Canada just slipped into a technical recession, stocks are sitting at record highs— and one renowned $22 billion firm is leaning in, not backing away. On this episode of In the Money with Amber Kanwar, Alex Letko, Portfolio Manager at LetkoBrosseau, explains why he remains bullish on Canada despite growing skepticism. While headlines point to slowing GDP, he argues the underlying economy is more resilient than it feels—supported by real wage growth and steady consumer spending. He also tackles a debate in the market right now: Canadian banks trading at record highs and premium valuations. Rather than calling it a bubble, he makes the case that strong earnings, oligopolistic structure, and potential pension fund inflows could continue to support the group.
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For a look at the week ahead including a Bank of Canada rate decision and Oracle earnings, read my weekly column in The Globe and Mail!
Here are five things to know today
Manic Monday: Stocks are recovering in the pre-market after they were bludgeoned on Friday. The NASDAQ fell over 4% after job growth in the US came in higher than expected increasing the odds of rate hikes in the US. This morning, stocks have been volatile as Israel and Iran traded missiles and the Houthis threatened to erect a blockade in the Red Sea – spreading the supply chain bottlenecks from the Strait of Hormuz. Oil prices initially soared to $95/bl but are now hovering around $91/bl. The catalyst for calm was US President Donald Trump saying a final truce was “proceeding” and Iran announcing it has ended its attack on Israel. Gold continues to lose its shine with neither peace nor war able to stem its decline – it is now trading at a 6-month low down 20% since the peak in January. Nevertheless, for stocks the fire is out for now. SpaceX is due to price its IPO on Thursday and the big talk is about where investors will find money to buy the deal when it lists Friday. Last week’s sell off could be instructive: investors took profit on semiconductors and data centre plays and rotated into laggards like Clorox, Kimberly Clark, and Chipotle. This afternoon look for headlines at Apple’s World Wide Developer conference which is meant to reveal Apple’s BIG AI strategy.
Mmm-mm, good…enough: Campbell’s Co is up 2.5% after earnings came in better than expected and sales didn’t fall as much as feared. Shares of the snack and soup maker are down 37% over the past year. An objective look at the earnings tell us why: sales continue to fall with snacks, meals and beverages all falling 4% from last year. It doesn’t see the trend of falling sales reversing anytime soon giving a forecast calling for 1-2% declines this year. So why is the stock rallying? Part of it is that the company has been cutting costs to protect the bottom line, it trades below 10x earnings and currently the market seems willing to take a run at these beaten up names following Friday’s sell off. I’d be tempted but there is lots of debt and the dividend yield at 7% still look like a red light. The company is also poised to be removed from the S&P 500 index.
Out with the old: While Campbell’s and Pool Corp will be removed from the S&P 500, the index makers announced Marvell Technology and Flex would be added. Marvell is rocketing up 8% in the pre-market building on its meteoric ascent aided by comments from Nvidia’s CEO that it was the next trillion dollar company (current market cap: $230 billon). Flex, the electronics manufacturer, is also being added following a 151% jump in shares this year. By kicking out Campbell’s and Pool and adding two plays on the data centre boom the S&P 500 is increasingly becoming more – not less – concentrated and anchored to one theme: the AI trade.
Drug deal: Roche is paying $2.3 billion to access an experimental blood-cancer drug from Nurix Therapeutics which is surging 15% on the news. It’s a big cash injection for a company worth just $1.5 billion and shows that the race to find new drugs amidst a patent cliff for big pharma continues to heat up. Nurix initially surged as much as 70% but that has come down quite a bit this morning. It’s not a takeover, but they will commercialize the drug together and share the profits of those US efforts.
Notable calls: BMO is upgrading Badger Infrastructure to buy with a $110 price target on a strong earnings runway. The excavation company is up strongly this year and the analyst thinks demand across its US core business “remains very strong” in part because of all the construction around data centres. It is a favourite of one of our previous guests, Andrey Omelchak of LionGuard Capital. Crox is getting upgraded at Baird after the shoemaker stages a nascent recovery. The analyst thinks sales will be positive in the back half of this year and that improvements to its core brand and Hey Dude brand are starting to bear fruit. Cost controls and health cash return prospects are also supportive here, said the analyst.
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