In a nutshell, location is often cited as the number one rule in real estate, though it is often the most overlooked. And the same might apply for earnings. Overall, the first quarter's earnings season has been very strong, with over 397 S&P 500 Index firms now having been reported. Notably, 81% have surpassed the consensus estimates for earnings per share, which is higher than the 10-year average of approximately 75%. RBC pointed out that there has been a higher rate of upward revisions for the S&P 500, excluding its top 10 stocks by market capitalization, suggesting stronger earnings sentiment for all other companies as compared to the top 10 in 2023. Conversely, in 2023, earnings sentiment for the top 10 was stronger. We have been particularly focused on earnings results for the so-called Non-Magnificent Seven. The good news: they have also been solid. This provides further evidence that the "market" is strong and demonstrating a solid foundation.

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

Portfolio Notes

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

(+) Amazon (AMZN-US) reported a good quarter with a beat on revenues and EPS owing to strong growth in the AWS cloud-computing business (revenues up 17% Y/Y) and robust advertising demand (revenues up 24% Y/Y). Revenue guidance for Q2/24 was below street expectations as AMZN is expecting a slowdown in spending by some cost-conscious customers for cloud-computing services. Nevertheless, AMZN is seeing more workload deployment, while customer optimizations are becoming less and less. The company raised its capex guidance as it continues to invest in the AI opportunity. AMZN’s stock price is up 15% year-to-date, outperforming the S&P 500. The stock trades at a forward P/E multiple of ~33x, a discount to its 5-year historical average of ~52x. Owned in Core, ESG+ and US Portfolios.

(+) Amgen (AMGN-US) Q1 Non-GAAP EPS of $3.96 beats by $0.05. Revenue of $7.45B (+22.1% Y/Y) in-line. FY24 revenue consensus of $32.95B, EPS consensus of $19.53. Shares surged after discussion about success with an injectable obesity drug currently being developed in their pipeline that they consider to be very different from other advances in the marketplace. The question for Amgen is how strong its pipeline of experimental drugs remains. The company said it will have results from Phase 2 trials of MariTide later this year and that it already is planning a Phase 3 program. Owned in Cash Flow and US Portfolios.

(+) Apple (AAPL-US) Apple’s fiscal second-quarter earnings were slightly higher than Wall Street expectations, but showed overall revenue down 4%, and iPhone sales falling 10%. Apple announced $110 billion in share repurchases, the largest in the company’s history. Apple posted $81.8 billion in revenue during the year-ago June quarter. Mac sales were up 4% to $7.45 billion, but they are still below the segment’s high-water mark set in 2022. Cook said sales were driven by the company’s new MacBook Air models that were released with an upgraded M3 chip in March. In addition, Apple will pay a 25-cent dividend, a one cent increase. Investors seem to be focusing purely on how much cash the company is returning to shareholders. The bullish argument is that Apple has always figured out its next growth catalyst, so if you’re getting paid to wait, it makes sense to own the stock rather than trade it. Owned in Core, ESG+, Cash Flow and US Portfolios.

(+) Booking Holdings (BKNG-US) Q1 Non-GAAP EPS of $20.39 beats by $6.25. Revenue of $4.42B (+16.9% Y/Y) beats by $160M. Gross travel bookings, which refers to the total dollar value, generally inclusive of taxes and fees, of all travel services booked by our customers, net of cancellations, were $43.5 billion, an increase of 10% from the prior-year quarter. Room nights booked increased 9% from the prior-year quarter. Owned in Opportunity Portfolio.

(+) Canadian Natural Resources Limited (CNQ-T) CNQ reported a slight miss on production and operating earnings relative to RBCCM’s expectation. At first glance, it looks like the variance is driven by a pull forward in maintenance and thus, doesn’t change the long-term thesis in our view. Overall, we continue to view the shares as attractive at current levels as the company is now returning 100% of excess FCF back to shareholders and CNQ is well positioned to benefit from tighter WTI-WCS spreads (particularly now that TMX is online). Finally, we would note the company is planning a 2-1 stock split. Owned in Core and Cash Flow Portfolios.

(+) Coterra Energy (CTRA-US) The oil and gas company reported Q1 Non-GAAP EPS of $0.51 beats by $0.10. Revenue of $1.43B (-19.7% Y/Y) beats by $30M. Coterra delivered a strong first quarter, fueled by clean execution. Getting more out of the ground without necessarily spending more is what makes energy producers capital efficient. Owned in Opportunity Portfolio.

(+) Eli Lilly (LLY-US) Shares popped after the maker of the Mounjaro diabetes and weight loss drug reported first-quarter adjusted earnings of $2.58 per share, beating the consensus estimate of $2.46. Eli Lilly also hiked its full-year guidance for adjusted earnings and revenue, topping analysts’ expectations. Owned in Core, ESG+, Cash Flow and US Portfolios.

(+) First Quantum Minerals (FM-T) The Panama election this Sunday is what we are watching. The Supreme Court has allowed front runner Mulino to run. A Mulino win would be one of the better outcomes for First Quantum, and likely priced into the shares given his large lead in recent polls; however, there is still uncertainty around the future of Cobre Panama and the election doesn't change that. There is still work to be done to improve public sentiment towards mining before contemplating a re-start. Owned in Core Portfolio.

(+) Hershey (HSY-US) rallied after the chocolate and salty snacks company reported first-quarter profit and sales that rose above expectations, amid strength in its North America confectionary business, and kept its full-year growth outlook intact. Net income rose to $797.5 million, or $3.89 a share, from $587.2 million, or $2.85 a share, in the year-ago period. Adjusted earnings per share of $3.07 beat the consensus of $2.76. Sales grew 8.9% to $3.25 billion. The price of Cocoa, the active ingredient in chocolate, fell a record 30% in two days as traders and companies exited their positions in the commodity. In media interviews, commodities traders say they can no longer afford to maintain a position in cocoa after the price rose to a record of more than $11,000 U.S. per ton amid a global supply crunch prompted by flooding and droughts in West Africa. Cocoa’s price is now at $8,300 U.S. per ton and declining. The price drop is a huge reversal after cocoa more than doubled in price since the start of the year. In recent weeks, cocoa was more expensive than the price of copper. The current price drop is likely to be cheered by chocolatiers such as Hershey. Owned in US Portfolio.

(+) Restaurant Brands (QSR-T) At first glance, this looks like a good result for QSR with earnings, revenues and EBITDA all slightly above consensus expectations. Sales growth looks about in line with expectations (global +4.6%, TH Canada +7.5%, BK INTL +4.2%, BK US +3.9%, Popeye’s US 6.2%). Now on the outlook, QSR did just provide its multi-year operational and financial targets on Feb 15 and those are unchanged. However, in today’s release, BK announced plans to extend its Long-Term Royal Reset program with plans to invest an additional $300 million in remodels from 2025 through 2028. The expanded remodel program at BK US puts business on path to reach 85% to 90% modern image by 2028. The Reclaim the Flame investment to-date has proven successful, so we aren’t terribly fussed by the additional capex spend. Overall, with QSR shares down 10% from their highs last month and a valuation that is not demanding, shares are attractive for new money. Owned in Core and ESG+ Portfolios.

(+) Shake Shack (SHAK-US) The hamburger chain jumped after first-quarter adjusted earnings of 13 cents per share topped estimates. Revenue of $291 million was in line with estimates. System-wide sales rose 12.3% year-over-year in Q1 to $443.4M. Same-shack sales were up 1.6% from a year ago during the quarter to fall short of the consensus expectation of +1.8%. The restaurant operator noted that trends improved each month of the quarter, with April same-store sales up 4.9%. They opened four new company-operated Shacks, including two drive-thrus. The company also opened four new licensed Shacks. Owned in Opportunity Portfolio.

(-) Starbucks Corporation (SBUX) Shares got roasted this week on a rare miss. The company reported a disappointing quarter with a miss on revenues, EPS, and same-store-sales growth. Same-store-sales declined 4% Y/Y (vs. +1.46% street) driven by a 6% decline in comparable transactions, partially offset by a 2% increase in average ticket. SBUX has seen foot traffic decline in the U.S. as inflation takes a bigger bite out of consumers’ wallets. Moreover, the company continues to experience lower-than-expected sales growth in China on growing competition. As a result, management reduced its FY2024 EPS growth outlook to flat-to-low single digits (down from +15-20%), vs. street estimates of +13%. SBUX’s stock price is down ~8% year-to-date, underperforming the S&P500. The stock trades at a forward P/E multiple of ~19x, a discount to its historical long-term average of ~25x. We will sit tight for now. Owned in Core Portfolio and US Portfolios.

(-) Super Micro Computer (SMCI-US) The maker of high efficiency servers tumbled after reporting fiscal third-quarter revenue of $3.85 billion - missing consensus estimates of $3.95 billion. The San Jose-based Super Micro makes products such as rackmount servers and GPU servers, motherboards and chassis, and ethernet switches and adapters. But it is Super Micro's capabilities in making artificial intelligence (AI) servers that makes it important to investors. Earlier this year, the stock saw a stunning +300% rally as market participants realized its role in gauging demand for overall AI products. Owned in Opportunity Portfolio.

Weekend Reading

Who Will Be Trump’s Running Mate? Donald Trump has at least a dozen potential running mates, and they’re all eager to run with the ex-president, who turns 78 this spring. You can be sure that all of the candidates are aware that 15 vice presidents have gone on to become president. GREG VALLIERE

Everything I’ve Learned About Venture in 500 Words Bezos wrote, “Given a ten percent chance of a 100 times payoff, you should take that bet every time.” That’s venture in a nutshell, although you’re looking at more like a 1-2% chance of 100x rather than 10%. DEEPWATER

Tokyo Blind Date Nick Gray is the best thing happening on social media this week. Discouraged by dating apps, the Austin-based entrepreneur used a tweet to solicit a blind date. TED MERZ

Bridge Loans… the what and why! Bridge loans are short-term loans that bridge the gap between two different closing dates. More commonly used when an existing homeowner sells their home, and buys another home, with two different closing dates. But bridge loans have become a very popular way to take possession of that new home while it’s empty for 2 or 3 weeks to allow for renos. Best of all, it’s really inexpensive! CANADA MORTGAGE NEWS

Risk Seeking vs. Mitigating Golfers often change their approaches mid-hole, mid-round, mid-season, and sometimes even mid-swing. It’s unquestionably manic. Yet, golfer behavior pales in comparison to investor behavior. COLLAB FUND

The number of public companies has fallen fast Since the late 1990s, the number of US publicly traded companies has plunged from just over 8K in 1996 to about 4.6K in 2022. There’s no shortage of theories about why this has occurred. SHERWOOD

Whose Tax is it Anyway? Last week, Bloomberg published an article on how the rich avoid paying New York income taxes while still owning a home in the city/state. The key to their tax avoidance strategy is spending less than 184 days in New York within a given calendar year. The 184-day limit is what determines whether an individual is considered a New York residence, and, thus, must pay New York income taxes. DOLLARS AND DATA