Peter Hodson, chief investment officer & president of i2i Capital Management, shares his outlook on North American Small & Mid-Caps.
Peter Hodson, Chief Investment Officer & President, i2i Capital Management
Focus: North American small and mid-caps
Top picks: Nebius Group, elf Beauty, CECO Environmental
MARKET OUTLOOK:
There is a lot of noise in the market: U.S. President Donald Trump, wars, valuations, tariffs, budget deficits, you name it, there is lots to worry about. But markets are hitting new highs because the two things that truly count—interest rates and earnings—-are both moving in the right direction.
Rates are going down; corporate earnings are going up. Consensus for 2026 calls for S&P 500 revenue growth to grow by over 6.5 per cent and for earnings growth to grow by over 13.7 per cent. Canadian interest rates have dropped already, and U.S. rates were lowered this week, with two more cuts expected by year end. These two factors are what counts. Confidence is building and money is coming back into the market from the sidelines.
Small caps are starting to catch a bid. Merger and acquisition activity is acceleration. Everyone is worried about a crash but there is also the chance things just keep right on moving higher. Maybe not a ‘melt up’ but just more consistent gains. The artificial intelligence (AI) trade shows no signs of fading. Gold is helping the TSX Index.
Industrials are looking good. It’s quite impressive that investors have looked beyond the tariff uncertainty and corporations have, so far, adapted quite well. Could inflation surge again and wreck the party? Sure. But so far it is under control and the market outlook looks quite good to us.
TOP PICKS:
Peter Hodson’s Top Picks: Nebius Group, elf Beauty & CECO Environmental Peter Hodson, chief investment officer & president of i2i Capital Management, shares his top stock picks to watch in the market.
Nebius Group (NBIS NASD)
A very fast-growing AI data centre company but it has numerous other divisions as well that also have potential. But for now, it is about AI. The founder and hundreds of executives left Russia, denounced the Ukraine war, and started up Nebius in the Netherlands. From a standing start it has ramped up revenue and last week signed a US$19.4 billion contract with Microsoft. Nvidia Inc. has funded the company, and revenue growth could be 10 times over the next three years.
With expected revenue next year near $4 billion, the stock is still very cheap even after its big run. The CEO is very competent and has built companies before. He has something to prove. Nebius raised $4 billion last week, and the company is all cashed up and primed for growth. If it can win another data centre contract it could really heat up.
elf Beauty (ELF NYSE)
ELF Beauty is a disruptive, fast-growing cosmetics and skincare company recognized for democratizing high-quality beauty at affordable prices, with strong consumer and digital engagement in the Gen Z and Millennial segments.
The investment outlook remains positive due to its continued rapid revenue growth, frequent market share gains, innovative marketing, and successful product portfolio expansion—even with recent stock price volatility and sector competition risks.
Despite concerns on tariffs, the stock is up this year and the growth outlook solid. If tariffs were to be rolled back (much of its manufacturing is in China) it would be very positive for the stock.
CECO Environmental (CECO NASD)
CECO is an industrial equipment manufacturer. It is a good capital allocator and makes good acquisitions. CECO also has exposure to Europe . It serves the industrial air and water industries as well as the energy and electrical markets. It also provides data centre related equipment as well. The backlog has grown significantly in the last quarter or two. Shares can be volatile around earnings releases, but the stock is up 62 per cent this year and is a solid small cap company starting to get noticed by investors. The 34 times earnings is not cheap but its expected growth justifies the valuation.
DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDNBIS NASDNNYELF NYSENNYCECO NASDNNY
PAST PICKS: MARCH 27, 2024
Peter Hodson’s Past Picks: Sportradar, Eagle Materials & Genius Sports Peter Hodson, chief investment officer & president of i2i Capital Management, discusses his past stock picks and how they’re doing in the market today.
Sportradar (SRAD NASD)
Then: US$22.50
Now: US$30.04
Return: 34%
Total Return: 34%
Eagle Materials (EXP NYSE)
Then: US$225.82
Now: US$234.68
Return: 4%
Total Return: 4%
Genius Sports (GENI NYSE)
Then: US$10.84
Now: US$12.74
Return: 18%
Total Return: 18%
Total Return Average: 19%
DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDSRAD NASDNNYEXP NYSENNYGENI NYSENNY