Mike Vinokur, Portfolio Manager & Senior Wealth Advisor, Propellus Wealth Partners with IA Private Wealth

FOCUS: Large and mid-cap North American equities

Top Picks: Corebridge Financial, Parkland Corp., Secure Waste Infrastructure

MARKET OUTLOOK:

We have been cautious on markets and the economy since the end of the fourth quarter of 2024, concerned that we may have a slowdown in economic growth this year or an outright recession. Our concern was well founded given the latest readings on consumer sentiment and company earnings.

The latest reading of the Atlanta Fed’s “GDP NOW” is showing a potential -2.4 per cent GDP for the U.S. economy in the first quarter of 2025. One must be cautious when using the GDP NOW as this indicator can be very volatile. What the final GDP comes in at we won’t know for some time, however we are convinced that there is a downtick in growth especially with all the uncertainty brought about by the implementation of tariffs. Nevertheless, we view this volatility as a potential good buying opportunity as solid profitable companies come up for sale.

In the last two days, we have deployed approximately seven per cent of our cash, though we still have approximately 30 per cent cash left to deploy. We have been patiently waiting for this type of volatile event to deploy capital slowly into our favourite ideas at prices which we feel afford us an appropriate margin of safety. Given that the political landscape will remain quite fluid, we believe markets will remain much more volatile in the near term. Therefore, active risk management will be important to preserve and protect capital while being able to seize opportunities in a fast-moving market environment.

• Market-moving news, fast: Get the BNN Bloomberg App now
• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe

TOP PICKS:

Corebridge Financial (CRBG NYSE)

Corebridge is one of the largest life insurers and providers of retirement solutions. The company was spun out of AIG, which remains a significant shareholder. The company has good returns on capital and equity. They have also rewarded shareholders with a combination of dividends and share buybacks creating a shareholder yield of close to 13 per cent. The board has increased the existing authorization with another US$2 billion in buybacks on top of the $1.8 billion worth of shares repurchased in 2024. The company boasts an RBC of 420-430 per cent which is quite comfortable, allowing for further buybacks and potential dividend increases. We believe the company can produce well north of $5 per share in earnings which puts it at a very low p/e multiple of 6.5X forward earnings. The stock currently yields approximately three per cent.

Parkland Corp. (PKI TSX)

Parkland is a large owner of gas stations and convenience stores operating in 26 countries and through approximately 4,000 locations. The company has been embroiled in a fight with one of its largest shareholders after the expiry of a standstill agreement. The company has world class assets and trades at a significant discount. The company reported its latest quarter the other day and has guided to EBITDA of close to $2 billion for 2025, whereas its market cap stands at just over $6 billion. Perhaps feeling the pressure from a major shareholder, the company has announced it is proceeding with strategic alternatives and is not opposed to a sale of the company. We believe the company could be worth a lot more especially if purchased by a strategic acquirer. In the meantime, according to the company’s latest presentation, they plan to allocate close to $2.5 billion in share buybacks over the next 3-4 years, effectively buying back almost half the company at current valuations. The company just increased the dividend to $1.44 which yields close to four per cent.

Secure Waste Infrastructure (SES TSX)

The company operates in four main areas: waste processing facilities, metals recycling, industrial landfills, and specialty chemicals. Eighty per cent of their EBITDA is from recurring cash flow which is a stark improvement from 10 years ago. The company earns high returns on capital and has a very high free cash flow conversion rate which allows it fund growth organically and through availability on their credit facility. Over the last few years, management has opportunistically repurchased a significant number of shares while growing the business through M&A and organically. The stock currently sports a dividend yield of 2.9 per cent.

PAST PICKS: July 5, 2024:

State Street (STT NYSE)

• Then: US$73.72
• Now: US$88.69
• Return: 20%
• Total Return: 22%

Cisco Systems (CSCO NASD) Cisco was sold at US$58.06 in Nov. 2024

• Then: US$46.65
• Now: US$63.17
• Return: 35%
• Total Return: 37%

Magna International (MG TSX)

• Then: $57.63
• Now: $53.60
• Return: -7%
• Total Return: -4%

Total Return Average: 18%