Market Call: Greg Newman's outlook on North American Equities and Option Protection Strategies

Here's a comprehensive summary of the YouTube video transcript:

Key Concepts

• TSX Performance: The Toronto Stock Exchange (TSX) has experienced a strong performance, potentially outperforming the S&P 500, driven by sectors like gold, metals, financials, natural gas, and power companies.
• Canadian Economic Tailwinds: Nation-building projects and increased demand for power due to data centers are contributing to the TSX's momentum.
• Tariff Impact: Initial concerns about tariffs were largely mitigated by carve-outs and a de-escalation of rhetoric, with minimal damage to the Canadian economy.
• Netflix Acquisition Speculation: The potential acquisition of Warner Brothers by Netflix is viewed as unlikely due to significant regulatory scrutiny and anti-competitive concerns, though it would be transformative if it occurred.
• Well Health Analysis: Well Health is a buy for riskier, speculative capital, despite ongoing anti-competitive investigations, due to strong revenue growth and attractive valuation.
• Transportation Sector: CargoJet and TFI are considered good buying opportunities during a depressed transportation market, offering potential for recovery and long-term growth.
• Allied Properties Dividend Cut: Allied Properties cut its dividend by 60%, creating uncertainty about its fundamentals, but the stock rallied, suggesting potential relief and a path to balance sheet improvement.
• AB Technologies Speculation: AB Technologies is a highly speculative company with no current earnings but significant long-term potential, recommended for non-registered accounts with a high-risk tolerance.
• Bank of Nova Scotia (BNS) and Financial Sector: The big five banks, including BNS, are performing well with improving returns on equity and favorable yield curves. BNS is considered a good option for its dividend and growth potential.
• Tax Loss Selling: The current market is experiencing significant tax loss selling, unfairly punishing some fundamentally sound stocks that are expected to rebound in the new year.
• Propel Holdings: Despite a short-seller report and a shift in strategy, Propel Holdings is considered undervalued with strong future growth prospects.
• Kyndryl Holdings: A spin-off from IBM, Kyndryl is seen as a meritorious play with strong partnerships and a solid balance sheet, despite an aversion to software names.
• Citigroup: Citigroup is performing well with strong operating leverage and a focus on improving return on tangible common equity, indicating continued growth potential.
• Constellation Software: Despite CEO changes and a general dim view of software stocks, Constellation Software remains a strong wealth builder with a continued roll-up strategy, though its valuation is considered high.
• Fairfax Financial: While a quality holding, Fairfax Financial is not recommended for new purchases due to limited growth prospects beyond rising book value, with better dividend-focused options available.
• Chiara vs. Gibson Energy: Both are good companies, with Chiara offering better growth but a higher valuation, while Gibson Energy presents a more attractive valuation with solid growth. Stop losses are generally discouraged for these types of companies.
• Canadian Natural Resources (CNQ): CNQ is a profitable oil and gas producer with a natural gas play and efficient operations, making it a top Canadian oil play with a good dividend.
• Brookfield Infrastructure: Brookfield Infrastructure is recommended for its strong growth pipeline, asset recycling strategy, and inflation-linked revenues, offering a good risk-reward profile.
• Telus: Telus's dividend sustainability is questioned following BCE's dividend cut, but asset sales and market discipline in the wireless sector could support its financial plan. It's considered more of a buyer than a seller at current levels.
• Shopify: Shopify is a long-term winner but is currently very expensively priced, making it a hold rather than a buy for new money, especially in non-registered accounts due to tax implications.
• New Picks:
  • iShares U.S. Aerospace and Defence ETF (ITA): A broad play on the aerospace and defense sector, driven by increased global military spending.
  • iShares Russell 2000 ETF (IWM): A play on small-cap stocks, which are seen as undervalued and poised for a catch-up rally, especially with potential interest rate cuts.
  • NVIDIA: Despite emerging competitors and AI bubble concerns, NVIDIA is considered a strong long-term investment due to the early stage of AI proliferation and its dominant market position.

TSX Momentum and Canadian Economic Drivers

The TSX has experienced a significant rally, potentially outperforming the S&P 500. This momentum is attributed to several factors:

• Pent-up Demand: After years of underperformance, the TSX is experiencing a period of outperformance.
• Sector Concentration: Key drivers include:
  • Gold and Metals: Strong performance in these commodities.
  • Banks and Financials: Extraordinary recent performance and strong earnings.
  • Natural Gas: A bull market after years of stagnation.
• Canadian Tailwinds:
  • Nation-Building Projects: These are expected to be stimulative and create multiplier effects, exciting investors.
  • Power Companies: Benefiting from the data center build-out, fueling demand.
• Economic Strength: Strong Canadian job numbers and GDP growth provide a solid foundation.

Tariff Impact and Economic Resilience

Despite initial fears surrounding tariffs, the Canadian economy has shown resilience.

• Initial Concerns: In April, the Trump administration's rhetoric about financial reordering and tariffs created significant apprehension.
• Mitigation: Approximately 93% of goods flow across the border without significant additional costs or inflation for Canadians. The tariff rhetoric has largely subsided, allowing the Canadian economy to remain solid.
• Sector-Specific Hits: Any negative impacts have been largely confined to specific sectors.

Netflix and the Warner Brothers Deal

The potential acquisition of Warner Brothers by Netflix has generated significant discussion.

• Market Reaction: The acquiring stock (Netflix) typically falls due to merger arbitrage, which was initially observed. However, Netflix's subsequent rise suggests investor confidence in its standalone prospects.
• Regulatory Scrutiny: The deal is expected to face intense regulatory scrutiny and is considered unlikely to be approved due to anti-competitive concerns. The White House has already expressed a dim view.
• Potential Upside (if approved): If the deal were to go through, it would be "incredible" for Netflix, granting access to a century of classic films.
• Netflix Fundamentals:
  • Recent Performance: Missed earnings in the last quarter due to one-time Brazilian tax issues.
  • Competition: Faces significant competition from Amazon, Disney, HBO, and Peacock.
  • Strong Q3: Reported best sales ever, with revenue up 17% year-over-year.
  • Guidance: Raised guidance, which is a positive signal to investors.
  • Long-Term Goal: Aiming to double revenues by 2030.
  • AI Leverage: Actively exploring generative AI.
• Valuation: Trading at approximately 27 times earnings with around 20% growth, considered good value. The recommendation is to buy, even if the stock is down.

Well Health: Buy, Hold, or Sell?

Well Health, which operates medical facilities and provides blood testing services, is analyzed for its investment potential.

• Business Model: Oversees medical facilities, including clinics and diagnostic services in Canada and the US.
• Current Challenges: Under investigation for anti-competitive practices related to its mergers.
• Q3 Performance: In line with expectations, with strength in US patient services and software-as-a-service segments.
• Outlook: Affirmed its outlook.
• Margins: Beat expectations at 16.4% versus 15.5%.
• Revenue Growth: Up 56% year-over-year, with 19% organic growth.
• Analyst Sentiment: Ten analysts have upgraded the stock in the last 660 days, with no downgrades.
• Valuation: Considered "very, very cheap" at 9.5 times 2027 earnings.
• Recommendation: A "buy" for riskier, more speculative capital, recommended for non-registered accounts. The primary knock is the earnings outlook's steadiness due to acquisitions.

Transportation Sector: CargoJet and TFI

The transportation sector is currently facing challenges, but specific companies are seen as opportunities.

• CargoJet: Down 32% year-to-date.
• TFI: Also significantly down.
• Investment Thesis:
  • TFI: Known for its merger and acquisition model, consistently improving its balance sheet and executing accretive deals.
  • CargoJet: Possesses a "moat," handling a significant portion of Amazon's shipping. It's a capital-intensive business.
• Current Opportunity: The current depressed state of the transportation market presents a time to add to these positions. Stocks that are down year-to-date are being heavily sold for tax loss harvesting, creating an artificial dip.
• CargoJet Specifics:
  • CEO Transition: Acknowledged.
  • Growth Re-acceleration: Expected as trade normalizes.
  • Valuation: Trading at approximately 15 times 2027 earnings, with an estimated 14% growth.
• Recommendation: Both TFI and CargoJet are considered good names to put money into right now.

Allied Properties: Dividend Cut and Bottoming Out

Allied Properties, a real estate investment trust (REIT), has been significantly beaten down.

• Dividend Cut: The company cut its dividend by 60% on Monday, deeper than expected.
• Uncertainty: It's unclear if the cut is due to worsening fundamentals or a conservative approach, as no forward guidance was provided. This makes it difficult to definitively say if the stock has bottomed.
• Tax Loss Selling Impact: The stock's decline is exacerbated by tax loss selling.
• Positive Sign: The stock rallied on the news of the dividend cut, which is often a good sign as it can be part of a longer-term solution.
• Outlook: The balance sheet is expected to improve, and the business should eventually heal. There's likely not much downside from current levels.
• Valuation: Considered "pretty cheap."
• Short-Term Outlook: Likely to trade sideways in the near term due to ongoing tax loss selling.
• Catalysts Needed: Occupancy gains and exceeding 90% occupancy are key for a rebound.
• Current Price: Trading around $12.82.

AB Technologies: Speculative Growth Play

AB Technologies is a speculative company in the technology sector.

• Business: Provides software tools for communications and trade, likened to an exchange in Singapore for commodities.
• Speculative Nature: Very speculative with no current earnings.
• History: The expert has been following it since $9-$6 and was impressed by management and its moat/model.
• Stock Performance: A "lumpy" stock that experienced a significant pullback from the mid-$50s to $47-$48.
• Recommendation:
  • Not for RRSP: Not recommended for Registered Retirement Savings Plans (RRSPs).
  • For Non-Registered Accounts: Suitable for non-registered accounts for those comfortable with potential losses and not expecting a straight-line trajectory.
• Upside Potential: If it goes right, it could become a significant company, potentially a tenfold return. However, "moonshots" don't always reach the moon.
• Adding to Position: Recommended to add at $47.

Bank of Nova Scotia (BNS) and the Financial Sector

The banking sector, including Bank of Nova Scotia, is performing well.

• Sector Performance: All big banks are reporting good earnings, with strength in wealth management and credit markets.
• Yield Curve: An upward-sloping yield curve is benefiting Provisions for Credit Losses (PCLs), which have been a concern but are ticking up less than expected.
• Growth: Growth numbers have been better than anticipated.
• Earnings Expectations: Earnings expectations are being revised upwards across the board.
• Bank of Nova Scotia (BNS):
  • Strategy: The caller's strategy of overweighting BNS as a bond proxy due to its dividend is noted.
  • Interest Rates: Predicted decrease in interest rates might support BNS's stock price.
  • Dividend: Potential for a dividend raise is seen as positive.
  • Expert's View: While working at Scotia MacLeod, the expert acknowledges BNS's strong numbers and dividend.
  • Valuation: Offers dividend and growth at a reasonable price.
  • Outlook: Despite a recent run, there's potential for more upside.
• Other Banks: BMO is also liked, and all banks are expected to do well.
• Diversification Strategy: Holding all big five banks is a fine strategy, as they tend to perform well over time, though not in a straight line. Asset managers look for cheaper valuations.

Stocks Unfairly Punished by Tax Loss Selling

Several stocks are identified as being unfairly punished by tax loss selling and are poised for a rebound in the new year.

• Key Condition: "All things equal," meaning the news and macro environment remain the same.
• High Conviction Names:
  • BCE: Currently being punished.
  • Air Canada: Overly punished.
  • Maple Leaf Foods: Overly punished.
  • Propel Holdings: Significantly beaten down.
  • GoEasy: Another name that has been bludgeoned.
  • Transforce:
  • CargoJet:
  • West Fraser: Operations were scaled back, and OSB capacity was cut.
• Higher Risk Category:
  • Dye & Durham: Very high risk.
  • New Flyer: Very high risk.
• General Outlook: These stocks are considered cheaper than they should be and are expected to perform better in January.

Review of Past Picks (December 2024)

A review of past picks from December 19th of the previous year highlights performance and current outlooks.

• Propel Holdings:
  • Recommendation: $35.90.
  • Current Price: $26.18 (27% drop).
  • Total Return Drop: 25%.
  • Reason for Decline: A short-seller report questioning accounting practices and aggressive lending, coupled with the market's dislike of a shift towards quality over growth. Thinly traded stocks are susceptible to large drops on bad news.
  • Current Outlook: Considered a meritorious story, undervalued with 35% growth modeled and trading at 7 times 2027 earnings. Believed to be a matter of time for a rebound. The expert sold for tax loss harvesting but intends to buy back.
• Kyndryl Holdings (KY):
  • Recommendation: $34.18 USD.
  • Current Price: $26.40 USD (22% drop).
  • Total Return Drop: 22%.
  • Business: Spin-off from IBM, providing IT infrastructure, cloud security, networks, and app data for top global companies.
  • Reason for Decline: Aversion to software names and a focus on AI-heavy companies.
  • Current Outlook: Considered a meritorious play with a continuing buyback program. Modeled 59% compound annual growth, trading at around 7 times 2027 earnings. Strong partnerships with Microsoft, AWS, and Google.
  • Recommendation: A buy, with the question being "if" but "when" it will perform.
• Citigroup (C):
  • Recommendation: $68.42 USD.
  • Current Price: $161 USD (59% upside).
  • Total Return: 62.5%.
  • Performance: Clearly a bank doing very well.
  • Reason for Strength: Beating and raising earnings, showing operating leverage across segments, solid investment banking. Focus on improving return on tangible common equity to 12.5%.
  • Current Outlook: The macro environment is improving, and the company is executing its transition. Trading at 9 times 2027 earnings, growing at 26%.
  • Recommendation: Still has more upside. No trimming has been done.

Constellation Software: Navigating CEO Change and Software Sector Sentiment

Constellation Software, a major wealth builder on the TSX, is facing scrutiny.

• Historical Performance: One of the biggest wealth builders on the TSX over the last 20 years.
• Current Concerns:
  • CEO Stepping Aside: This has led to questions about future leadership.
  • Software Sector Sentiment: A general dim view of software stocks, with a strong preference for AI-related companies.
• Strategy: The roll-up strategy of acquiring and integrating businesses is expected to continue and be accretive.
• Valuation: Trading at 24 times 2027 earnings, with 18% growth modeled. This is considered a bit pricey for the growth rate, with NVIDIA being cheaper on a price-to-growth basis.
• Recommendation:
  • Buy or Sell: If forced to choose, the expert would "buy."
  • Other Opportunities: Other places might offer slightly better risk-reward.
  • Holding: For those holding in registered accounts, shaving some off might be considered, but not at current levels.
  • Trend Line: The stock appears to be on its 200-day moving average on a long-term chart.

Fairfax Financial: A Quality Holding

Fairfax Financial is a well-regarded company, but its investment appeal is being re-evaluated.

• Past Performance: Was a top pick around $500 three years ago and has since performed exceptionally well.
• Improvements: Increased book value per share growth, enhanced underwriting ability.
• Benefiting Factors: Benefits from lower catastrophic losses and robust operating income.
• Current Outlook:
  • Valuation: Trading at 12 times 2027 earnings.
  • Growth: Limited growth expected for 2026 and 2027 beyond rising book value per share.
• Recommendation: A "pass" for new purchases. It's a good quality holding, but better dividend-focused options exist for registered accounts.
• Analyst Recommendations: Six buys, one hold, one sell.

Chiara vs. Gibson Energy: Midstream Infrastructure Choices

Both Chiara and Gibson Energy are considered good companies in the midstream infrastructure space.

• Chiara: Offers better growth but trades at a much higher valuation.
• Gibson Energy: Trading around 13-14 times earnings with a still very good growth rate. Had a recent investor day targeting strong investor growth.
• Stop Losses: The expert strongly advises against using stop losses for these types of companies.
  • Reasoning: Good stocks can drop 10-30% without a change in fundamentals. Stop losses can lead to being "snapped out" by the market, missing subsequent rebounds. They are more appropriate for highly volatile instruments like futures or cryptocurrencies, not for good companies paying dividends.
  • Alternative: If conviction wanes (from 8/10 to 7/10 or 6/10), pare back the position gradually. If a stock isn't investable at a 10% drop, don't invest in it.

Canadian Natural Resources (CNQ): A Top Canadian Oil Play

Canadian Natural Resources is a strong contender for investors looking at the Canadian oil and gas sector.

• Profitability: Profitable even with West Texas Intermediate (WTI) oil prices below $50.
• Oil Price View: The expert has a cautious view on oil prices, anticipating potential downward pressure from political factors and competition.
• Canadian Names: Canadian energy companies have significant ground to make up.
• CNQ Strengths:
  • Natural Gas Play: A significant natural gas component is a strong positive.
  • Operations: Great operations.
  • Valuation: Fairly priced relative to peers, not cheap but a good value.
  • Efficiency: Profitable at oil prices below $50.
• Dividend: Offers a nice 5% dividend.
• Recommendation: A great idea for a 5-10 year hold in a TFSA, considered the best big oil play in Canada.

Brookfield Infrastructure: A Solid Infrastructure Investment

Brookfield Infrastructure is a recommended investment in the infrastructure sector.

• Price Target: $41 USD (approximately 14% upside from the Canadian dollar price of $49.47).
• Return Potential: Combined with 5% distribution growth, this offers a solid return.
• Recent Performance: Softness in midstream and transport in the last quarter, but Q3 was solid in data and utilities.
• Growth Strategy:
  • Asset Recycling: A core part of their strategy.
  • New Acquisitions: US pipelines, fiber deals, and New Zealand natural gas infrastructure.
  • Bloom Energy Contract: A $5 billion contract.
  • Sales Target: Reaffirmed sales target of $5-6 billion over the next two years.
• Key Features:
  • Inflation-Linked Revenues: Revenues are linked to inflation for the foreseeable future.
  • Valuation: Trading at 10 times 2027 earnings.
  • Growth: Growing at 15%.
  • Distribution: Nice dividend distribution with good growth and a 91% payout ratio.
• Risk-Reward: Generally offers very nice risk-reward.
• Brookfield Group Comparison: While Brookfield Asset Management (BAM) and Brookfield Properties (BP) have their merits, Brookfield Infrastructure (BIP) is currently the favorite from a risk-reward perspective.

Telus: Navigating Telecom Challenges

Telus is facing challenges in the telecommunications sector, but there are reasons for optimism.

• CEO's Plan: The CEO has outlined a three-year financial plan with positive dividend increases and a reduction in debt, targeting a 75% payout ratio.
• Sustainability Concerns: The sustainability of this plan is questioned, given BCE's past dividend cut.
• Industry Changes: The telecom landscape, debt profiles, and immigration have changed.
• Key to Success: Asset sales (real estate, towers, infrastructure) are crucial for improving their financial position.
• Dividend Growth Freeze: Freezing dividend growth is seen as the right move.
• Market Discipline: Discipline in the wireless market is needed for these names to turn around, which has not been evident with price cuts from competitors like Freedom Mobile.
• Valuation: Trading at 15 times earnings with a not bad growth profile for the dividend.
• Recommendation: More of a buyer than a seller at current levels.
• Asset Sales Viability: Selling assets, particularly towers, is a viable option and aligns with the "asset-light" model adopted by US carriers.

Shopify: A Long-Term Winner, But Expensive

Shopify is a well-known e-commerce platform with a volatile stock history.

• Past Performance: Recommended in 2016 at $36 and has since split multiple times, making it a long-term winner.
• Current Valuation: Incredibly expensive.
• Execution: The company is executing well and is ubiquitous.
• Buying Strategy: The chart should be used to determine buying opportunities.
• Selling Decision:
  • Non-Registered Accounts: If held in a non-registered account and facing capital gains taxes in April, selling might be considered if the gains are not 25% better than putting new money elsewhere.
  • Long-Term View: Considered a long-term winner.
• Recommendation: Not a buy for new money at the current price. The stock is richly priced. The expert believes good stocks "want to be light so they can go higher," meaning they shake out investors.

New Top Picks

Greg Newman presents his latest top stock and ETF picks.

• iShares U.S. Aerospace and Defence ETF (ITA):

  • Sector: Aerospace and Defense.
  • Driver: Increased global military spending (e.g., Israel-Iran conflict, Canada, Germany, Middle East). Companies like RTX, GE, Northrop Grumman, and Lockheed Martin are seeing higher demand. GE raised its full-year defense sales by 84%.
  • Valuation: Around 27 times forward earnings, not cheap but with significant upside potential.
  • Alternative: Can also buy on the Canadian side.
  • Expert's Holdings: Owns individual stocks like Boeing (value play) and GE (growth play).
  • Recommendation: An easy and succinct way to own the sector. Buy at current levels (around $200-$201).

• iShares Russell 2000 ETF (IWM):

  • Sector: Small-cap stocks (Russell 2000 index).
  • Rationale: Cheaper than the broader market and currently under-owned. Small caps tend to outperform big caps over the long term, though they haven't recently.
  • Interest Rate Sensitivity: Highly sensitive to interest rates.
  • Market Breadth: Seeing a broadening of the rally and a catch-up in small caps. Approximately 57% of stocks are above their 200-day moving average.
  • Catalyst: Potential interest rate cuts (one next week, two more in June) are expected to benefit this area.
  • Recommendation: Offers diversification and significant catch-up potential. Buy.

• NVIDIA (NVDA):

  • Sector: Semiconductor, AI.
  • Current Situation: Trading off highs as investors digest AI spending and competitor chip announcements (Amazon, Google).
  • AI Bubble Concerns: Acknowledged, with comparisons to JDS Uniphase and the cyclical nature of the industry. Legendary investors are using put options.
  • Expert's View: Believes the market is "way too early" in declaring an AI bubble. Bubbles don't happen when everyone is watching.
  • Fundamentals: Q3 was a beat and raise. Blackwell sales are "off the charts." Major tech companies (Google, Amazon, Microsoft) are competing for AI, but prefer an independent chip supplier.
  • AI Proliferation: Only 3% of US corporations have adopted AI, indicating massive growth potential globally.
  • Valuation: Trading at 20-24 times 2027 earnings, growing at 38%. Considered an excellent risk-reward by analyst consensus.
  • Recommendation: Buy at $180, which is considered a fine entry point. Analyst consensus price target is $250. The expert believes many are wrong to exit NVIDIA.