Market Call: Brian Madden's outlook on North American Equities (Feb. 27, 2026)

Market Call with Brian Madden - Summary (February 29th, 2024)

Key Concepts:

• AI Disruption: The shifting market sentiment regarding Artificial Intelligence, moving from blanket enthusiasm to a nuanced assessment of winners and losers.
• Secular Growth: Long-term growth trends driven by fundamental shifts, like the expansion of the space economy or the need for always-on power.
• Cyclicality: Understanding the business cycles impacting companies, particularly in sectors like home improvement and commodities.
• Defensive Investing: Focusing on companies providing essential goods and services, less susceptible to economic downturns.
• Total Return: Considering both dividend yield and potential capital appreciation when evaluating investments.

1. Market Overview & AI Sentiment Shift

The discussion began with an analysis of the recent market sell-off, specifically related to AI-themed stocks. Brian Madden noted the market is now “pricing in two-way risk” around AI, a change from the previous “all-in” approach since ChatGPT’s launch in November 2022. He highlighted Michael Burry’s concerns about circular financing and overbuilding in the AI/data centre space as a catalyst for this shift. The current trend is a “sell everything that could be disrupted by artificial intelligence,” impacting software and white-collar employment sectors. Madden advocates a “nuanced, case-by-case, company-by-company approach” to assessing AI risks and opportunities, seeking opportunities in stocks that have been “thrown out with the bathwater.”

2. Semiconductor & Shopify Strategy

Madden explained their strategy of taking profits in semiconductor designers while seeking opportunities in companies that could benefit from AI, rather than be disrupted. He used the analogy of “selling shovels and pickaxes to the miners” – focusing on the companies enabling AI infrastructure (like NVIDIA, Broadcom, and TSM) rather than solely on AI applications. Shopify was cited as an example of a company sold off unfairly, presenting a potential buying opportunity. The core argument is that some business models will prove resilient and even enhanced by AI, despite initial fears.

3. Propel Holdings – A Fintech Deep Dive

The conversation then turned to Propel Holdings, a fintech company specializing in alternative lending (often compared to digital payday lenders). While acknowledging its discounted valuation (6.5x earnings) and competitive yield (4%+), Madden expressed caution. Propel charges high interest rates to borrowers with low credit scores, using AI-driven credit adjudication (employment history, income verification, etc.). The key concern is the high allowance for credit losses – roughly 50% of the loan book, significantly higher than traditional banks (0.7-1%). While Propel aims to help borrowers “graduate” to prime lending, Madden highlighted the limited institutional participation (only 17% ownership) and the potential for disruption from other digital lenders.

4. South Bow Energy – Spin-off Analysis

Discussion moved to South Bow Energy, spun off from TC Energy in Q4 2024. Madden noted the market anomaly often seen with spin-offs – potential for outperformance in the first year. He explained that South Bow operates a network of oil pipelines, previously undervalued due to TC Energy’s focus on “clean energy.” While they initially sold their position around $38-$39, he suggested the valuation is now attractive, but cautioned that dividend growth prospects are limited. He prefers TC Energy for its better dividend growth potential.

5. Vistra Corp – Powering the Future

Vistra Corp, a US electric utility, was identified as a positive holding in their momentum mandate. Madden believes demand for power will outstrip supply, particularly due to the massive build-out of data centres. Vistra’s footprint in the PJM and ERCOT regions (Texas) is advantageous, and their nuclear energy fleet is seen as crucial for providing “always-on power” to data centres. They are also signing power purchase agreements with hyperscalers. He believes the pullback in the stock price presents a viable entry point.

6. Key Stock Picks & Rationales (Updated February 28th, 2024)

• TFI International: Benefiting from a potential manufacturing recovery after a prolonged downturn. Strong order backlog and share buybacks signal confidence.
• Alamos Gold: Positioned to benefit from a rising gold price driven by geopolitical tensions, a weakening dollar, and central bank diversification.
• Home Depot: Dominant market position in home improvement, benefiting from increased focus on professional clients and expansion into less cyclical markets. Strong dividend growth history.
• MDA Space: Capitalizing on the expanding $1.5 trillion space economy, with a strong order backlog and potential for further growth. Recent pullback presents a buying opportunity.
• TMX Group: Evolved beyond the Toronto Stock Exchange into a diversified financial services company with recurring revenue streams and strong dividend growth.

7. Geopolitical Risk & Oil Prices

Madden addressed the escalating tensions in the Middle East and the potential impact on oil prices. While acknowledging the uncertainty, he believes the geopolitical risk is already partially priced into the commodity. He emphasized the importance of focusing on companies with strong fundamentals, like ExxonMobil, rather than solely relying on a commodity price increase.

8. Notable Quotes:

• “Markets start to price some two-way risk around the AI theme.”
• “We think you should take a nuanced case by case and company by company approach to sort of pricing AI risks and opportunities.”
• “It’s the selling shovels and pickaxes to the miners and the gold rush.”
• “Death and taxes, as we all know, are inevitable.” (referencing Home Depot’s defensive nature)

9. Data & Statistics:

• AI Market Sentiment Shift: Since November 2023, a trend of selling stocks potentially disrupted by AI has emerged.
• Propel Holdings Credit Losses: Allowance for credit losses is approximately 50% of the loan book.
• Bank Credit Losses: Traditional banks typically have credit loss allowances of 0.7-1%.
• Space Economy: Estimated at $1.5 trillion and growing.
• TFI International Order Backlog: $17 billion, roughly 1-1.3x revenue.
• TMX Group Dividend Growth: 11% compound annual growth rate over the past decade.

Conclusion:

The conversation highlighted a shift in market sentiment towards AI, emphasizing the need for a nuanced investment approach. Madden advocated for a blend of defensive and growth-oriented stocks, focusing on companies with strong fundamentals, sustainable competitive advantages, and the potential to benefit from long-term secular trends. He stressed the importance of considering total return (dividends and capital appreciation) and remaining vigilant about geopolitical risks. His updated top picks reflect a focus on companies positioned to thrive in a changing economic landscape.