The Magazine Cover Indicator is a somewhat irreverent economic indicator, though sometimes taken seriously by technical analysts, which says that the cover story on the major business magazines, particularly Barron's, BusinessWeek, The Economist, Forbes, and Fortune is often a contrary indicator. A famous example is a 1979 cover of BusinessWeek titled "The Death of Equities". The '70s had been a generally bad decade for the stock market and at the time the article was written the Dow Jones Industrial Average was at 800. However, 1979 roughly marked a turning point, and stocks went on to enjoy a bull market for the better part of two decades. Using the Magazine Cover Indicator, Business Week's projection that equities were dead should have been a buy signal. By the time an idea has had time to make its way to the business press, particularly a trading idea, then the idea has likely run its course. Similarly, good news on a cover can be taken as an ill omen. As Paul Krugman has joked, "Whom the Gods would destroy, they first put on the cover of Business Week." In 2016, Gregory Marks and Brent Donnelly of Citigroup looked at The Economist and "selected 44 cover images from between 1998 and 2016 that seemed to make an optimistic or pessimistic point." They found that impactful covers with a strong visual bias tended to be contrarian 68% of the time after 1 year. And now we have the latest The Economist cover. The article asks: "two years of interest-rate rises .. A trade war is raging .. actual wars are raging .. If all that has not extinguished this rally, whatever will?” Timing when the music will stop is a fool's errand, but when it does end, we all inevitably look back through the lens of hindsight at the "obvious" signs things had gotten a bit crazy.

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

Portfolio Notes

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

(+) Amgen (AMGN-US) Share are soft lately but in my opinion, we are entering a golden age for biotech companies and Amgen is not being left behind. There are three major innovations in progress now: (1) advancements in AI and deep learning, (2) significant cost reductions for collecting biological data through lab automation, and (3) the precision editing of DNA with CRISPR. Amgen is not just investing in cutting-edge research and development; they are also rolling out new high-tech manufacturing facilities. They just opened a massive plant in New Albany, Ohio, that cost almost $500 million to build. They aim to produce injectables there, including the new weight-loss drug MariTide (once it's approved by the FDA). Goldman Sachs reckons that Amgen should be trading at $350 per share (it's at $286 now) on the basis of its "catalyst-rich" pipeline of new obesity, immunology, inflammation, and cancer drugs. Owned in Cash Flow and US Portfolios.

(-) Bank of Montreal (BMO-T) Q1/24 results were well below consensus, mainly reflecting weakness in revenues. It is unusual to see such a divergence, especially in some opaque areas such as the corporate segment. We aggressively reduce our estimates, but at the same time we are not convinced that Q1/24 is actually indicative of BMO’s revenue run rate and therefore its pre-provision pre-tax earnings growth potential. With expense synergies in place and some idiosyncratic revenue hits, we believe revenues should rebound. Owned in Cash Flow Portfolio.

(+) Canadian Natural Resources (CNQ-T) While the quarter itself for CNQ was very strong, the story of the day will likely be the company hitting its debt target of $10bn, which opens the door to 100% payout of free cash flow (dividends/share buybacks). CNQ did announce a 5% increase to the dividend. It also plans to do a 2:1 stock split later this year. We continue to be favorable on the high-quality Canadian oil producers. Owned in Core and Cash Flow Portfolios.

(+) Eli Lilly (LLY-US) Bank of America raised Eli Lilly’s price target to $1,000 per share, a new Street high. The analysts believe GLP-1 drugs such as Mounjaro for diabetes and Zepbound for obesity are underappreciated by the market for what they could do to treat heart disease, sleep apnea, and liver disease. The Club agrees with the BofA analysts and sees these offerings as a huge growth driver for Lilly. The FDA is expected to approve Lilly’s Alzheimer’s treatment within the next month too. Owned in Core, ESG+, Cash Flow and US Portfolios.

(-) Humacyte (HUMA-US) priced an underwritten public offering of 13.4 million common shares at $3 per share for expected gross proceeds of $40.2 million. The company granted the underwriters a 30-day option to purchase up to about 2 million additional shares. Humacyte said the offering is expected to close on or about March 5, and proceeds will be used to advance its pipeline in regenerative medicine and for general working capital. We added to shares on the drop. Owned in Opportunity Portfolio.

(~) John Deere (DE-US) At the Commodity Classic tradeshow in Houston, Texas, John Deere unveiled new cutting-edge equipment solutions. Highlights: Autonomy-ready high-horsepower 9RX series tractors, including an industry-leading 830 horsepower model; C-Series air carts, providing new options for improved seeding-time productivity, quality, and accuracy; Factory install of the AI-enabled See & Spray™ Premium weed sensing technology on Hagie STS sprayers; and S7 Series combines, featuring new fuel-efficient engines, cutting edge automation features, and updated residue-handling, grain-handling, and loss-sensing systems. "This is one of the largest product launches in our company's history, and it reflects John Deere's commitment to seeking input from our customers and delivering quality solutions that unlock new value for their operations," said Aaron Wetzel, Vice President of Production & Precision Agriculture Production Systems. "From new cab designs that improve operator comfort, to new engines that deliver higher power and greater fuel efficiency, and cutting-edge technologies that increase both productivity and sustainability, we've developed these solutions from the ground up to deliver the results and quality John Deere customers know and expect from their equipment." Owned in US Portfolio.

(+) Monster Beverage (MNST-US) Shares rose after the energy drink maker posted strong January sales and gross margin expansion, despite reporting in-line adjusted earnings and a slight revenue miss for the fourth quarter, per FactSet. Morgan Stanley and RBC raised their price targets for the stock on Thursday. Owned in Opportunity Portfolio.

(~) Realty Income (O-US) owns and operates a portfolio of more than 13,250 commercial properties, making it the 7th largest global REIT. It boasts a world-class tenant base, including BJ's Wholesale Club, Dollar General, Dollar Tree, Walgreens, Walmart, and Wynn Resorts. Realty Income currently pays a monthly dividend of $0.2565, equating to an annualized dividend of $3.078 per share and giving its stock a yield of about 5.9% at today's levels. On top of its high yield, Realty Income is a dividend aristocrat. It has raised its annual dividend every year since 1994, meaning 2024 will mark the 30th consecutive year in which it has raised its annual dividend payment. Owned in US Portfolio.

(-) Royal Bank of Canada (RY-T) reported Q1-F24 results marked by a strong quarter for capital markets and improved profitability for City National, offset by higher PCLs and unfavourable deposit trends for Canadian Banking. Although RBC benefitted from a lower effective tax rate in the quarter, earnings were not adjusted for an FDIC pre-tax charge of $159 million. While we continue to hold a favourable view of RBC's long-term strategy and fundamentals, we expect earnings over the near term to be weighed down by softer loan growth, declining net interest margins, elevated non-interest expenses until cost synergies tied to the HSBC Canada acquisition are fully realized, and higher credit losses. Owned in Core, ESG+ and Cash Flow Portfolio.

(-) Stantec (STN-T) Shares declined slightly after the earnings report. Q4 Non-GAAP EPS of $0.82 beats by $0.19. Revenue of $1.24B (+9.7% Y/Y) beats $334.03M. Backlog of $6.3 billion, up 6.8% since December 31, 2022. 2024 Outlook: Net revenue growth 11% to 15%; Adjusted EBITDA as % of net revenue 16.2% to 17.2%; Adjusted net income as % of net revenue above 8%; Adjusted diluted EPS growth 12% to 16%; Adjusted ROIC above 11%. They declared a CAD 0.21/share quarterly dividend, which is a 7.7% increase from the prior dividend of CAD 0.195. Owned in Core and ESG+ Portfolios.

(~) Toronto-Dominion Bank (TD-T) delivered a top and bottom-line beat relative to consensus expectations. However, there were a few puts and takes in the quarter. To begin, a good portion of the beat was driven by the corporate segment which is usually regarded as lower quality. U.S. P&C and capital markets were also weaker than what RBCCM had forecasted, so also not great due to TD’s sensitivity to the U.S. market. We’d also note that stage 3 PCLs came in 16% above street estimates and expense growth is driving slower-than-expected efficiency gains. Finally, no new information was provided around the bank’s challenges around anti-money laundering (AML). Overall, we believe until we get clarity on potential AML fines and the implications on a go-forward basis, the stock will remain in the penalty box. Owned in Cash Flow Portfolio.

Weekend Reading

RBC MacroMemo - February 27 – March 24, 2024 Soft landing / GDP-employment disconnect / U.S. fiscal / Odds and ends / Inflation / Canadian immigration boom RBC

Why is a tire company the world’s authority on fine dining? The Michelin Guide business, explained. TRUNG

Toronto's Queen's Quay before all the condos Although it's probably not a place to get particularly nostalgic about, it's always intriguing to situate the city within the context of its industrial past. BLOG TO

Truflation Launches Big Mac Index for US & UK Originating as a whimsical idea, the Truflation Big Mac Index transcends the sandwich's culinary origins to become a globally recognized economic gauge. TRUFLATION

Berkshire Hathaway's 2023 Results — Overview A 30,000 foot view of 2023 results RATIONAL WALK

Warren Buffett, Berkshire Hathaway 2023 letter to shareholders BERKSHIRE HATHAWAY