In the Money: 5 Things to Know

Futures drip, Cisco pops, Walmart flatlines, Atkins Realis beats, Canadian energy deal

I am away on a work trip and had fantasies of sleeping in a little and then writing the newsletter at a leisurely pace. Instead I woke up at 5am yet somehow am still scrambling to get this out on time.

In this episode of In the Money with Amber Kanwar, I speak with Brent Joyce, Chief Investment Strategist and Managing Director at BMO Private Investment Counsel, who oversees $50 billion in assets. We unpack the recent market volatility, driven largely by tariffs, and he explains why Canada is his highest conviction market right now.

Dip: Futures are under pressure as the rally in US stocks appears to be stalling out. There is a lot happening under the hood. Forces to the downside include comments from Steve Cohen at the Sohn Investment conference saying there is a 45% chance of a recession in the US. To underline that point we just got a read of retail sales in America that barely grew, suggesting a consumer slowdown. At the same time producer inflation which came out this AM unexpectedly fell by the most in five years. This comes one day after consumer prices fell to the lowest level in four years. This morning we will hear from Fed Chair Jerome Powell for the first time since last week’s rate decision and recent inflation data. Investors will be keen to know how this affects his stance that the Fed is in no hurry to cut rates. Meanwhile, UnitedHealth is getting whacked again (-6%) on reports that the Department of Justice has opened a criminal probe into possible Medicare fraud. The decline in UnitedHealth has been stunning – down 50% in three weeks. There is always a time to buy into these basket cases, and this remains a well loved stock on the street (24 buys, 4 holds, 1 sell). Yet, the bulls have unconvincing arguments and acknowledge uncertainty right now with many cutting their price targets even as they remain a buy. “Despite the headwinds in the press, and within UNH’s (Medicare advantage) operations, management seemed to double down on its value-based care strategy in its call with investors on Tuesday, which we believe bodes well for United’s continued commitment to the Amedisys deal,” wrote RBC’s Ben Hendrix who has a buy rating. Shares of Apple (1%) and Alibaba (-5%) are also under pressure this morning (Apple’s Tim Cook received a call from US President Trump advising he not move production over to India while Alibaba is down despite better than expected results). On the flip side we have shares of Walmart and Cisco are higher (more on that below). Oil is under pressure as the US nears a nuclear deal with Iran which could bring on even more oil supply. The day ahead is busy as we await hedge fund filings of what they owned last quarter (13Fs). Later today we will get the budget for Ontario which will be the first snapshot of how much the government plans to spend to offset the impact of tariffs.

Gear heads: Shares of Cisco are popping 2% in the pre-market after sales and profit came in better than expected and it boosted its forecast for full-year sales on the back of AI demand. Companies are increasing their network capabilities to handle rising demand from AI and that means they need more networking gear from Cisco. Recall, this was a top pick from otherwise bearish investor Dan Niles. Wells Fargo is upgrading the stock to outperform saying the company is well positioned for longer-term enterprise AI growth. “Investor sentiment will become increasingly positive on Cisco’s internal Silicon One competitive positioning,” wrote Wells Fargo’s Aaron Rakers in the upgrade. Silicon One is Cisco’s programmable networking chip architecture.

Bargain hunting: Investors are trying to figure out what to do with Walmart after it posted better than expected profit and sales but warned of volatility and higher prices going forward. Sales at Walmart increased 4.8%, which was better than expected. However, traffic growth was lower than expected which was offset by higher spend per customer. Walmart’s CFO is warning that prices will be going higher as it is forced to pass along the cost of higher tariffs. The uncertainty in how this all shakes out was evident in the fact that the company declined to give a profit forecast for the current quarter, though it maintained its full year sales and profit goals. “The lack of clarity that exists in today’s dynamic operating environment makes the very near-term exceedingly difficult to forecast,” the company said in its earnings statement.

Going nuclear: Keep an eye on shares of AtikinsRealis after the industrial giant beat expectations and increased its forecast on the back of strength in its nuclear business. “On balance, this is good start to the year. Cash from the 407 sale will of course only further solidify the balance sheet while also dramatically simplifying the reporting / analytical structure of the company, hopefully driving down the discrepancy between Atkins’ valuation and that of its direct peers,” wrote Maxim Sytchev of National Bank. However, Desjardin’s Benoit Poirier notes we might see a slightly negative reaction at the open given the shares of have run up recently. “Overall, we expect a neutral/slightly negative trading reaction given the shares have rallied 10% over the last month (on nuclear headline tailwinds) and given the Engineering Services performance for 1Q was nothing to write home about (negative organic growth and margin contraction in three of four regions),” he wrote.

Energy deal: Keep an eye on shares of Strathcona after it announced the sale of its Montney assets in three separate transactions netting them $2.84 billion. Analysts are applauding the move. TD says the deal effectively wipes out Strathcona’s debt. “We expect this deal to lower SCR’s WTI breakeven, which was previously among the highest in our oil-weighted coverage. History has shown that investors ascribe value to clean balance sheets and low WTI breakevens, especially when oil price volatility is high,” wrote TD’s Menno Hulshof. Arc Resources purchased one of the assets and analysts see that as positive for shares as well.