My core thesis is that equities will gain strongly in 2023, and the breadth expansion is supportive of this. As we noted in the past, many positive factors continue to confirm my view that October 2022 was the major low. Having said that, we need to respect seasonality as well and we think that the upcoming period from February 16th to March 7th will remain a window where markets could stall. We believe that equities are probably going to need to digest the strong gains seen in the first six weeks of this year. It is likely that January borrowed from February. This note is just to set expectations for a shallow pullback and some sideways action for the next few weeks. And is a perfect environment to be adding to market exposure on my view for a positive year going forward.

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

Portfolio Notes

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

(~) Chipotle (CMG-US) is launching a new spinoff, called Farmesa Fresh Eatery, in a California ghost kitchen. It’s the latest attempt by the burrito chain to branch out into new cuisines. Farmesa’s bowls will feature a protein, green or grain, two sides, one of five sauces and a topping option. Prices will range from $11.95 to $16.95. The brand’s name is a portmanteau of “farm” and “mesa,” the Spanish word for table, in an attempt to communicate its farm-to-table approach. Ghost Kitchens allow restaurants to prepare food solely for delivery. Owned in US Portfolio.

(-) Cenovus (CVE-T) Unanticipated operational challenges and third-party pipeline outages in Q4 have pushed out Cenovus' timing for reaching its $4 billion net debt target. The company originally expected to reach its target by the end of last year. Now, management expects to achieve that objective by the end of Q3 this year, largely due to a $1.2 billion cash tax payment due in Q1. Investors were understandably disappointed, given that 100% of excess cash flow (i.e. free cash flow, after base dividends and certain other mandatory payments) was to be allocated to shareholder returns after Cenovus reached its net debt floor. In our view, Cenovus is well positioned to continue delivering solid shareholder returns. Geopolitical conflict, a recovering China, and a tepid industry supply response to high oil prices are likely to continue supporting elevated prices and robust cash generation. Owned in Core Portfolio.

(+) Deere & Company (DE-US) shares advanced after the company exceeded expectations on the top and bottom lines in its latest quarter. The agricultural machinery maker reported per-share earnings of $6.55 on revenue of $11.4 billion. That was greater than $5.57 per share profit forecasted, and the consensus revenue estimate of $11.28 billion. Owned in US Portfolio.

(-) Devon Energy (DVN-US) dropped after reporting Q4 adjusted earnings that missed Wall Street estimates and declined from a year ago, while the company guided for flat production in Q1. Devon also declared a fixed-plus-variable quarterly dividend of $0.89/share and approved an 11% increase to its fixed quarterly dividend in 2023. Owned in US and Opportunity Portfolios.

(+) Killam Apartment REIT (KMP.UN-T) reported a decent quarter with FFO coming in-line the street estimates. Importantly, underlying fundamentals remained strong. Same property NOI grew at a pace of +4.1% Y/Y and occupancy edged higher to 98.7% (+50 bps Y/Y and KMP.UN’s highest occupancy on record). Multi-residential REITs have bounced year-to-date driven in part by the pause in rate hikes from the BoC. For those look seeking exposure in the space, we believe KMP.UN remains attractive relative to peers given its cheaper valuation and its larger exposure to Atlantic Canada. Units yield 3.8%. Owned in Cash Flow Portfolio.

(~) Louis Vuitton (LVMUY-US) Pharrell Williams will become Louis Vuitton’s next artistic director of menswear. His first collection for Louis Vuitton will be revealed this June during men’s fashion week in Paris. The appointment fills one of fashion’s most high-profile vacancies, open since Virgil Abloh died in November 2021. Owned in Core Portfolio.

(+) Nutrien (NTR-T) produced a mixed quarter relative to consensus expectations. Revenues were modestly ahead of the street while EBITDA came in 14% below consensus estimates. With respect to the latter, the retail business was a source of strength but unfortunately was not enough to offset the softer volumes and prices across potash, nitrogen, and the phosphate segments. Looking ahead, NTR provided FY23 EBITDA guidance of $8.4 to $10B, implying that street forecasts are too high by an average of 10%. In addition, NTR hiked its dividend by 10% and renewed its share repurchase program for 2023. Net net, the pullback in crop prices is a headwind but valuation remains undemanding and NTR remains highly profitable. The upcoming spring planting season is likely the next catalyst. Owned in Core Portfolio.

(-) Restaurant Brands (QSR-T) QSR's Q4-F22 adjusted EBITDA increased by 0.7% to US$588 million. The US$24 million EBITDA increase from Tim Hortons, Popeyes, and Firehouse Subs more than offset the US$20 million EBITDA decline at Burger King driven by the US$13 million "Fuel the Flame" marketing investment and US$7 million increase in bad debt expense. We added to shares this week on the pullback. Owned in Core Portfolio.

(-) Shopify (SHOP-T) delivered a strong headline beat across core KPIs, unfortunately the attention will be on the weaker-than-expected Q1/23 guidance. Specifically, SHOP is guiding towards high-teens revenue growth while consensus was closer to growth of +20% Y/Y. As a result, shares were down on the news but still up nearly 30% in 2023. Overall, we wouldn’t be too fussed. The underlying fundamentals are moving in the right direction. We also expect shares to remain volatile as the economic outlook ebbs and flows but we do believe SHOP is building a differentiated platform that provides merchants with a unique value proposition. We added to our position on the pullback. Owned in Core Portfolio.

(+) Suncor Energy (SU-T) reported a solid quarter. The company reduced debt by $1bn to $13.6bn and expects to increase its share buyback allocation to 75% of excess funds (currently 50%) by the end of Q1. The announcement of a new CEO is also imminent any day now. We continue to favour CNQ as the go to name for those looking to add to their Canadian energy producer exposure. Owned in Core Portfolio.

(-) Taiwan Semiconductor Manufacturing (TSM-US) Shares of the global semiconductor maker dropped 5% after Warren Buffett’s Berkshire Hathaway appeared to make a U-turn on the Taiwanese company. Berkshire cut its stake in the fourth quarter by about 86% from the third quarter, an unusual move for a an investor known to hold shares for the long-term. Berkshire now owns just $618 million. Owned in Opportunity portfolio.

(++) Trade Desk (TTD-US) Stock in the advertising technology name surged this week. The sharp gain was spurred by an earnings report where the company topped profit expectations in a tough time for the ad business and launched a $700M share buyback to return capital. Owned in Opportunity Portfolio.

(~) Vale (VALE-US) reported its Q4 net profit fell from the year-ago quarter, as sales volumes and iron ore prices both declined. Q4 net income from continuing operations fell by 30% to $3.7B from $5.4B a year earlier, while net operating revenues dropped nearly 9% to $11.9B from $13.1B in the prior-year quarter and total costs and expenses jumped more than 9% to $7.9B. Vale shares are flat so far this year, but is up 11% over the past 90 days. Owned in Opportunity Portfolio.

Weekend Reading

RBC MacroMemo - February 14– March 6, 2023 Ukraine intensifies / Chinese recovery / Economic strength / Recession calibration / Business cycle / European double impact / Inflation / Who suffers more? / Central banks slowing / Housing stabilizes? RBC

WFH vs RTO Do you want to continue working from home? Is it past time to return to the office? How much collaboration can you do remotely? How much screen time are you wasting in the office? BARRY RITHOLTZ

MIT Technology Review “10 Breakthrough Technologies 2023”: MIT

Four Seasons: The Story of a Business Philosophy Isadore Sharp built an iconic brand by relentlessly catering to wealthy travelers. RATIONAL WALK

Mark Leonard (Constellation Software) Operating Manual Mark Leonard is the billionaire founder of Constellation Software - a Canadian software conglomerate that acquires and holds vertical market software (VMS) companies. We own a position in the Core Portfolio. COLIN KEELEY

How Roger Federer Became The Only Billionaire In Tennis History A look at his success, why he struggled early in his career, the moves that turned everything around, and a historic deal that earned him $600 million. HUDDLE UP

“Weight of the World.” We are currently in the middle of one of the most consequential financial events in human history. The boomer generation is transferring $68 trillion dollars of wealth to their spouses and children. And it seems like people really don’t want to talk about it. “Parents are good at preparing the money for the person, they are often less good at preparing the person for the money.” KCP GROUP

Burgernomics. The Economist's Big Mac Index is back. CHARTR

Bullshit Ability as an Honest Signal of Intelligence Bullshitting, communication characterized by an intent to be convincing or impressive without concern for truth, is ubiquitous within human societies. ACADEMIC JOURNAL

Nuclear Waste The Diablo Canyon Power Plant has been cranking out carbon-free electricity for almost 40 years. It supplies nearly 8% of the California’s total power needs and 10% of what it produces for itself. DOOMBERG