Teal Linde, manager, Linde Equity Fund

FOCUS: North American mid and Large cap stocks

Top Picks: Air Canada, Pinterest, Alphabet

MARKET OUTLOOK:

Typically, 10 per cent or higher market declines are triggered by systemic economic threats that are out of the control of any one person. However, not this time where the ambiguous intentions of a single person threatening aggressive tariffs against much of the world has spooked investors. Unfortunately, the negotiation tactics that U.S. President Donald Trump brings to settling the trade war are destabilizing to the stock market. These tactics include his combination of anchoring high (asking for the moon), keeping everyone guessing, mixing in a lot of bravado, and using the media to maximize his leverage. This all contributes to amplified levels of uncertainty, which the stock market abhors. Trump though prides himself as a dealmaker. Therefore, it is in the best interest of the market that an agreement on trade policy be made and that it sticks. A lot will depend on his mostly mainstream economic advisors (based on their stated views before joining the administration) to reign in the U.S. president’s more radical stances.

At the same time though, investors should position themselves in the likelihood the world does become more protectionist. This means owning companies that produce and sell within domestic markets, and prioritizing companies that offer services since tariffs primarily target manufactured goods. Technology companies should also remain a cornerstone investment because technology is the one bright spot in the global economy contributing to increased productivity, which is anticipated to accelerate with AI. If it weren’t for the world’s other troubles weighing progress down, technology could really thrive.

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TOP PICKS:

Air Canada (AC TSX)

Following the insiders, Air Canada is trading at significant discount to its historical valuation. Along with a rebuilt balance sheet, the company is performing a lot better today than five years ago during the onset of COVID-19 where it was trading at a similar price to where it is now. Believing its shares to be undervalued, in November 2024 when its share price was near $24, Air Canada management instituted a 1-year share buyback plan for up to roughly 10 per cent of outstanding shares, from Nov. 4, 2024 to Nov. 4, 2025. Demonstrating its conviction, the company bought 90 per cent of its allowable share repurchase within the first three months of a 12-month program. With its share price subsequently falling over trade war concerns, several insiders bought shares in late February around $17. Then on March 3, the board issued a boatload of stock options to management at a strike price of $17.03. Today, Air Canada shares can be purchased under $16 – lower than the price for the company’s buy back, insider buys and stock option issuances. Air Canada represents an attractive turnaround opportunity currently trading at its five year baseline offering roughly 50 per cent upside upon a return to where it was trading at just four months ago.

Pinterest (PINS NYSE)

Pinterest is an attractive growth at a reasonable price stock where new management has made noticeable improvements over the last couple of years. The company’s revenues are growing at about a 15 per cent annual rate while trading at P/E (price to earnings) under 18 based on 2025 expected EPS (earnings per share). Pinterest is a visual search and discovery platform in which users explore their interests, seek creative inspiration, and browse items they may want to purchase. Women make up around two thirds of its 500 million plus user base, while Gen Z users are more than 40 per cent of users and the fastest growing user cohort. Spurred by new management and their leveraging of AI and machine learnings, the company is increasing user engagement by making its content more relevant and more shoppable, while at the same time being able to increase its ad load. In terms of revenue growth potential, Pinterest currently earns an average revenue per user (ARPU) of US$9 from Americans and Canadians, US$1.38 from Europeans, and US$0.19 from the rest of the world. Having 80 per cent of its users in Europe and rest of the world, where monetization is in the early innings, underscores just how much ARPU, and total company revenue, upside exists for Pinterest.

Alphabet (GOOGL NASDAQ)

Among the mega cap tech stocks, Alphabet currently looks the most attractive from a growth, valuation and consistency perspective. Currently, Alphabet trades at the cheapest P/E multiple of the Mag 7 at 18.5 times next year’s expected earnings. Apple, Microsoft, and Amazon are trading between 25 to 30 times earnings. One reason for the discount are the antitrust concerns. However, these risks seem sufficiently priced into the stock. Plus, there is uncertainty over how much the DOJ would want to extract from Google among the long list of remedies proposed. The recent disregard for the TikTok ban enforcement (despite the Supreme Court upholding the law), and rhetoric around protecting national security by emboldening America’s Big Tech, suggest a deal could be on the table for Google to negotiate. And as for the threat from AI, the past two years have demonstrated that most of the behavior on products like ChatGPT are non-commercial in intent. Google’s search revenues still increased 12.5 per cent last quarter, where the use of AI has contributed to higher user engagement.

PAST PICKS: March 18, 2024

BROOKFIELD CORP. (BN TSX)

• Then: $55.51
• Now: $72.82
• Return: 31%
• Total Return: 32%

BLUE OWL CAPITAL (OWL NYSE)

• Then: US$17.43
• Now: US$19.64
• Return: 13%
• Total Return: 17%

TC ENERGY (TRP TSX)

• Then: $54.52
• Now: $68.13
• Return: 37%
• Total Return: 46%

Total Return Average: 32%