Set to gain from growing housing needs in the North: Stewart on Black Diamond

Key Concepts

Defensive Positioning: An investment strategy aimed at minimizing the risk of loss during market volatility.
Inflationary Pressure: The tendency for geopolitical conflicts to drive up the costs of goods and services, particularly energy.
Enterprise Value to EBITDA (EV/EBITDA): A valuation metric used to determine the value of a company relative to its earnings before interest, taxes, depreciation, and amortization.
AI Disruption: The fear that artificial intelligence will render existing software business models obsolete.
Recurring Revenue: Income that is predictable, stable, and expected to continue in the future (e.g., subscription-based models).

Market Outlook and Geopolitical Impact

Colin Stewart, CEO and portfolio manager at JC Clark, argues that while short-term market reactions to geopolitical tensions (specifically US-Iran relations) are often binary, investors must look beyond the immediate conflict.

Economic Concerns: Stewart highlights that even if a ceasefire occurs, the market faces structural headwinds, including slowing economic growth, rising inflation, and high valuations in US equities.
Inflationary Nature of Conflict: Drawing parallels to the Russia-Ukraine war, Stewart notes that conflicts are inherently inflationary. He points to the potential for prolonged closures of the Strait of Hormuz and rising energy costs as factors that weaken consumer sentiment and drive up bond yields.
Geographic Preference: Stewart favors the Canadian equity market over the US market, citing cheaper valuations and a stronger presence in sectors that perform well during inflationary periods, such as precious metals and energy.

Investment Strategy and Sector Focus

Stewart advocates for a defensive strategy centered on "high-quality businesses" that can withstand market dislocation.

Defense and Aerospace: Due to increased NATO and Canadian government spending on national security and Arctic development, Stewart identifies this sector as a long-term beneficiary of current global instability.
Tech/Software Opportunities: Despite recent sell-offs in the software sector driven by "AI disruption fears," Stewart believes the market has overreacted, creating entry points for high-quality companies that are successfully integrating AI into their operations.

Case Studies: Stock Picks

1. Black Diamond Group

Business Model: Operates in two segments: modular space (portable units for construction, mining, and education) and workforce solutions (camps for remote projects).
Growth Drivers: The company possesses pricing power and is well-positioned to benefit from increased infrastructure and defense spending in Canada’s North.
Valuation: Trading at approximately 7.5x EV/EBITDA, Stewart views the company as having significant upside potential supported by a strong management team.

2. Thomson Reuters

Business Model: Provides software for corporate tax, accounting, and legal industries. It features a highly stable model with 80% recurring revenue and over 500,000 customers.
The "AI Disruption" Argument: Stewart argues that fears of AI rendering Thomson Reuters obsolete are "overblown." He notes that the company is actively integrating AI and recently raised its 2026 financial outlook.
Valuation: The stock has moved into "value investor territory," trading at 12–13x EBITDA (down from previous highs of 25–30x) with a dividend yield exceeding 3%.

Synthesis and Conclusion

The primary takeaway from Stewart’s analysis is that investors should prioritize quality and defensive positioning in the face of persistent geopolitical and economic uncertainty. While conflict-driven volatility creates short-term noise, the long-term focus should remain on companies with strong cash flows, pricing power, and reasonable valuations. Stewart emphasizes that market dislocations—such as the irrational sell-off in software stocks—provide strategic opportunities for investors to acquire high-quality assets at historically low valuations.