Gravitas: Amanda's Wedding

October 25, 2024 | Michael Newton


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The Newton Group Insights

This week our very own Amanda Busch tied the knot. It is very rare that Amanda would permit me to post a photo of her but here it is. It was a fantastic destination wedding in Cancun, Mexico with 70 close friends and family there to celebrate. Amanda and I have been working together for over 25 years now! We wish Jason & Amanda all the happiness in the world. May your love be modern enough to survive the times and old-fashioned enough to last forever.

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

Portfolio Notes

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

(+) Canadian National Railway Company (CNR-T) Q3 results were in line with consensus, but more importantly, they were better than some investors had feared given the labour disruption, wildfires and generally slowing economy. On the closely followed operating ratio, CNR did miss consensus, but RBCCM notes that the miss was driven by one-off items (i.e. wildfires, labour disruption) and that operating metrics have rebounded meaningfully. Owned in Core and ESG+ Portfolios.

(+) Canadian Pacific Kansas City Limited (CP-T) Q3 result was in-line. However, of greater importance was CP’s raising of 2024 volume guidance from low-single digits to mid-single digits. RBCCM views this as “very impressive given the extremely weak freight backdrop that has caused other transports to back off guidance in recent months”. CP shares are down about 6% over the last month, and now trade at 22.4x forward EPS, which is a level we’d be fine adding to underweight positions. Our long-standing view on the rails remains unchanged. Our preference remains with CP, but we strongly believe both CNR and CP can be owned due to the industry’s high barriers of entry and the critical roles they play within the Canadian economy. Owned in Core and ESG+ Portfolios.

(+) Deckers Outdoor (DECK-US) The maker of Ugg and Hoka jumped 14% following its big earnings beat. Deckers posted earnings of $1.59 per share, topping the $1.24 a share expected from analysts. Revenue was $1.31 billion, well above the $1.20 billion consensus estimate. Owned in US Portfolio.

(+) First Quantum Minerals Ltd. (FM-T) reported a rare beat and raise for the mining space as operational excellence and a rise in commodity prices swung results into positive territory. More specifically, adj. EPS came in at $0.14 (Cons. $0.01), EBITDA of $520M (Cons. $350M), supported by copper production of 116.1Kt (Cons. 103.1Kt) and gold production of 41Koz (Cons. 26.4Koz). And to cap it off, this was all done at a lower cost of $1.57/lb (Cons. $1.90/lb) on higher volumes, lower fuel costs, and other tailwinds. Management has now moved up guidance for the midpoint of copper production by +4% and gold production by +21%. Owned in Core Portfolio.

(-) McDonald's (MCD-US) shares dropped more than 6% after news of an E. coli outbreak linked to the fast food-chain's Quarter Pounders. The CDC said there are 49 cases in 10 states in the Midwest and the West. One death. The problem seems to be with the onions by a single source. Taylor Farms — based in Salinas California, also known as ‘The Salad Bowl of the World’ — issued a recall for peeled and diced onions from one of its facilities in Colorado. That state is the epicentre of the outbreak that has so far sickened almost 50 people. McDonald’s has since removed Quarter Pounders from its menu, owing to its status as their only one that contains slivered onions. But other fast food chains including Burger King and Taco Bell have also either removed onions from their menu or temporarily changed their processes for receiving, handling and preparing them.We added to shares on the pullback. Owned in US Portfolio.

(+) RTX Corporation (RTX-US) reported a beat-and-raise for Q3. The company beat on both top and bottom-line. Pratt & Whitney stood out as the driver of outperformance for both net sales and adj operating income, while stronger profits at Raytheon also contributed to the bottom-line beat. We like RTX because it is a powerhouse in the aerospace & defense industry, where it enjoys stable growth and healthy margins leveraging its established expertise, mission-critical product portfolio, and deeply entrenched customer relationships. Given the high switching costs and scale of the business, as well as the steep entry barrier of the industry, RTX enjoys strong visibility to its recurring revenues (often decades) and significant negotiating leverage with its customers. The stock has significantly outperformed the market YTD (+50% vs. S&P 500 +23%) and is trading at a premium to historical valuations (21x vs. 18x on forward PE). Owned in Core, Cash Flow, US and Opportunity Portfolios.

(+) ServiceNow (NOW-US) The software company advanced more than 5%. They posted third quarter adjusted earnings of $3.72 per share, topping Wall Street’s estimate of $3.46 per share. ServiceNow’s revenue of $2.80 billion also exceeded the $2.74 billion analysts had expected. Owned in US and Opportunity Portfolios.

(-) Starbucks Corporation (SBUX-US) released disappointing F4Q results ahead of earnings next week. Management also suspended their FY25 guide, which we believe was largely expected, to give new CEO Brian Niccol some flexibility to invest. However, we were still surprised by the magnitude of the SSS erosion in Q4 which was off -6% in the US. This suggests to us that some of the recent product news and promotional activities did not work to improve customer behaviors. We continue to own the shares. Owned in Core, ESG+ and US Portfolios.

(+) Tesla (TSLA-US) shares soared this week, with Thursday being the best day in 11 years, following a better-than-expected earnings report. The company’s profit margins in the third quarter were boosted by $739 million in revenue for environmental regulatory credits. Tesla CEO Elon Musk said his “best guess” is that “vehicle growth” will reach 20% to 30% next year. That prediction was ahead of the 15% expected by analysts surveyed by FactSet. Owned in ESG+ Portfolio.

(-) Verizon Communications Inc. (VZ-US) reported mixed Q3 results this morning. Revenue came in a tad softer than consensus mainly due to underperformance within their Enterprise & Public Sector segment. Long-term, we continue to like VZ for its stable utility-like business, delivering relatively stable results with modest growth and healthy margins, supporting an attractive dividend yield of 6.2% and very low beta profile. Owned in Cash Flow Portfolio.

(+) Viking Therapeutics (VKTX-US) stock surged 20% this week after the company outlined its quadruple combination in weight loss, which was considered a blow to Eli Lilly's experimental triple. Next year, Viking expects to file a request with the Food and Drug Administration to begin testing in people a drug that mimics the activity of hormones called amylin and calcitonin. Amylin helps control blood sugar while calcitonin regulates calcium levels in the blood. Owned in Opportunity Portfolio.

Company of the Week: Tesla

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