The Street for Monday, June 22, 2026

Key Concepts

• CPI (Consumer Price Index): A measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services.
• Core Inflation: Inflation excluding volatile categories like food and energy, used by central banks to gauge underlying price trends.
• Shelter Costs: A major component of the CPI basket, currently showing deceleration due to rebalancing housing supply and demand.
• Free Cash Flow (FCF): The cash a company generates after accounting for cash outflows to support operations and maintain capital assets; a key metric for value investors.
• Same-Store Sales: A financial metric used to compare the sales of existing stores over a certain period, indicating organic growth.
• M&A (Mergers and Acquisitions): The consolidation of companies or assets; highlighted as a potential catalyst for value realization in the consumer sector.
• Vertical Software: Specialized software designed for specific industries (e.g., funeral homes, small restaurants), often characterized by high customer retention.

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1. Canadian Inflation Data (May)

• Data Release: Statistics Canada reported May inflation at 3.2% year-over-year, slightly exceeding analyst expectations.
• Key Drivers: The primary upward pressure came from gasoline and energy prices (up 5.6% for the month).
• Expert Perspective: Lorne Steinberg and economist Jimmy Jean noted that while the headline number is high, the Bank of Canada remains focused on core inflation. Because core measures remain stable and the economy is experiencing a "stagnant" growth phase, there is no immediate expectation of interest rate hikes.
• Shelter Trends: Shelter inflation is decelerating (1.7% year-over-year), driven by a cooling rental market, which offsets some of the inflationary pressure from energy.

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2. Market Analysis and Global Trends

• Middle East Conflict: Ongoing geopolitical tensions are causing volatility in oil prices. However, progress in negotiations and the resumption of shipping through the Strait of Hormuz are viewed as stabilizing factors.
• Global Markets: The Japanese Nikkei reached new records, driven by AI enthusiasm and positive geopolitical developments.
• Corporate News:
  • AbbVie: Announced the acquisition of Apogee Therapeutics for $10.9 billion USD to bolster its pipeline in inflammatory and immune-based diseases.
  • SpaceX: Experienced a share price pullback following its IPO, which analysts attributed to the small float and high retail participation.
  • Getty Images: Shares surged after a deal with OpenAI to integrate its image library into ChatGPT, marking a strategic pivot in its AI approach.

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3. Investment Strategy: The "Value" Perspective

Lorne Steinberg advocates for a "Main Street" approach, focusing on companies with consistent free cash flow and strong franchises rather than just high-growth tech stocks.

• McDonald’s: Highlighted for its high-margin beverage expansion (lattes, craft sodas) and consistent growth, even during economic downturns.
• Nestlé: Trading at a 10-year low with a 4% dividend yield. Steinberg expects the company to divest slower-growth units to focus on premium brands like Nespresso and pet food.
• Diageo: Facing headwinds due to changing drinking habits among younger demographics, but viewed as a prime candidate for a private equity takeover due to its stable cash flow and low valuation (12x earnings).
• Disney: Positioned as a growth stock again. With $60 billion in planned capital expenditure for theme parks and the transition of Disney+ to a free cash flow-positive business, Steinberg sees significant upside.
• Starbucks: Under CEO Brian Niccol, the company is executing a "back-to-basics" strategy (e.g., adding assistant managers to reduce wait times), leading to a 7% increase in same-store sales.
• Constellation Software: A "serial acquirer" of niche vertical software companies. Steinberg argues the business is "AI-proof" because its small-business customers lack the capacity to build their own software.

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4. First Call: Q&A Highlights

• BlackBerry: Steinberg suggests taking profits, noting the stock has run ahead of its fundamentals despite a successful management transition.
• Telecoms (BCE/Telus): Bullish on the sector for long-term holds due to improved pricing power and dividend yields.
• Brookfield (BN): Recommended as a core holding. Steinberg notes that management is highly aligned with shareholders and the stock trades at a discount to its "sum-of-the-parts" net asset value.
• Intact Insurance: Admired as a market leader, but Steinberg advises waiting for a 15% price correction before entering a position.

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Synthesis/Conclusion

The current economic environment in Canada is characterized by headline inflation driven by temporary energy spikes, while the underlying economy remains stagnant. Investors are advised to look past the volatility of the "magnificent" tech stocks and focus on high-quality, cash-generative companies in the consumer and software sectors. The consensus among experts is that the Bank of Canada will maintain a "wait and see" approach regarding interest rates, and that strategic M&A activity will continue to be a significant driver of value for patient, long-term investors.