The Street for Friday, April 20, 2026

Key Concepts

• Return on Invested Capital (ROIC): The primary metric for evaluating business quality; measures how efficiently a company generates profit from its capital.
• Vertical Market Software (VMS): Specialized software designed for specific industries, often characterized by high switching costs and deep customer integration.
• Capital-Light vs. Capital-Intensive Models: The distinction between businesses that require minimal ongoing investment to grow (capital-light) versus those requiring heavy infrastructure and input spending (capital-intensive).
• Pricing Power: The ability of a company to raise prices without losing significant demand, often derived from strong brands or network effects.
• Founder-Run/Owned Companies: Businesses where the original founders maintain significant leadership or equity, often correlated with long-term outperformance.
• Inflationary Hedge: The strategy of selecting assets that can maintain value during periods of rising prices, specifically favoring companies with pricing power over traditional commodities.

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Market Overview and Geopolitical Context

The market is currently experiencing volatility driven by geopolitical tensions in the Middle East, specifically regarding the Strait of Hormuz. While Asian markets showed resilience, North American and European markets trended downward. Jason Del Vicario emphasizes that short-term market movements driven by geopolitical headlines are difficult to trade successfully. He advises long-term investors to focus on high-quality companies rather than attempting to time the market based on daily news cycles.

Corporate Developments

• Agnico Eagle: Expanding in Finland through three deals valued at approximately $3.7 billion, including the acquisition of Rupert Resources ($2.9B) and stakes in Aurion Resources and the Fintan Gold joint venture.
• Bombardier: Secured a $300 million, five-year services deal with Vista for the Challenger 3500 fleet, utilizing a "cost per flight hour" structure.
• Government Policy: Canada has implemented a temporary suspension of fuel excise taxes until Labour Day, expected to save consumers $0.10/litre on gas and $0.04/litre on diesel, at a fiscal cost of over $2 billion.

Inflation Analysis

Pedro Antunes (Chief Economist, Signal 49 Research) provided insights on the latest CPI data:

• Data: Year-over-year CPI came in at 2.4% (vs. 2.6% expected). Core CPI was 2.3% (as expected).
• Drivers: Rising gasoline prices (up 20% in March) are a primary inflationary pressure. Food inflation remains elevated at 4.4%.
• Outlook: Antunes warns that April inflation may rise further due to sustained energy price shocks. He notes that monetary policy is currently ineffective against supply-side shocks, and the Bank of Canada remains in a "wait and see" mode.

Investment Strategy: Navigating Inflation

Del Vicario argues against the conventional wisdom that commodities and real estate are the best inflation hedges:

• The Buffett Framework: Citing Warren Buffett’s 1977/1981 letters, he argues that capital-light businesses with pricing power are superior during inflation.
• Capital-Intensive Risks: Commodities (oil, gas, gold) are capital-intensive and subject to volatile input costs and regulatory hurdles, making them less attractive for long-term compounding.
• Real Estate: While often viewed as a hedge, real estate is capital-intensive, requiring significant maintenance and debt-servicing costs that rise alongside inflation.

Stock-Specific Insights

• Constellation Software: Viewed as a high-quality VMS company. Previously overvalued, it is now considered more attractive. The company is exploring minority stakes in public equities (PEM strategy) to deploy capital.
• Games Workshop: A "moated" company with a cult-like following and strong intellectual property (Warhammer). It possesses pricing power and a capital-light model.
• Copart: Operates in the salvage/junkyard market. It is a "two-horse race" (with IAA) with a double-sided network effect, helping insurance companies manage totaled vehicles.
• Microsoft: A core holding. Del Vicario suggests the low 20s (P/E ratio) is an attractive entry point. He notes concerns regarding lower insider ownership compared to smaller, founder-led firms.
• Evolution: A Swedish online casino developer. Despite regulatory headwinds and labor issues, the company maintains a dominant market share and high margins.

Synthesis

The overarching takeaway is that investors should prioritize business quality—specifically high ROIC, founder ownership, and pricing power—over macro-economic hedging strategies. During periods of inflation and geopolitical uncertainty, the most resilient companies are those that can pass costs to consumers without requiring massive capital reinvestment.