Canada is on the cusp of what could be a generational investment opportunity. After years of underinvestment, billions of dollars are flowing toward infrastructure, defence, energy and data centres—and some of the biggest beneficiaries may still be overlooked by investors. Andrey Omelchak, President, CEO & CIO at LionGuard Capital, believes Canada’s economic transformation is just getting started. After outperforming both the TSX and Nasdaq without relying on big tech or mining stocks, he explains why he’s so bullish on Canada’s future, where he’s finding opportunities and which companies could deliver outsized returns.
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Here are five things to know today
1.
AI trade drags index lower, bonds rally
The S&P 500 had its worst day since July as a combination of hotter than expected inflation and slower than expected growth at Anthropic conspired against equities and bonds. This morning, bonds are recovering but the rout in the AI trade is not. Semiconductors continue to lose ground. We have a new poster child of concern: CoreWeave. Shares of CoreWeave have plunged 52% since the spring as it buckles under the weight of a mounting debt load. The company rents out Nvidia chips by the hour at its own data centres. Now, what does this business model remind you of? It’s a lot like WeWork points out Peter Boockvar of the Boock Report. “They obligate themselves to longer term data center leases and provide shorter term ones to their customers,” he wrote this morning. That model is being tested with the cost of insuring against a default on their bonds exploding higher. It now costs about $1,117,000 to insure against $10,000,000 worth of bonds and implies 50% chance of default over 5 years. All bubbles end the same way: debt and fear.
Where does this leave the TSX? With little AI exposure you’d think better off. Unfortunately, gold has been caught in the crosshairs of rising rate fears and that has dragged down performance of gold stocks which is influential on our index. This morning we have a reprieve, gold is higher for the first time in three days.
2.
US regional banks mixed bag amidst rising rates
With reports of major banks behind us, this morning US regionals took focus. Shares of PNC Financial are down 3% as revenue missed expectations. Under the hood things are not bad, profit beat, provisions came in lower than expected, and the bank increased both its revenue forecast and its interest-related profit outlook. US Bancorp also posted a beat and raise quarter but shares are flat. BNY Mellon posted a beat and the stock is higher this morning as the CEO says sales and pipelines remained very healthy.
Earnings season for the banks has featured strong earnings without obvious blemishes beyond weaker fixed income trading. All banks have been generally positive about the economy and the strength of the consumer. Yet, the sector slumped to a 6-month low yesterday and is down 15% from the peak in August. What gives? “The recent underperformance of major bank stocks reflects a market grappling with the dual-edged sword of a ‘higher for longer‘ interest rate environment,” wrote Citi’s Benjamin Gerlinger in a note to clients this AM, “While beneficial for near-term NII trends, the persistence of high rates is fundamentally designed to slow economic growth, creating significant headwinds for the sector.” And while every bank has been saying that the consumer remains strong, they are all raising their provisions for loans that could go bad. Gerlinger says this isn’t necessarily a sign of stress. “This provisioning was primarily attributed to new loan growth in an uncertain environment, not a deterioration of existing portfolios,” he wrote.
3.
Taiwan Semi falls despite strong results
The maker of Nvidia chips and other semiconductors said sales should rise 44% this year but it wasn’t enough to quell the anxiety in the AI trade or its own stock. Taiwan Semiconductor is down 3% this morning and has already lost more than 10% since last week. The only blemish this quarter was on the gross margin side which failed to beat expectations. The magnitude of the sales and profit beat were only by 2-3%.
4.
Penske Automotive to go private
One of the largest car dealership groups in the US is being taken private by its parent company and its top Japanese shareholder which already own a combined 70% of shares. The offer on the table is $212/share, a 9% premium, values the dealership at 16.3 billion. The stock has been a strong performer, recently hitting a record high of $219/share. The board decided the deal was better than remaining public. Shares of rival CarMax are up 3% in the pre-market. Watch AutoCanada on the TSX.
If you know, you know
5.
Bird Construction downgraded at Canaccord
I can’t get my hands on the note, but Canaccord is now the only one with a hold rating on the stock following an eye-watering 182% rally in shares so far this year. It was a top idea from Andrey Omelchak when he was on the podcast in March. I asked him about it again and he told me that he took some profits, but remains a shareholder. He acknowledges the multiple is high and it may trade sideways, but that there is still room for upside as margins could come in higher than expected in the years to come. Tune in to find out what he says could be the next Bird Construction in Pro Picks!
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