Steve Jobs once said, "Never settle for being average." Looking back at the past three years, it's been quite a rollercoaster in the markets. In October 2022, the S&P 500 fell by 19%, marking a dreadful bear market. However, year two saw an impressive rebound as the bull market started, with the S&P up 21%. Year three continued the rally, with the S&P surging another 25% up to this week. These big one-year moves might seem impressive, but over the three-year period, the S&P has only climbed by 31%. Surprisingly, this translates to an average annualized return of just 9%. It's a reminder that even in the midst of significant market swings, the long-term average can often reveal a different story.

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Portfolio Notes

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

(new) Argan (AGX-US) Driven by unprecedented demand for energy infrastructure, this top ranked construction and engineering company has significantly outperformed the industrial sector. With a $1B backlog and diverse capabilities, this company offers expertise in servicing both traditional and renewable energy sectors. This company saw revenue increase double digits across multiple segments, climbing 61% compared with the previous year, its strongest showing since 2017. The stock is poised to continue capitalizing on significantly higher energy demand in the wake of the AI revolution, global electrification of vehicles, and the replacement of old power plants. New position in Opportunity Portfolio.

(+) Bitcoin The price is surging again. Market analysts forecast that Bitcoin might be approaching its all-time high near $74,000 soon. As the presidential race heats up, Bitcoin seems to be having a parallel climb to a fever pitch. experts say the crytocurrency’s price is surging thanks to a combination of political and market factors. One key driver is the increasing popularity of bitcoin ETFs, “which have attracted more than $19 billion in net inflows.” And both candidates are wading into the crypto waters as well. Vice President Kamala Harris just unveiled plans to establish a regulatory framework for cryptocurrency and digital assets, aiming to protect Black men who invest in these markets. Meanwhile, a prediction platform backed by Trump-Vance ally Peter Thiel says Trump’s chances of winning the election have increased. Despite once referring to bitcoin as a “scam,” Trump has recently positioned himself as a cryptocurrency supporter, and recently launched a DeFi platform with his sons, aiming to challenge traditional finance. We own Microstrategy and Coinbase in the Opportunity Portfolio.

(+) Intuitive Surgical (ISRG-US) The surgery-focused robotics company beat earnings and revenue expectations, with its da Vinci procedures growing 18% YoY. A key indicator of surgical activity, instruments and accessories revenue rose 18% YoY, while systems revenue grew 17%. Overall, the core measures of the company’s business remain healthy. Owned in Opportunity Portfolio.

(-) Louis Vuitton (LVMUY-US) The world's largest luxury group reported weaker-than-expected third-quarter revenues, signalling a continued slowdown in the global demand for high-end goods. The French conglomerate struggled across key markets, with a particular deterioration in China. China, once a key growth engine for luxury brands like LVMH, is now becoming a challenge as the country faces a sluggish property market and economic uncertainty. These issues have dampened consumer confidence, with less affluent Chinese shoppers cutting back on luxury purchases. LVMH reported a 3% drop in organic revenue to EUR 19 billion for the third quarter, with its key fashion and leather goods division - home to brands like Louis Vuitton and Dior - experiencing a 5% organic decline to EUR 9 billion. Notably, this division has remained strong and resilient since the pandemic, showing no signs of weakness until now. The company's wines and spirits division saw the sharpest decline, down 7%, as the sector adjusts to post-pandemic consumption patterns and faces trade friction between China and the European Union. Sales in the broader Asian market, excluding Japan, dropped 16%, underscoring the challenges in China. In contrast, LVMH's organic revenue was flat in the US, while Europe posted a modest 2% rise. Japan, a bright spot in previous quarters due to a weaker Yen and strong tourist spending, had organic revenue growth easing to 20% from 57% in the prior quarter. Some investors are hopeful that China's economic stimulus might spark a rebound in demand, but it feels a bit early to bank on that just yet. The real issue is whether the worst is over, or if there's more pain ahead. Either way, don't rush to sell your LVMH shares - this dip could be an opportunity to pick up some more. Owned in Core and ESG+ Portfolios.

(+) McDonald's (MCD-US) Shares of McDonald’s have rallied over the past few weeks, as investors sense business is improving. To its credit, the company has taken meaningful steps to engage consumers. McDonald’s has refreshed its menu by offering an improved burger and various chicken offerings. In addition, the introduction of a $5 Meal Deal, and an enhanced loyalty program, appear to be popular with value-oriented customers. McDonald’s got off to a mixed start in 2024, but we think results should strengthen in the second half of the year. The 2.5% dividend yield is not overly exciting at this time, but the company regularly raises the payout. Owned in US Portfolio.

(+) Netflix (NFLX-US) posted third-quarter earnings Thursday that beat on the top and bottom lines. The streamer’s ad-tier memberships jumped 35% quarter over quarter. Netflix is projecting revenue for the full year of 2025 to be between $43 billion and $44 billion, as it improves its core series and films offerings. Netflix added 5.1 million subscribers during the quarter, more than the 4.5 million Wall Street expected. In total, the streaming service now has 282.7 million memberships across all of its pricing tiers. Owned in Core and ESG+ Portfolios.

(+) Shopify (SHOP-T) RBCCM is rolling forward its valuation and SHOP’s price target increases to US$100 (suggesting upside of 23%). More importantly, the underlying fundamentals are healthy and are trending in the right direction. To be specific, the number of merchants, monthly recurring revenues, and gross merchandise volumes are all expected to grow by high double digits Y/Y. Furthermore, job postings are down on a sequential basis, implying there’s scope for stronger margins. Longer-term, we believe there is lots of room for margin expansion due to SHOP’s differentiated platform and the stickiness from its merchants. Shares are trading at 10x EV/Sales on consensus estimates, below its pre-covid average of 13x. We would also note that profitability is also improving, and it’s only a matter of time before investors begin comping this business on an EV/EBITDA or P/E basis in our view. We would be buyers for long-term growth oriented money. Owned in Core and ESG+ Portfolios.

(+) Taiwan Semi (TSM-US) The world's largest contract chipmaker was up sharply following a robust Q3 report, which is fueling a rise in other semiconductor and semi equipment names. This marked TSM's first double-digit EPS beat in the past year. Revenue in Q3 rose 36% yr/yr and 12.9% sequentially to US$23.5 bln, which was above the high end of prior guidance of US$22.4-23.2 bln. What was even more impressive was the strong upside guidance for Q4. TSM expects Q4 revenue of $26.1-26.9 bln, which was well above analyst expectations. Margins were another bright spot with operating margin of 47.5%, which was well above prior guidance of 42.5-44.5%. TSM also guided to robust Q4 operating margin of 46.5-48.5%. Turning to its global manufacturing footprint, TSM is expanding into new geographies. In Arizona, TSM has received strong commitments from US customers and US federal, state and city governments. TSM has made significant progress in the past several months. TSM's plan is to build three fabs in Arizona with the first fab expected to reach volume production in the beginning of 2025. The second fab is scheduled for chip production in 2028. With 68% of 2023 revs coming from North America, building fabs in Arizona makes sense. TSM is also expanding in Japan. Owned in Cash Flow and Opportunity Portfolios.

(-) UnitedHealth Group (UNH-US) reported a beat in Q3, as both revenues and EPS exceeded consensus expectations. The medical loss ratio (MLR) was 85.2%, above street expectations of 84.4%, as the company continues to navigate through a strong utilization backdrop, but more than offset the headwind with strong cost management. Despite the earnings beat, the company reduced the midpoint of its F24 EPS range. While the company continues to face some near term headwinds, we continue to view the company as being well positioned to navigate the current landscape given its diversified mix of businesses, and strong management team. UNH is up 15% year-to-date, underperforming the S&P 500. The stock trades at a NTM P/E multiple of 19.9x, a premium to its 10-year average of 18.2x. We would continue to own the stock and be buyers buyers on pullbacks. Owned in Cash Flow and US Portfolios.

Company of the Week: Coinbase

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Weekend Reading

RBC MacroMemo - October 15 – 28, 2024 Hurricanes / Lower recession risk / Smaller Fed cuts / Trump odds mount / China stimulus / Oil price risk / Canadian update RBC GAM

Proof point: Job market is a bigger risk to Canada’s economy than mortgage renewals A large chunk of one to three-year mortgages will likely renew at lower interest rates and variable rate mortgage holders are already seeing some relief. RBC

Mapped: North America’s Biggest Tech Talent Hubs Toronto added 95,900 tech talent jobs, the most out of all markets in North America. The major Canadian metropolitan is experiencing a tech “boom”, particularly due to the high concentration of AI talent in the city. VISUAL CAPITALIST

Trump promises to end 'double taxation' of expat-Americans. What would this mean for Canada's dual citizens? Requirement for U.S. citizens living in other countries to be taxed on their international income. FINANCIAL POST

Not choosing is a choice There is no such thing as "passive" investing. LOW RISK RULES

Who died and left the US $7 billion? It was the biggest estate-tax payment in modern history, but no one knew who made it. Then an anonymous phone call pointed to one man. SHERWOOD

An Intuitive Guide to How LLMs Work To understand how LLMs work, we need to start with probability. By understanding LLMs as probability engines trained on vast amounts of text data, we can better appreciate both their capabilities and their limitations. This perspective is crucial for using them effectively and responsibly in real-world applications. MOSTLY HARMLESS

The Lithium Triangle's Rise in the EV Race South America’s so-called Lithium Triangle is set to draw over $30 billion in about five years as a slew of Chinese, North American and Australian investors look to seize coveted assets to supply the new 'white gold' powering electric vehicles (EVs). CME GROUP