Brendan Caldwell, president and CEO, Caldwell Investment Management
FOCUS: North American large caps
Top Picks: CBOE, Amazon, Costco
MARKET OUTLOOK:
Equity markets exhibited remarkable strength over the past two years. The S&P 500 Index in the U.S. delivered particularly strong performance, generating annual returns of approximately 25 per cent in both 2023 and 2024 — significantly outpacing the Canadian S&P/TSX Composite Index, which returned approximately eight per cent and 18 per cent, respectively.
The U.S. Federal Reserve’s pivot toward rate cuts aimed at achieving a soft landing provided substantial support to equities. Furthermore, Trump’s re-election gave markets a considerable boost, as investors anticipated a continuation of his pro-business agenda. This includes tax cuts, deregulation, and policies favouring capital spending, mergers and acquisition activity, and other forms of investment — all expected to spur economic growth.
As a result, equity valuations rose to elevated levels, nearly in line with the post-COVID-19 highs and not far below the dotcom bubble peak. While such high valuations did not inherently signal weaker returns going forward, as they could be justified by expectations of a continued robust economy, they did present a significantly higher hurdle for the market. Recently, softening macroeconomic data, coupled with renewed fears of tougher global economic conditions sparked by U.S. President Donald Trump’s tariffs, have begun to weigh on markets. Investors are adopting a more defensive stance, shifting their exposure from growth-oriented companies to those offering greater value and attractive dividend yields. In this environment, we remain focused on identifying high-quality, well-managed companies with strong track records of navigating dynamic economic conditions.
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TOP PICKS:
Cboe Global Markets (CBOE BATS)
CBOE is a leading U.S. financial exchange company focused on equities, index options, and futures. We like this firm for several reasons. Firstly it has a broad range of products covering all levels of investor sophistication. It has exclusive license to trade index options on S&P 500, S&P 100 and S&P Select Sectors until 2032. Innovation and miniaturization of its products are driving growth given better ability to fine tune hedging activities. Lastly it has a Proven history of strong expense management protects margin downside in our view.
Amazon (AMZN NASD)
Amazon operates a leading global e-commerce platform, Amazon Web Services (AWS), and Whole Foods grocery stores. We like this company for several reasons. It has strong and inflecting margin in its retail segment, we view this continued upside in margins over longer term from automation investments and growing/sticky household/personal care business and international scaling. It has cloud growth worries tied to concerns surrounding the pace of AI trade/ROI on cloud investments. However, we think investors got ahead of themselves regarding the pace of AI progress. We think if you look at it long-term, hyperscale providers will be winners from expanding inference workloads as AI app development picks up. The valuation is reasonable after the recent around 20 per cent selloff (forward price-earnings ratio of 30 versus last 12-month average of 37).
Costco (COST NASD)
Costco is a leading global retailer operating membership-based warehouse clubs that provide one-stop shopping experiences for customers seeking high-quality, bulk-sized products at low prices. The company operates 891 warehouses – 69 per cent of which are in the U.S., with the remainder spread across Canada, Mexico, and developed markets in Europe, Australia, and Asia. We like Costco for a few reasons. It has a strong customer value proposition, confirmed by traffic, record high retention and membership renewal rates despite membership fee increases. It focuses on giving value back to customers and keeping margins in a tight range – it managed the first bout of inflation very well from a margin standpoint. IT can continue taking share and building stickiness with tech and delivery investments. We see long international expansion growth runway. It is an expensive stock but good entry point following recent around 20 per cent selloff (forward price-earnings of 50, which is now in-line with last 12-month average).
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CBOE BATS | N | N | Y |
| AMZN NASD | N | N | Y |
| COST NASD | N | N | Y |
PAST PICKS: May 6, 2024
Ares Management (ARES NYSE)
- Then: US$136.17
- Now: US$135.13
- Return: -1%
- Total Return: 2%
CME Group (CME NASD)
- Then: US$208.00
- Now: US$268.26
- Return: 29%
- Total Return: 34%
WW Grainger (GWW NYSE)
- Then: US$940.04
- Now: US$960.15
- Return: 2%
- Total Return: 3%
Total Return Average: 15%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ARES NYSE | N | N | N |
| CME NASD | N | N | N |
| GWW NYSE | N | N | N |
