Tough week. Fed up with the line of dominoes being laid out, investors clearly retreated in September. The dominoes are well known: government shutdown, UAW strike, rising Treasury yields, climbing oil prices, resumption of student loan payments, September seasonality. The good news is that credit quality remains solid, credit spreads have stayed tight, and the US and Canadian economy's continues to create jobs. If you look at the vast majority of our holdings, the business is doing well right now. For the moment, however, the current stock prices on many terrific business are not reflecting that. In my opinion, the market is now officially in oversold territory, meaning we should be looking for buying opportunities.

I also want to leave you with an interesting set of numbers outlining the S&P 500 market performance for the last four Septembers:

2020: -3.92%

2021: -4.76%

2022: -9.34%

2023: -4.66%

But in all cases, the market went on to rebound in the final quarter:

2020: +11.69%

2021: +10.65%

2022: +7.08%

2023: ?

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

Portfolio Notes

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

(-) Accenture (ACN-US) shares fell after it missed Q4 revenue expectations and forecast full-year earnings and Q1 revenue below Wall Street targets. While we are all looking for green-shoots to appear in services, this quarter did not offer any tangible evidence of this occurring. Given the prolonged nature of sales cycles and weaker than expected backlog, ACN is pivoting to faster growing project work, which is expected to gain momentum throughout the year. GenAI projects continue to accelerate, with revenues effectively doubling in F4Q23, but the magnitude of the revenue contribution remains small in aggregate, generating ~$300M for FY23. Accenture raised the dividend by 15.2% to $1.29 and added a $4B to repurchase program. Owned in US Portfolio.

(+) Amgen (AMGN-US) For investors looking for a more reasonably priced entry point into the obesity market, Amgen looks interesting. Unlike the two leaders in the space (Novo and Lilly), Amgen is cheap. It trades at just 13.9x forward earnings versus a 46.6x multiple for Lilly. And while it is very much behind the makers of Ozempic and Mounjaro, there could be room for more players in this category. Amgen is expected to publish results from two anti-obesity drug studies next year. If the results are positive, the company could start receiving more credit from investors for its obesity pipeline. Additionally, investors can now start adding about $5 billion in annual sales from Horizon Therapeutics into their models. Amgen is set to acquire the biotechnology company for $27.8 billion. Owned in US Portfolio.

(+) Alpha Metallurgical Resources (AMR-US) Shares have been impressive of late. Alpha Metallurgical Resources is the largest U.S. metallurgical producer and exporter. Metallurgical coal is used in steel-making by coking coal that blasts fuel to make steel. Representing an old-school, cheap, convenient, and dependable energy source worldwide, coal continues to power nations and is hard to quit. Coal generated more than 36% of the world’s electricity in 2022. AMR's operational leverage could lead to massive free cash flow and constrained supply may help keep coal prices high. Owned in Opportunity Portfolio.

(-) Amazon (AMZN-US) Today the FTC and 17 states filed a lawsuit detailing how Amazon uses punitive & coercive tactics to unlawfully maintain its monopolies. Amazon is exploiting its monopoly power to enrich itself while raising prices & degrading service for its customers. Lina Khan, the FTC commissioner, has had a couple of big swings and misses in her two-and-a-half year tenure–to the delight of many investors. She failed to stop the merger of Microsoft and video games maker Activision, as well as drug maker Amgen’s takeover of Horizon. Losing another high-profile case wouldn’t be good for either Khan or the FTC’s reputation. It's unclear to me how it might be possible for the agency to score even a moral victory in this case. I think Amazon will win. Even though the company dominates online shopping, there are still endless ways buyers and sellers can transact outside of Amazon (Walmart, Best Buy, Target and more) which is evidence the company is not a monopoly. I will keep an eye on these events. Owned in Core, US and Opportunity Portfolios.

(NEW) Cboe Global Markets (CBOE-US) engages in the provision of trading and investment solutions to investors. It operates through the following business segments: Options, North American Equities, Futures, Europe and Asia Pacific, Global FX, and Digital. Simply put, the more trading volume, the more money Cboe can make. Revenue is also generated through market making -- buying and selling of a security to ensure smooth trading -- as well as from Cboe's various index, options, and futures products. Owned in US Portfolio.

(+) Cameco (CCO-T, CCJ-US) Stocks of uranium producers extend their impressive September rally as many governments and influential groups that had been staunchly opposed to nuclear energy are now openly embracing it as a necessary player in the global electrification and decarbonization drive. And while demand is surging, global uranium production fell by 25% since 2016 thanks to low prices before recovering slightly to 49,355 metric tons last year. In its latest biennial report, the World Nuclear Association said it sees demand from reactors rising 28% by 2030 and nearly doubling by 2040. Uranium and nuclear power were in a bear market from 2011 until a year and a half ago. It took 10 years of supply curtailment and utilities selling down their inventories to get to the point where we were in 2021. Owned in Core and Opportunity Portfolios.

(+) ChargePoint (CHPT-US) The electric vehicle charging stock popped more after UBS initiated coverage of ChargePoint with a buy rating, saying that the recent stock performance creates an attractive risk-reward. The firm provides an open platform providing real-time information about charging sessions and control, support and management of the networked charging systems. This network provides multiple web-based portals for charging system owners, fleet managers, drivers and utilities. Owned in Core ESG+ Portfolio.

(+) Costco (COST-US) The company beat but the strong results came as the average ticket fell 3.9% worldwide and 4.5% in the U.S. this quarter, dragged down by weakness in big-ticket discretionary items as shoppers have been reluctant to splurge. Revenue of $78.94B (+9.5% Y/Y) beats by $1.06B. Q4 Adjusted Comparable sales: U.S. 3.1%; Canada 7.4%; Other International 4.4%; Total Company 3.8%; E-commerce -0.6%. Costco currently operates 861 warehouses worldwide. This week they also announced that club members are eligible for discounted online primary care and other medical services through Sesame, an online physician marketplace that was backed by Google’s venture capital unit in 2022. JPMorgan stayed bullish on Costco, saying it is a good time to own the stock given defensiveness, higher-income consumer base, ongoing share gains, and ticket upside on general merchandise trends getting past pull-forward. Owned in Core Portfolio.

(+) NVIDIA (NVDA-US) is looking to enhance its AI profile further after reports emerged that is eyeing the advertising industry as the next market hungry for AI. This is not the first time we have heard of NVDA selling its AI GPUs to the advertising industry, with the company announcing its partnership with WPP, the world's largest advertising agency, in May. In fact, it does not seem any industry is off limits regarding implementing AI in some form. However, outside the tech field, advertisers appear to be the next best market ripe for AI-related disruption. Still, generative AI remains in the early stages of growth, making it unproven whether consumers will respond to AI-generated ads more than traditional advertisements. Nevertheless, when NVDA partnered with WPP, NVDA CEO Jensen Huang remarked that the $700 bln digital ad industry was racing to realize the benefits of AI. As such, these risks will not likely prevent the ad industry from adopting NVDA's AI chips, adding another tailwind for the tech giant. Owned in Core, US and Opportunity Portfolios.

(+) Palo Alto Networks (PANW-US) Enthusiasm for generative AI has strengthened public company and investor interest in cybersecurity given the intersections between these industries. Cybersecurity can help protect large language models, while AI algorithms can improve cybersecurity’s ability to detect and respond to cyber threats in real-time. Announced last week, the largest recent deal in the space is Cisco’s acquisition of cybersecurity software company Splunk. They are buying it for $28 billion in cash, or for 7.3x trailing 4 quarter revenues. To put that in perspective, Palo Alto Networks trades for 10.0x trailing 4 quarter revenues and SPLK’s market cap is a third of PANW’s. Palo Alto Networks is also reportedly close to acquiring two cybersecurity startups based in Israel for close to $1B. We continue to believe that cybersecurity is an important emerging theme and secular growth story. Owned in Opportunity Portfolio.

(+) Tesla (TSLA-US) has been one of the most volatile large cap stocks of the year and continues to present compelling technical setups. As UAW strikes have escalated, Tesla continues to ramp up production and sentiment towards the stock has improved. TSLA appears like an attractive risk reward given its strength this year, and its ability to have carved out a new uptrend of higher highs and higher lows from earlier this year makes this attractive. Owned in Core ESG+ Portfolio.

Weekend Reading

What if Xi Jinping isn't that competent? The problem with Xi is that if he is actually far less competent than people seem to believe, there’s not much China can do about it. Xi’s second term as President will be up in early 2023, but he eliminated term limits, so he’s essentially supreme-dictator-for-life. At 68, he probably has another decade left in him. NOAH OPINION

UBS Global Real Estate Bubble Index 2023 Find out in which cities property prices and valuations have fallen the most, where (further) corrections are imminent, and where price increases are continuing or could happen in the future. UBS

OPEC can’t control long-term prices, and other lessons from departing Goldman commodity research chief Jeff Currie As head of its commodities research team after 27 high-profile years, in a farewell gift, its commodities team produced 10 lessons learned. MARKETWATCH

Sequence Risk In the area of personal finance, an important concept that many investors ignore at their own peril is sequence risk. In essence, sequence risk describes the risk that you start withdrawing from your retirement savings at the worst possible time when the investment portfolio is suffering significant losses. KLEMENT

U2 Goes Live at The Las Vegas Sphere This Weekend It’s hard to tell what is causing greater anticipation on Sept. 29: The arrival of U2 to The Sphere to begin an extended engagement until the end of the year; or the unveiling of Sphere itself. I will let you know, I will be there. LAS VEGAS MAGAZINE