Last week I discussed Canadian technology, and this week, and more importantly, I want to highlight the dominant US technology companies and their upcoming earnings which will be the most important item on my agenda. Netflix (Jan 23), Tesla (Jan 24), Microsoft and Alphabet (Jan 30), Apple, Amazon, and Meta (Feb 1) with Nvidia not coming until Feb 21. Clearly US tech is showing its staying power, with the market continuing to favor the sector. Chip optimism and AI headlines are helping support the sentiment despite some concerns that Fed rate cuts may take place a little later this year. In fact, the Nasdaq 100 just touched new all-time highs near 17,132 and the Nasdaq Composite touched new highs near 15,165, while the best year-to-date performance for any S&P 500 sector is Information Technology with an increase of 2.8%. Will the tech boom continue through 2024? With investor confidence in Big Tech names’ underlying fundamentals much better than the S&P as a whole, they need to deliver on these expectations this earnings season to set a positive tone for the rest of this year. Doing so will enable these stocks to outperform and drive the S&P higher just like last year. If they don’t, US equities could be in trouble given that Big Tech represents such a large slice of the index. Given recent solid economic data on everything from retail sales to the jobs market, they should do just fine. We remain positive on tech given its clearly superior fundamental momentum.

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

Something to think about this weekend:

The first four months of the year are a ‘danger zone’ for TFSA contributors During this period, Canada Revenue Agency info that shows TFSA contribution room for the current calendar year can often be based on incomplete information. Contributions you made to your account in the previous calendar year are often not reflected until March or April. And that means you could be hit with some sizeable penalties. Contact my office to make sure your TFSA information is correct.

Portfolio Notes

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

(+) Booking Holdings (BKNG-US) Earlier this year, Booking Holdings rolled out an AI trip planner. Traditionally Booking helps users find the right hotel by offering a search engine to define which city you want to stay in and apply various filters to narrow down the hotel options. With Booking’s AI Trip Planner, a user can use natural language such as “plan a road trip on Route 66, starting in Chicago and ending to Los Angeles.” The Trip Planner then engages with the user like a travel agent, suggesting which cities to stay in each night and various sights to see along the way. Booking’s experiments in AI demonstrate the value of proprietary data sets. While general AI systems such as ChatGPT are designed to answer questions about anything, focused AI systems that leverage a company’s unique data can be far more powerful when applied to specific use cases. Booking is up 55% over the past 12 months and currently sits at new highs. Owned in Opportunity Portfolio.

(+) Capital Power (CPX-US) is partnering with Ontario Power Generation to examine the feasibility of developing small modular reactors (SMRs) to introduce nuclear electricity to Alberta's grid. SMRs are emergent tech within energy markets, implying higher tech risk vs. basic advanced nuclear generation. However, without Federal subsidies we don't think Alberta's gas-rich electricity market is an easy fit for nuclear. Shares yield 6.65%. Owned in Cash Flow Portfolio.

(sold) iShares Core MSCI Emerging Markets ETF (IEMG-US) Chinese Equities are breaking down, which is unfortunate because the drivers behind this move matter immensely for global markets, and the global economy. China’s economy is currently facing multiple challenges: the property market is in an entrenched 2-year+ downturn, global trade and manufacturing are recessionary (thanks partly to the post-pandemic inventory cycle), growth remains in a structural slowdown, and consumer confidence is depressed. Normally that bad news would be good news, but the game has changed. For now, markets are telling us we’re on track for further weakness and we decided to exit this ETF, which has China exposure. Formerly in the Core Portfolio.

(+) Norfolk Southern (NSC-US) rose amid speculation that the railroad operator could be a potential activist investor target. The recent issues with Norfolk Southern, including the toxic chemicals derailment in February in Ohio, could help attract activists, according to a Deal.com report on Thursday, which cited experts. The Deal.com report highlighted that activists in the railroad industry typically push for CEOs to be ousted and Norfolk Southern (NSC) CEO Alan Shaw could be a candidate if the activists want to point out safety issues with the railroad company. Norfolk Southern (NSC) is set to report Q3 results next Friday. Owned in US Portfolio.

(+) ONEOK (OKE-US) is an American diversified corporation focused primarily on the natural gas industry, and headquartered in Tulsa, Oklahoma. The company raised its quarterly dividend per share by 3.7% to $0.99, which resulted in an annualized dividend per share of $3.96. In addition, OKE’s board authorized a $2 billion share repurchase program and expects it to be completed in the next four years. Notably, in Q4, OKE repurchased around $300 million of face value of its outstanding notes at a discount to par value and finished the year with about $340 million cash. Overall, with the combination of dividends and share buybacks, the company expects to achieve a target of about 75% to 85% of forecasted cash flow from operations after capital expenditures in the next four years. OKE remains committed to its previously stated target debt-to-EBITDA ratio of about 3.5x. Shares currently yield 5.5%. Owned in Opportunity Portfolio.

(new) Procter & Gamble (PG-US) Shares have not moved at all over the past two years. But it remains one of the best-positioned CPG companies to deal with the volatility that has come to define the last few years and most likely the next few years. A re-opening in China is positive but really will not be an upside driver until later in the year. PG's neighborhood analytics program enables the company to ensure that it is serving the right stores at the neighborhood level, down to the right shelf sets, placement, sampling, and marketing resulting in a better shopper experience and driving the category growth. In China, PG created a platform called Golden Eye, which uses crowdsourcing and artificial intelligent methods to better analyze the company’s stores. With the platform PG is capturing and analyzing more than 1 million images a month from 40,000 stores in real-time using image recognition technologies. This drives faster insights on consumer shopping behaviors and allows it to offer personalized recommendations and marketing messages. The company is much better positioned to deal with macro pressures today versus the 2008–09 downturn. New position in both the Cash Flow and US Portfolios.

(-) Prologis (PLD-US) reported a Q4 beat on revenues and was in-line on a core FFO basis, but shares dipped. While occupancy remained solid at 97.1%, retention slipped sequentially from 76.8% to 73.1%. We only recently added the name, but the shares have underperformed on a 12-month basis -7.0% YTD, vs the S&P500 +19.4%. While a slowdown in economic activity could weigh on demand in the near term, the company has a long runway to drive organic growth through re-pricing of existing locations and building out its land bank. Long term, we continue to be attracted by the company’s exposure to the continued growth in e-commerce and supply chain modernization. Owned in US Portfolio.

(~) Restaurant Brands International (QSR-T) to acquire Carrols Restaurant Group. With the acquisition of Carrols, QSR will now have 1,200 company-owned stores compared to just 50 at the end of 2022. At first glance, this would appear to be a dramatic shift in strategy away from its highly franchised business model, which we’d argue wouldn’t be viewed favorably by investors. However, this does not appear to be a change in strategy. Rather, the acquisition of Carrols will allow QSR to more than double its current pace of store remodeling/reimagining. QSR plans to sell the majority of the acquired locations over the next five to seven years. Owned in Core and ESG+ Portfolios.

(++) Super Micro Computer (SMCI-US) The maker of information technology hardware bumped up its FQ2 2024 sales and profit guidance and shares surged in reaction. The company now expects FQ2 net sales of $3.6B to $3.65B versus an earlier forecast of $2.7B to $2.9B. Adjusted earnings per share are now anticipated to be $5.40 to $5.55, compared to a prior guidance of $4.40 to $4.88. The new guidance was also significantly above the consensus FQ2 revenue estimate of $2.84B and profit per share estimate of $4.55. San Jose, California-based Super Micro makes products such as rackmount servers and graphics processing unit (GPU) servers, motherboards, and chassis, and ethernet switches and adapters. The company in a statement said it was increasing its guidance as it saw a strong market and end customer demand for its rack-scale, AI and total IT solutions. Owned in Opportunity Portfolio.

(++) Taiwan Semiconductor Manufacturing (TSM-US) is the world’s largest contract chipmaker. It's also the dominant player in the most cutting-edge corners of the market, producing chips for the latest Apple iPhones and Nvidia AI accelerators. The company has a market value of nearly $600 billion. This week, TSMC said that it expects the overall semiconductor market to grow around 10% this year—and for the company to double that, delivering full-year revenue growth in the 20% range. A pervasive inventory glut throughout the semiconductor supply chain punished all chip makers in 2023, and TSMC was no exception. Revenue at the Taiwanese company fell 2% year on year in dollar terms last quarter, while net profit dropped 19%. That brought about a rare 9% decline in TSMC’s full-year revenue. But the new guidance likely marks a much brighter outlook. Owned in Opportunity Portfolio.

Weekend Reading

Milei’s 2024 Davos Talk Argentinian President Javier Milei took the stage at Davos this week and delivered one of the clearest and most compelling articulations of free market libertarianism in some time. Marc Andreessen described it as the “speech of the 21st century” and Elon posted "So hot right now". YOUTUBE

Mercer's Large Asset Owner Barometer 2024 They share how some of the world’s largest asset owners are allocating capital and managing risk. MERCER

ESG Themes for 2024 RBC Capital Markets' Sustainable Finance Group provides an overview of three key themes that they believe will shape the sustainable finance market in 2024. RBC

Can We Build a Department Store for the 21st Century? At its peak, the large urban department store was like a centre of the American universe. Designing a department store for the 21st century may be difficult, but it’s certainly possible. Here’s how Gary Hoover would go about doing it. https://americanbusinesshistory.org/can-we-build-a-department-store-for-the-21st-century/

The Best Ben Carlson Posts from December 2023 A Wealth of Common Sense:

Last year was really good for markets, but 2022 was horrible. Staying the course is harder than it sounds.

The principles of investment might be simple, but they aren't easy to implement. Successful investing is hard.

Ben poses four very interesting questions which challenge conventional wisdom. My 4 anti-personal finance expert beliefs.

Robert Kiyosaki is the author of the well-known book Rich Dad, Poor Dad. He also regularly predicts an imminent collapse of financial markets. Rich Author, Poor Readers.

What a Year for Uranium and Nuclear Energy After being unloved, forgotten and punished for a decade, it’s rising again. Some call it a nuclear renaissance but Sprott thinks of it as a resurgence given the growing momentum. SPROTT

It’s the AI Revolution and you’re focused on PE ratios Netflix traded at an average price-earnings ratio of 165x from March of 2009 when the bear market bottomed through January 2020 and the onset of the pandemic. Not 16.5x. One hundred- and sixty-five-times earnings. And remember, that’s an average, so half the time during that eleven-year stretch, it was even higher than that. And do you know what else happened during this period of time? The stock went up 6,570%. JOSH BROWN

8 Forecasts & Implications for the Years Ahead :: 2024+ Let’s consider the implications of some seismic shifts ahead. What to expect from the latest advances in tech, shifts in culture, and evolution in the art and science of product design and building teams. IMPLICATIONS

Apple Vision Pro hands-on Eye and hand tracking are very accurate, but typing is frustrating, the killer app is watching movies, can feel heavy after 15+ min ENGADGET