With markets at new highs, and with technology shares continuing to scale new heights, some are wondering if it's time to go to cash. Perma-bear Albert Edwards was quoted recently: “I cast my mind back to 2000 where the narrative around the then IT bubble was incredibly persuasive, just as it is now. But the problem that skeptical investors have now, as they did in 1999, is that selling, or underweighting US technology, can destroy performance if one exits too early.” My experience has shown me that these bullish trends can go on much longer than one could ever imagine. It is imperative that one does not exit the markets too early, and for that matter too late. Therefore, regardless of your personal views, the bull market that started in October last year remains intact. The speculative frenzy is still present. First and foremost, we are still heavily exposed to the markets. But we are actively trimming some of our strongest winners back towards original weights. And we are paying particularly close attention to names that are not participating in these positive markets with the possibly of exiting them. Lastly, we are examining emerging sectors, or beaten-up areas, that may begin to turnaround. As always, we live by the maxim that opportunities are made up far easier than lost capital.

 

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

Portfolio Notes

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

(-) Deere (DE-US) Shares dropped after the manufacturer of agricultural machinery lowered its full-year net income guidance. In its full year ending October, Deere expects net income of $7.50 billion to $7.75 billion, lower than prior guidance it issued between $7.75 billion and $8.25 billion. In a statement, CEO John C. May said, “Moving forward, we expect fleet replenishment to moderate as agricultural fundamentals normalize from record levels in 2022 and 2023.” Otherwise, Deere beat expectations on the top and bottom lines in its first-quarter results. Owned in US Portfolio.

(~) Berkshire Hathaway (BRK.B-US) reported a quieter fourth quarter for its equity investment portfolio, with net sales, exclusive of purchases, coming in at an estimated $1.8 billion based on the insurer's recent 13F filing. The biggest reduction from the portfolio on an absolute basis was a significant sale of HP shares, with Berkshire selling 79.7 million shares, or 78% of holdings, at the end of September 2023 for an estimated $2.2 billion. The company also sold off about a third of its stake in Paramount Global, selling 30.4 million shares for $420 million. It made a minor adjustment to its Apple position, selling 10.0 million shares, or 1% of its holdings at the end of the third quarter, for $1.8 billion. Berkshire also eliminated stakes in D.R. Horton (raising an estimated $775 million), Markel ($230 million), StoneCo ($150 million), and Globe Life ($95 million). As for purchases, the insurer only reported additions to existing holdings, picking up another 15.8 million shares of Chevron for an estimated $2.5 billion, 19.6 million more shares of Occidental Petroleum for $1.1 billion, and an additional 30.6 million shares of Sirius XM Holdings for $150 million. We also know that Berkshire has been busy since the start of 2024, acquiring 4.3 million more shares of Occidental for $245 million, as well as 3.5 million Class A shares and 5.3 million shares Class C shares of Liberty Media SiriusXM for $107 million and $160 million, respectively. What was not disclosed was what securities Berkshire has been buying behind the veil of confidentiality offered up by the SEC, which occasionally permits confidential treatment of new stock purchases by large portfolio managers when "such action is necessary or appropriate in the public interest and for the protection of investors or to maintain fair and orderly markets." Berkshire received exemption the past two quarters, leaving its biggest stock purchases during the back half of 2023 a mystery. Owned in Core, ESG+ and US Portfolios.

(~) CT Real Estate Investment Trust (CRT.UN-T) reported Q4 results. Q4 Net income was C$38.2 million for the quarter, a decrease of C$36.5 million or 48.8%, compared to the same period in the prior year. Total property revenue for the quarter was C$140.0 million, which was C$4.8 million or 3.5% higher compared to the same period in the prior year. Shares yield 6.41%. Owned in Cash Flow Portfolio.

(+) Fortis (FTS-T) raised its dividend by 4.4% and reported Q4-F23 adjusted EPS of $0.72, which was stagnant YoY but exceeded consensus estimates by ~3%. The company's portfolio of electric and gas utilities offers greater diversification of regulatory and market risk than its Canadian public peers. Shares yield 4.52%. Owned in Cash Flow Portfolio.

(new) Humacyte (HUMA-US) is developing a disruptive biotechnology platform to deliver universally implantable bioengineered human tissues, advanced tissue constructs, and organ systems designed to improve the lives of patients and transform the practice of medicine. It develops and manufactures acellular tissues to treat a wide range of diseases, injuries, and chronic conditions. Humacyte’s initial opportunity, a portfolio of Human Acellular Vessels (HAVs), is currently in late-stage clinical trials targeting multiple vascular applications, including vascular trauma repair, arteriovenous access for hemodialysis, and peripheral arterial disease. Preclinical development is also underway in coronary artery bypass grafts, pediatric heart surgery, treatment of type 1 diabetes, and multiple novel cell and tissue applications. Humacyte’s 6mm HAV for arteriovenous access for performing hemodialysis was the first product candidate to receive the FDA’s Regenerative Medicine Advanced Therapy. New Position in Opportunity Portfolio.

(~) Hydro One (H-T) reported in-line Q4 results and highlighted that they continue to find productivity savings, which should be viewed favorably by investors. Hydro One has by far been the best performing regulated utility over the last year at +14% vs FTS -1% and EMA -8%. In our view, Q4 results may not be enough to keep this trend going, over the near term at least. Shares yield 3.01%. Owned in Cash Flow Portfolio.

(~) Louis Vuitton (LVMUY-US) LVMH’s luxury touch is coming to the Paris Olympics. The French luxury brand’s jeweler, Chaumet, is designing gold, silver and bronze medals, another of its brand is creating uniforms for French athletes and its Moet Champagne and Hennessy cognac labels will be prominent at every VIP suite. The sports extravaganza starting in July will cost LVMH around US$160 million, according to one estimate, making it the single largest sponsor of Paris 2024. The lavish spending is seen at odds with what’s supposed to be a toned-down event. Owned in Core and ESG+ Portfolio.

(-) Restaurant Brands International (QSR-T) A solid set of numbers from QSR this quarter as same store sales from Time Horton’s surprised to the upside (same store comps +8.4% vs consensus 4.7%). Total system wide sales growth was strong, up 9.6%, driven by 5.8% same store sale growth and 3.9% net restaurant growth. We think QSR has a long runway of net restaurant growth over the next few years, primarily driven by international markets, which should help it post mid-to-high single-digit system wide sales growth over the medium term. The company continues to invest in its Burger King “Reclaim the Flame” plan, with $40 million spent during the quarter on digital investments and store remodels. Valuation at 13.9x EV/EBITDA remains slightly above its 5-year average of 13.7x and we remain comfortable owning QSR at these levels. Owned in Core and ESG+ Portfolios.

(new) RxSight (RXST-US) is a commercial-stage medical technology company dedicated towards improving the vision of patients following cataract surgery. It offers intraocular lens technology that enables doctors to customize and optimize visual acuity for patients after cataract surgery. The company has beat earnings and revenue estimates in each quarter over the past year. Analysts are warming up to the name. New Position in Opportunity Portfolio.

(new) Shake Shack (SHAK-US) Not only is Shake Shack coming to Toronto, but it is also coming to your portfolio. The burger chain edged past Q4 EPS and revenue expectations. However, what's really setting a fire under the stock is the company's improving operating margins. The company said that it's now aiming for an operating profit margin of 20-21%, which is a level it hasn't seen in at least a few years. Beyond these margin-expanding initiatives, SHAK also believes that it can reduce development and pre-opening costs this year. 2023 was a high-water mark for these costs and the company is targeting a decrease of at least 10% for annual pre-opening expense per Shack from 2023 levels. After opening 85 restaurants in 2023 -- an annual record for the company -- SHAK's development plans will remain ambitious in 2024, aiming for approximately 40 domestic company-operated openings this year. New Position in Opportunity Portfolio.

(-) Shopify (SHOP-T) Starting with the good news, Shopify reported a top and bottom-line beat relative to street expectations. Revenues grew 24% Y/Y driven by strength in gross merchandise volumes and subscriptions. In addition, they just increased its pricing for Shopify Plus merchants and thus, we believe earnings will experience a favorable tailwind in the year ahead. On the negative side of the equation, take rates, gross margins, and guidance around free cash flow margins came in below expectations. RBCCM believes this is likely a function of seasonality and a degree of conservatism. We also are comforted by the fact that SHOP has pivoted back to a capital light business and underlying profitability is heading in the right direction. Owned in Core and ESG+ Portfolios.

(+) Super Micro Computer (SMCI-US) Shares keep going up. Wells Fargo initiated coverage of the information technology stock with an equal weight rating, saying that the AI momentum will continue for Super Micro, though it expects the upside may already be priced in. The rating comes one day after Bank of America initiated coverage of the hot stock with a buy rating and a $1,040 price target. Shares are up 253% this year. Super Micro will be a key beneficiary of artificial intelligence opportunities moving forward, and the firm could turn into a future partner for peers including Nvidia, AMD and Intel. Owned in Opportunity Portfolio.

(+) The Trade Desk (TTD-US) jumped on upbeat revenues and outlook. Revenues grew 23% to hit $606M, easily outpacing analyst forecasts for $582.2M. Customer retention remained at over 95% - as it has over the past 10 years. For the current quarter, the company guided to revenue of at least $478M -- higher than analyst consensus for $452.3M -- and for adjusted EBITDA of about $130M. The Trade Desk has the potential to become the Google of the open-internet as a power broker shaping the future of the ad-tech industry. The company’s scale and visibility into the market could enable it to help reshape the post-cookies industry, including broad adoption of its Unified ID as a standard for the industry. Additionally, the current market is showing an increased value for differentiated first-party data sets, the company’s recent partnership with Wal-Mart highlights the power of its platform utilizing scale to create scale. We think this could lead to consolidating market share over time. Owned in Opportunity Portfolio.

(+) Uber (UBER-US) Uber's quarter crushed estimates on earnings-per-share and revenue. Adjusted EBITDA was up 93% year over year. Gross bookings for Mobility and Delivery segments up 29% and 19%, respectively. In addition, the company issued a three-year outlook as part of the company's investor day presentation this week. The company expects mid to high teens CAGR growth for gross bookings, primarily driven by MAPCs and trips per MAPC growth. Free cash flow as a percentage of adjusted EBITDA is seen rising to over 90% due to significant and improving free cash flow conversion. In terms of concerns about driver growth, Uber said it expects to add drives from both the traditional base and new pools of supply. Fleet partnerships are anticipated to add high-quality and highly engaged supply. They also announced its inaugural share repurchase program to buy back up to $7B of its common stock. Owned in Core, ESG+, US, and Opportunity Portfolios.

(new) VanEck Rare Earth/Strategic Metals ETF (REMX-US) The ETF focusses on companies involved in the producing, refining, and recycling of rare earth and strategic metals and minerals. Lithium is a key component in the lithium-ion batteries that power electric vehicles. As more EVs were being sold, the mining industry reacted to high lithium prices by producing too much of it. Benchmark lithium prices per metric ton currently average between $15,000 to $25,000. With lithium prices at a new low around $14,000 per ton we decided to initiate a position. A year ago, they were closer to $63,000. Unfortunately, the industry is known for volatility. Rapidly changing supply and demand dynamics, government defense implications, and heavy China involvement have driven significant volatility in the industry historically. New Position in Opportunity Portfolio.

Weekend Reading

Not even wrong: ways to predict technology Some of the most important things of the last 100 years or so looked like this. Aircraft, cars, telephones, mobile phones and personal computers were all dismissed as toys. Some worked. Some did not. BEN EVANS

A brochure marketing Long Term Capital Management It's good to know what big blowups look like before they succeed, which is—almost exactly what successful companies look like. THE DIFF

OAS in Canada: Clawbacks, Eligibility and Payment Dates Received by Canadian residents and/or citizens each month. You must be over the age of 65 to receive an OAS payment, but you can also choose to defer taking your OAS. MILLION DOLLAR JOURNEY

Why Not 100% Equities (Or “I Can’t Believe We Are Doing This One Again”) AQR

Why men (probably) shouldn’t take their CPP early If you are trying to decide when to start taking your CPP pension, a major factor is figuring out which age makes you better off financially. GLOBE & MAIL

Superstar brands are reaching new heights in the digital age, yet many remain undervalued. We identify superstar brands with trademark moats, exposure to growing product markets, and high web search interest. Consistent with prior research on “intangible value,” firms with undervalued brand portfolios have outperformed the stock market. SPARKLINE CAPITAL

J.W. Marriott: From Herding Sheep to Hospitality Empire In 1927, the twenty-six-year-old Marriott opened an A&W root beer stand in Washington, DC, working around the clock with his wife, Alice. Forty years later, his company was the largest American restaurant company in annual revenue, with a toehold in hotels, which his son then expanded upon. Here is the story of this industry pioneer. AMERICAN BUSINESS HISTORY