David Burrows, chairman and chief investment officer at Barometer Capital Management, shares his outlook on North American Large Caps.
David Burrows, Chairman, Chief Investment Officer, Barometer Capital Management
Focus: North American large caps
Top picks: Agnico Eagle, Caterpillar, Cameco
MARKET OUTLOOK:
Equity market globally have been resilient through what is seasonally the trickiest time of year. With solid market internals and trends in place, established leadership sector should persist as we enter a strong seasonal period heading into year end.
In a healthy market, there should be mix of leaders and laggards allowing investors to target and this market is showing low correlations between stocks and sectors. This means markets are acting as a sorting hat and not being painted with a dominating, overarching macro concern.
Geographically, global developed and emerging markets are leading U.S. equities both from a breadth and performance perspective. This is a change over the last 18 months which gives investors some variety in their list of portfolio options. This also applies to Canadian stocks.
Barometer is currently fully invested. Portfolios continue to be focused in dividend growth, cashflow producing equities in financials, industrials, materials and cyclical tech (semis).
Given the sticky nature of inflation and high fiscal debt levels, Barometer continues to hedge portfolios with commodities exposure as opposed to bonds which continue to be challenged around the world.
TOP PICKS:
David Burrows’ Top Picks: Agnico Eagle, Caterpillar & Cameco David Burrows, chairman and chief investment officer at Barometer Capital Management, shares his top stock picks to watch in the market.
Agnico Eagle (AEM TSX)
We continue to like the strong cashflow growth, multiple mines in geopolitically safe jurisdictions and long reserve life.
Production is expected to be largely unchanged year over year, so most of the earnings growth is coming from a record-high average realized gold price of US$3,460 per ounce within the quarter, up 5.3 per cent sequentially and 39 per cent year over year.
Free cash flow to be the continued focus given the commodity strength, consensus is sitting at US$925 million in free cash flow for the quarter, up 50 per cent year over year.
With Agnico now sitting at their goal of US$1 billion in net cash, we see an environment of elevated returns to shareholders and could see a bump in the divided along side that.
Caterpillar (CAT NYSE)
In addition to the tailwinds presented by the resource cycle, there’s a great setup for Caterpillar.
CAT has a business segment called Solar Turbines (they do nothing solar-related) that makes natural gas turbine generators, smaller than the utility grade generators that GEV, Siemens make, but still pretty sizable (sub 100MW). This business was bought in the mid 1980s and has just sat within CAT not making a huge impact until now.
As power demand ramps higher, GEV is operating at capacity, hyperscale’s are turning to smaller natural gas turbines. CAT has signed deals to power both xAI and Meta datacenters. More deals likely get announced.
CAT has an investor day on Nov. 4 where they are expected to focus on this business line. They should break out the economics explicitly, and it will be reported explicitly as well. This is their most profitable business line, so will be good to get some numbers on it.
Five per cent of CAT revenue comes from power generation, but that includes their generator business, so it is not all natural gas turbines and power generation. It grows at 25 per cent compound annual growth rate, likely to accelerate.
Cameco (CCO TSX)
Our thesis centers on the company’s strategic positioning to capitalize on a nuclear energy revival driven by multiple converging factors, such as increased power needs from AI and data centers, and the push to triple nuclear capacity by 2050.
Cameco benefits from vertical integration across the nuclear fuel cycle, including uranium mining and reactor services through its Westinghouse joint venture, providing diversified revenue streams that cushion uranium price volatility.
Analysts expect triple-digit uranium pricing is required to incentivize new supply, with long-term prices potentially reaching $125 to $150/lb, which would substantially benefit Cameco as a leading producer controlling approximately 22 per cent of global uranium production.
Multiple near-term catalysts support the thesis, including historically low utility inventories, tight spot market availability, an accelerated contracting cycle, and utilities’ strategic shift away from Russian fuel dependency, particularly in Europe, creating additional commercial opportunities for Cameco’s conversion and fuel fabrication services.
DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDAEM TSXYYYCAT NYSEYYYCCO TSXYYY
PAST PICKS: OCTOBER 2, 2024
David Burrows’ Past Picks: BWX Technologies, Teck Resources & Uber Technologies David Burrows, chairman and chief investment officer at Barometer Capital Management, discusses his past stock picks and how they’re doing in the market today.
BWX Technologies (BWXT NYSE)
Then: US$113.28
Now: US$208.77
Return: 84%
Total Return: 85%
Teck Resources (TECK.B TSX)
Then: $70.77
Now: $61.50
Return: -13%
Total Return: -12%
Uber Technologies (UBER NYSE)
Then: US$74.28
Now: US$94.08
Return: 27%
Total Return: 27%
Total Return Average: 33%
DISCLOSUREPERSONALFAMILYPORTFOLIO/FUNDBWXT NYSEYYYTECK.B TSXYYYUBER NYSENNN