What does the perfect resource portfolio look like right now? And where are the biggest opportunities in commodities as the economic cycle enters its later stages? On this episode of In the Money with Amber Kanwar, Benoit Gervais, Managing Director, Portfolio Manager, Co-head of Mackenzie Resources and Energy Evolution Team, shares how he’s positioning his resource portfolios after outperforming the broader market and commodity benchmarks.
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FROM AMBER’S DESK
Apologies for the absence yesterday – I had to host an early morning event. It also meant I was able to escape the morning chaos, which was good news considering the eldest discovered the death of our pet fish a lot quicker than we imagined. My husband tasked me with telling her while we were on our trip, but the sand and sun are no place for bad news. There’s no crying at the beach!
Here are five things to know today
1.
AI trade rebounds, futures higher
Stocks fell yesterday after hotter than expected inflation in the US led to an expectation of higher interest rates. Today, the AI trade is finding its footing thanks to better than expected results from CoreWeave (more on that below), a rebound in Nvidia, Anthropic IPO details, and reports of OpenAI’s revenue surge. Multiple media outlets are reporting that OpenAI’s revenue soared 50% in the third quarter to $10 billion. In contrast, Anthropic’s third quarter revenue was $17 billion although growth slowed to 47%. Anthropic’s IPO is set to go later this month and is targeting a $1.4 trillion valuation.
The gold trade was a pain point for the TSX yesterday because of higher expected rates, but today we are seeing a bit of a rebound. Oil, meanwhile, is advancing for the first time this week as an Iranian official says Iran will not give up uranium enrichment, suggesting the two sides remain far apart.
Today, the bond market is closed for Remembrance Day and Veterans Day.
2.
CoreWeave surges 15% on earnings beat
The neocloud saw revenue surge 168% from last year, margins double to 10%, raised its forecast, and, most importantly, said it still had access to funding. CoreWeave buys Nvidia chips and rents out compute from its data centres. It had become a favourite punching bag amidst the AI sell-off, with the stock imploding 65% since May. The market started to price their bonds like they were going out of business. They are at the heart of the AI buildout and so concerns about a slowdown weighed on sentiment. The company put those financing fears to rest on the call. “Our funding is anchored by secured lending, customer prepayments, and operating cash flows.” They did, however, acknowledge they wouldn’t be funding using unsecure debt given current yields but said they didn’t need to.
But the results clearly show it didn’t weigh on actual business with their backlog surging to $132 billion. Pricing was also strong – CoreWeave is currently charging $40 million per megawatt annually and says they can charge $20-25 million annually for longer term contracts. A traditional data centre landlord rents out a megawatt of space and power for around $2 million a year. CoreWeave charges about $40 million, roughly 20 times more, because it’s renting out the Nvidia chips inside the building, not just the building.
Shares of rivals like Nebius (+14%), Iren (+5%), Cipher Digital (+12%) and Applied Digital (+10%) are all higher in sympathy. I placed my bet on CoreWeave ahead of earnings but even with today’s move I am still down a bit. I’ll be patient.
3.
Barrick Mining files for Nevada IPO
Barrick Mining has officially filed for an IPO of its North American gold business – American Barrick Gold. It is an interesting backdrop to start marketing an IPO considering gold has been languishing recently. American Barrick is currently producing 2 million ounces a year, but with the expansion of its Fourmile growth project it could grow by 750,000-850,000 ounces. The assets include a 61% controlling stake in Nevada Gold Mines which is the world’s largest gold mining complex, as measured by production.
This should be good news for shareholders, but not everyone is happy. Benoit Gervais of Mackenzie Investments said on our most recent episode the decision to spin out the assets is “questionable” one. “It runs against any business textbook, which is typically you spin out and sell a division that is underperforming to attract attention and management focus. They’re trying to do it the other way around: spin out the high performer.” Still, he owns it – calling it a “deep value” play. He didn’t mince words when he said the company needs a change at the top. “First of all, they should change the chairman,” said Gervais on the podcast, “(John) Thornton’s been there for a long time. He’s tried many things. The board is friends of Mr. Thornton, which is not healthy and I think decision-making is very poor.”
Barrick Mining on NYSE
4.
Losses at goeasy worse than feared
The sub-prime lender saw operating income for the third quarter plunge 67%, loan originations drop 40% and money set aside for bad loans rise in the third quarter. The embattled lender imploded in March after writing down over $330 million worth of loans and suspending its dividend and buybacks. “Earnings visibility remains low in our view. Expect negative share price reaction,” wrote Graham Ryding at TD. Desjardins is downgrading the stock to hold (they’ve been a buyer since 2017).
I’m starting to think anything with the word “go” in it should be avoided: goeasy, GO Residential, GoPro (easy come, easy GO)
5.
CGI beats expectations, boosts dividend
Let’s see if results are strong enough to bolster shares which have been recovering from SaaS-pocalypse fears. The stock is up 37% from the May lows and results were generally stronger than expected. Sales increased more than expected by 3.3% with organic growth positive for the first time in seven quarters. CGI also boosted its dividend 8.8%. Given the stock’s rally and the strength in the AI trade today, the results might not be enough to keep the stock elevated.
CGI Group on NYSE
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