindset, as long as fundamentals continue to improve faster than expectations there’s little sense in worrying about what the “right” price-earnings multiple for a stock or sector might be. Price earnings multiples have been all over the map over the decades. In 2013, they were 13.5x, rising to 22x in 2020/2021, and currently sit at 18x. Valuation is a measure of relative investor confidence in forward-year earnings, and assessing the strength of their animal spirits is always a judgement call. As much as measures like the Shiller PE (30x today) suggest long-run S&P 500 returns may be lackluster, this says very little about where the index might be in 6-12 months. Or if we remove the FAANGM stocks, the P/E multiple is closer to 12x, representing great value. At the moment, investor risk appetites remain high because many believe the Fed is soon to end and reverse its current rate hiking cycle. Currently, this is a relatively sleepy, medium valuation market. And if the market smells blood, it is shooting first and asking questions later. Look no further than bank stocks to see that in action. I know too many investors that wait for the perfect timing - when things become logical or normal - whatever that means. But, to close with another market cliché, “we have to trade the market we have, not the one we think makes sense”.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Spotlight: Nuclear Energy BofA Securities is extremely bullish on the prospects for nuclear power and heralds an imminent bull market for uranium prices. This optimism is accompanied by surveys showing growing acceptance that nuclear power will be a significant contributor to decarbonization. BofA’s Research Investment Committee called their monthly research report The Nuclear Necessity. The committee outlined two reasons for higher uranium prices in addition to decarbonization. First, Russia’s invasion of the Ukraine underscored European nations’ dependence on Russian natural gas and increased the demand for national energy security. Also, with 60 new reactors under construction and 100 more approved, BofA mining analyst Michael Widmer believes that uranium supply will lag demand. Subsequent shortages will push the commodity price higher by between 20 and 40 per cent in his estimation, in the relatively near future. In the short term, the RIC sees the potential for sanctions on Russian uranium that would limit supply. Nuclear power will become more prevalent as that plays out. Nuclear power is also becoming more popular. A recent Gallup poll found that 55 per cent of Americans support the construction of new reactors, the highest number in over a decade. We own Cameco Corp in both the Core and Opportunity Portfolios.

(+) Boardwalk REIT (BEI.UN-T) delivered another set of strong results with funds from operations (FFO) of $0.79 per unit for Q1-F23, up 16% YoY and in line with our estimates. We forecast that Boardwalk can raise its distribution by 8% annually. Boardwalk’s portfolio is heavily concentrated in Alberta (62%) and including Saskatchewan, the REIT generates 73% of its earnings from energy-centric markets. A downdraft in crude oil prices beginning in the summer of 2014 had a multi-year impact on economic growth in the West. Despite this, we believe Boardwalk is much better positioned than during the prior correction in crude oil markets, and the significant re-price in Boardwalk's units have provided a wide “margin of safety”. The REIT boasts a strong management team that is financially aligned with unit holders (owning a 26% ownership stake). Owned in Cash Flow Portfolio.

(+) Traeger (COOK-US) The popular BBQ smoker-maker beat on Q1 top and bottom line estimates and reaffirmed its FY23 outlook. Revenue of $153.2M (-31.5% Y/Y) beats by $0.57M. Gross profit margin of 36.2% down 80 basis points compared to prior year. I own a Traeger and love it, however, we bought these shares on the cheap and believe it may be an potential acquisition target. Owned in Opportunity Portfolio.

(+) CT REIT (CRT.UN-T) Following in-line, yet operationally strong Q1 results, our stable outlook is unchanged. Backstopped by a virtually fully occupied and predominantly Canadian Tire-anchored portfolio with long-term leases, we believe CRT sets up well for a decelerating economy. A significant pipeline of pre-leased developments also provides good visibility into another lever of incremental earnings growth. Combined with a solid balance sheet, we see valuation as well-supported. Yield 5.57%. Owned in Cash Flow Portfolio.

(--) Disney (DIS-US) The media stock slumped after Disney posted a decline in streaming subscribers even as losses for the business improved. The company also reported revenue and profit that was roughly in line with Wall Street’s expectations. Owned in US Portfolio.

(+) Granite Real Estate Investment Trust (GRT.UN) GRT reported a good quarter. Q1 FFOPU came in at $1.25 (+18% Y/Y, Cons. $1.20) and SP NOI +9.8% Y/Y. However, what could be picked at by investors today is occupancy, which declined to 97.8%. However, this was largely driven by vacancy in US acquisitions and developments that were completed in Q1, with occupancy remaining strong across all of GRT’s global regions. Shares yield 3.98%. GRT comes with a strong balance sheet, healthy occupancy, a robust growth plan, and is a constituent of the Cash Flow Portfolio.

(~) NICE (NICE-US) The Israeli-based company reported first-quarter FY23 revenue growth of 8% year-over-year to $571.9 million, beating the consensus of $564.8 million. Cloud revenue grew by 25% Y/Y to $367.6 million. NICE focusses on CX (Customer Experience) - a totality of cognitive, affective, sensory, and behavioural consumer responses during all stages of the consumption process including pre-purchase, consumption, and post-purchase stages. NICE is embracing ChatGPT and has a major data advantage, given it is the market leader in CCaaS and can derive insights from its operational history. NICE also has an impressive customer base, with 750+ clients including JPMorgan Chase, HSBC, Vista, American Airlines, AIG, Morgan Stanley, 3M, VMWare, Charles Schwab and Google and monitors 67% of global financial transactions daily. This enterprise customer base is rather sticky and gives NICE a defensive business model. Owned in US Portfolio.

(+) Norfolk Southern (NSC-US) JPMorgan upgraded the shares noting that Norfolk Southern shares trade at a discount to some peers, and that operations should improve as the company moves past its recent derailment issues. The monetary damages from the derailment should be covered by insurance policies but we recognize it will take time to restore public confidence in the safety of the rail network. JPMorgan's price target of $250 is based on the firm's 2024 EPS estimate and a 17X target multiple, which is noted to be below the average over the last five years and where the stock has traded during the industry-wide push to adopt scheduled railroading principles. Owned in US Portfolio.

(-) Nutrien Ltd. (NTR-T) Not great results from Nutrien, with Q1/23 EBITDA of $1.4bn coming in well below consensus of $1.7bn due to weaker-than-expected retail and potash sales. However, what hurt shares is the downward guidance revision. The weaker guide reflects lower margins in the Retail segment, primarily in crop nutrient margins, and a declining potash price forecast. The seasonal slower summer season for nitrogen is approaching, so little in the way of catalyst for the shares to rebound until later in the year when we get seasonal inventory replenishment, in our view. While there are certainly reasons to be bullish on fertilizers - declining land acreage, China/India demand - the shares may be range bound for the next few months. Owned in Core Portfolio.

(~) Pan American Silver (PAAS-US) reported earnings of $0.10/sh, significantly higher than consensus of $0.01/sh. The earnings beat was a result of better-than-expected production numbers. For Q1, Pan American Silver reported silver production of 3.9 million ounces and gold production of 122.7koz, compared to estimates of 3.65 million ounces of silver and 120koz of gold. Owned in Opportunity Portfolio.

(+) Pender Corporate Bond As of the end of April, the corporate bond manager has returned +1.9%. The current yield is 5.6% with an average duration of 3.3 years. Manager notes: "As we wade further into 2023, we find ourselves in a curious environment. We understand the playbook for preparing for inflation, and we understand the playbook for preparing for a recession. But what of the playbook for doing both? Given the uncertainty, we are drawn to a few operating principles that seem to fit the occasion. Firstly, the imperative to stay liquid (keeping an ample supply of short-term, high-quality securities is not so much a get-rich scheme but rather an acknowledgement of our limited ability to forecast the future. Such abundant liquidity will help us capitalize on opportunities should they become clearer in the coming months. Secondly, seek out those market situations where capital is scarce. We believe we are far likelier to earn outsized returns on our credit investments when we are entering situations as one of a small number of investors prepared to underwrite a deeply discounted risk in the secondary market. And thirdly, remain active. In particular, our activity is oriented around the regular assessment and re-assessment of risk vs reward of credit securities." Owned in Cash Flow Portfolio.

(--) Sonos (SONO-US) Shares shed nearly 24% after the home sound systems maker reporter a wider-than-expected loss for the recent quarter and cut its outlook for the second half of the 2023 fiscal year amid a softening demand environment. We will review the name and decide what to do next. Owned in Opportunity Portfolio.

(~) Stack Capital Group (STCK-T) saw three of its portfolio companies announce partnerships with name brand, global businesses. Impressive news, which illustrates the continued growth and development of each business, despite the challenging economic environment. Locus Robotics, a global leader in enterprise-level, warehouse robotic automation solutions, recently announced the expansion of its partnership with DHL. Representing the largest autonomous mobile robotics (AMR) deal in history - 5,000 Locus AMRs will be deployed across DHL's global network, spanning over 220 countries and territories. Hopper, the world's fastest-growing mobile-first travel marketplace, which helps its customers save money and travel better, recently announced a partnership with Uber, the world's leading travel platform. The new 'Flights on Uber' booking functionality, which will be powered by Hopper, will enable Uber's UK app users to book domestic and international flights. Prove Identity, a leader in consumer identity verification and authentication, recently announced deals with both VISA and Fanduel, an industry leader in legalized and regulated mobile sports wagering. In both cases, Prove will provide its Pre-Fill® identity verification solution to help each organization efficiently onboard customers, better detect and prevent fraud, and ultimately grow revenues. Owned in Opportunity Portfolio.

(+) Stryker (SYK-US) Barron’s had good things to say about Stryker. It quoted a portfolio manager who noted that Stryker is “an early mover in robotic surgeries for joint replacements. He sees a tailwind from more complex procedures taking place in emerging markets and aging populations wearing down their joints in developed countries.” Earlier this month, Stryker beat earnings and raised guidance. Owned in US Portfolio.

(+) TransDigm Group (TDG-US) reported strong fiscal 2Q23 results, with adj. EPS of $5.98 and adjusted EBITDA margins of 51.3%. Total revenues were up 20% in the quarter, led by the commercial aerospace after-market up 38%. The company raised its FY23 guidance, reflecting both the Calspan acquisition and strong commercial markets. We believe the commercial AM will benefit from strong tailwinds in 2023, and see TDG as a core holding for market upside, with incremental M&A optionality. Owned in Core Portfolio.

(+) Timbercreek Financial (TF-T) announced financial results. Record quarterly net investment income of $32.7 million (up 44.2% from Q1 2022). Delivered distributable income and adjusted distributable income of $18.3 million, or $0.22 per share (Q1 2022 – $15.2 million, $0.18 per share) representing a payout ratio of 79.1% on both distributable income and adjusted distributable income. Declared $14.5 million in dividends to shareholders, or $0.17 per share, reflecting an earnings per share payout ratio of 80.1% (Q1 2022 – 103.2%) on an adjusted net income basis. Results were highlighted by strong interest income and a healthy mortgage portfolio. Timbercreek Financial is a leading non-bank, commercial real estate lender providing shorter-duration, structured financing solutions to commercial real estate professionals. Yield 9.04%. Owned in Cash Flow Portfolio.

(+) The Trade Desk (TTD-US) is the largest independent demand side advertising platform (DSP) creating a one-stop-shop for advertisers looking to centrally manage omni-channel campaigns. In 2021, The Trade Desk generated $1,197M in revenue (+43% Y/Y), despite the headwinds seen to overall ad-tech spend from the pandemic environment. The Trade Desk is uniquely positioned given its scale and breadth of platform to fill the void left by cookies in the open-internet as it continues to be the central cog of the eco-system. Owned in Opportunity Portfolio.

(+) Wynn Resorts (WYNN-US) reported a much better-than-expected first quarter this week. Properties in Las Vegas and Boston continued to impress. But what helped deliver an unexpected profit was the recovery in the Asian gambling hub of Macao. It allowed Wynn to reinstate a quarterly dividend. Owned in Opportunity Portfolio.

Weekend Reading

Should You Save More to Retire Earlier? Making the single decision to increase your savings rate and investment rate by 1% each year will make you more money than all the coffee you will ever buy in your lifetime, combined. DOLLARS AND DATA

Why the 2023 banking crisis does not look like 2008, or why one run is not like another. There is nothing small about the trio of banking crises that have rocked the US since the beginning of 2023. These are major events. ADAM TOOZE

Books From the Best Minds If you want to read the best books, begin by finding the best minds, then ask what those people are reading. JOSEPH WELLS