Independent Insight

Davis Rea CEO & President Talk Banking Turmoil, Recession Probabilities & Putting Money to Work
We sat down this week with John O’Connell and Don Ritchie to gets their views on a number of topics against the backdrop of the banking storm and volatility in financial markets. O’Connell, Chairman, CEO & CIO of Davis Rea Investment Counsel, and Ritchie, newly-appointed President at the investment management firm and a veteran of Canada’s big bank sector, discuss risks and concerns in the banking industry, the possibility of future credit events, recession probabilities, whether it’s a good time for long-term investors to put money to work, and much more. This is part one of a three-part discussion.

Yardeni & Rosenberg on Banking Storm
Ed Yardeni and David Rosenberg are two of the most respected and widely followed strategists out there. Yardeni, President of Yardeni Research, and Rosenberg, founder of Rosenberg Research & Associates, provide subscription-based research and their data-driven views are often utilized by money managers as point, counterpoint inputs to each other to give them a balance of information and opinion in order to help make their investment decisions. Generally speaking, Yardeni tends to have relatively optimistic impressions of the economy and financial markets while Rosenberg sometimes jokes about the perception of him as a perma-bear. Amid the bank-induced turmoil, and to get a deeper understanding of what is transpiring in the economy, credit conditions and financial markets, we have brief excerpts from some of Messrs. Yardeni and Rosenberg’s writings from this week. One from Yardeni’s Quick Takes and one from a Rosenberg Financial Post article.

What’s Causing the Largest Moves on Record for Safe Haven Assets?
Risk happens slowly then all at once. That axiom was in evidence this week across financial asset classes, which saw some of their largest moves on record. That as Silicon Valley Bank, Signature Bank and Credit Suisse all needed to be rescued and the U.S. Federal Reserve doled out more money this week to financial institutions at its so-called discount window than in 2008 – $165 billion vs. $111 billion. This long-time tracker of fund flows at the Global Markets Division of Goldman Sachs says he has been “shocked” by the magnitude off some of the moves. Here is one reason it is happening.

Why Dangerous Assumptions Are Embedded in “Cheap” Stocks
Based on valuation, this stock is “cheap.” We are sure you have heard that more than once from a portfolio manager, analyst or other type of market player. But what if their assumptions for economic growth and earnings are incorrect from the start? Then that valuation considered “cheap” is immaterial and the stock becomes a trap. There is a distinct possibility many stocks that appear to have reasonable price-to-earnings valuations right now are a risky bet based on overly optimistic profit margin estimates. That’s according to this former hedge fund manager and founder of an investment research firm.
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Best Stock Ideas for 2023 From Our All-Star Roster
Time once again for a list of compelling stock ideas for the new year courtesy of our all-star roster of eight money managers, analysts and investment newsletter writers. From real estate expert Dennis Mitchell doubling down on a large cap stock to Davis Rea Investment Analyst Matthew Aspro’s favourite U.S. bank to market-beating contrarian Benj Gallander, who won last year’s stock picking challenge with a gain of 40 per cent. Large caps to small, dividend payers to growth companies and turnaround stories, we’ve assembled an eclectic array of top stock picks for you to consider to freshen up your portfolio.

Explaining the Inverted Yield Curve & Why It Matters
So, the yield curve is inverted. What does that mean? Well, going back to the 1950s, it has a perfect track record of predicting recessions (except for one time in the 1960s), technically two consecutive quarters of negative growth. The yield on the U.S. Two-Year Treasury Note (some use the U.S. Three-Month Treasury Bill) has been above the yield on the U.S. 10-year Treasury Note for about nine months. The short end of the curve, the two-year, is tracking short-term interest rates, and the longer-end, the 10-year, is generally reflecting expectations for economic growth. The mainstream media caught up to the story this week because the yield curve inverted the most since the recession of 1981 (10-year below the two-year by 110 basis points, as of this writing). Keep reading for more on the inverted yield curve and why it matters to your portfolio…

Five Reasons These Three Companies Will Benefit from ChatGPT
It is not surprising the CEO of OpenAI is enthusiastic about his company’s language processing tool, or artificial intelligence chatbot, ChatGPT. But some of Sam Altman’s comments in a highly anticipated fireside chat smacked of hyperbole. He asserted that AI is ‘the next platform’ for explosive innovation, economic empowerment, and value creation. Altman also claims the AI tech revolution will be bigger than the Industrial revolution or any prior tech revolutions, with potential to create ‘unimaginable economic growth and prosperity’. He may eventually be right but we reserve the right to be at least a little skeptical of that type of proselytizing. Having said that, here are five points that Altman hit on that stood out for analysts from Morgan Stanley Research.

Five Under-Appreciated Catalysts May Drive This Tech Giant Higher by 50%+
Already the largest technology stock in the world with a market value of nearly $2.4 trillion, Apple features five under-appreciated catalysts that could send the stock higher by more than 50 per cent over the long-term. That’s according to analysts at Morgan Stanley, who have conducted one of their regular deep dives on the company. Find out how this innovative, heavily-owned favourite can can get even bigger.

11 Stocks Benefitting from AI & the Ones to Avoid
Like it or not, artificial intelligence is part of our lives and is only going to increase in use across multiple industries in the coming years. So it makes sense to learn as much as we can about AI and too try to discern the best ways in which to invest in this massive trend and be aware of the types of companies that may be left behind. We have culled the hi-lights from an exhaustive research report from Morgan Stanley in which they identify 11 companies that are beneficiaries of AI. the research team says their stocks could have a nearly 40 per cent extra upside in the 12 months across the group. Morgan Stanley also isolates 14 companies that may be challenged in the face of AI innovation.

How Rich Companies Get Richer When the Going Gets Tough
Rich Companies Get Richer When Things Get Tough. Sometimes it is helpful to think of companies like teams competing against each other. There are big, strong teams and there are wannabes. Recessions are viewed as bad by investors because profitability is impaired. Investors become pessimistic about the future. The question investors need to answer is how long profitability will be impaired, and when things improve, will profitability recover to past levels of growth or has something material changed. It has always been a good time to buy when pessimism is high, or investors are worried about profitability.

Aggressively Investing to Grow & Protect the Moat
Much has been made of the big layoffs happening in the big mega-cap companies. Some believe that these companies hired too much or built too much during the pandemic. It’s an interesting criticism when you consider how much these companies supported the whole world during the pandemic and in the process had explosive growth. We think the point often missed is that you don’t become successful, and you don’t win big, if you don’t take some risk.

Top Five Ranked Warren Buffett Stocks
Warren Buffett doesn’t lack for interest from the general public and media. Hundreds of books, for example, have been written about the multi-billionaire investing legend from Omaha. Still sharp at 92, along with his fellow nonagenarian colleague, Charlie Munger, a sprightly 99, Buffett and his favourite investments are still followed closely. That’s why we were interested when we came across a ranking of Buffett’s top 47 stock holdings at Berkshire Hathaway, the company Buffett has been running since 1965, which he transformed from a failing textile company into an insurance and investment colossus. Naturally, 47 is an unwieldy amount so we have narrowed it down to the top five.

Microsoft & Google’s AI Not Ready for Primetime
For a hot minute, Microsoft Corp. looked like it would eat Google’s lunch. Its languishing search engine, Bing, was being revolutionized with a sophisticated new chatbot system from OpenAI. Those hopes have now diminished
because of one unexpected truth: Nobody — not even AI scientists — truly understands the breadth of capabilities of artificial intelligence when it is unleashed in the wild.

Turnaround Just Getting Started After 2,900% Surge
One of the best stock ideas for 2023 from our all-star roster of stock pickers is on a tear. This is a well-known company that’s been around for more than 100 years and is born anew after taking advantage of COVID-19 to restructure under creditor protection. A money management firm has done a deep dive on this company and its prospects. And it has determined that, even after a nearly 3,000 per cent run for the shares, that there is still ample runway for the stock to move higher as the rest of the market catches on to the fact that the company has multiple fundamental tailwinds in its favour and is much different and streamlined than the previous version.

Newmont’s $17 Billion Newcrest Deal Could Signal Multi-Year Bull Run for Gold. Here’s Why.
Newmont Corporation’s $17 billion offer to buy Newcrest Mining of Australia is a continuation of a consolidation trend in the gold sector that started more than two years ago. There were nearly $1 billion in gold company transactions in 2021 and 2022 after eight years of mostly negative aggregate mergers and acquisition activity. It’s the size of the Newmont deal that’s important as large scale M&A has preceded prior multi-year bull market runs for gold and related companies. The last time capital expenditures among gold firms went from chronic underinvestment to steadily higher was around 2002. Keep reading and have a look at three instructive historical charts to find out why the Newmont deal could be signalling higher gold prices for several years to come and more deals as majors and intermediate producers snap up smaller companies.

Five Stocks to Invest in AI Boom
Have you heard of ChatGPT? We figured the answer was yes. It’s the new shiny thing in the stock market, let alone the global news cycle. By the time it takes me to finish this sentence, ChatGPT’s generative language technology could spit out this entire article. Naturally, there are ongoing investment opportunities in artificial intelligence (AI) from the biggest companies that have been increasingly incorporating AI into their business strategies to lesser known names carving out niches for themselves. Keep reading for five companies at the forefront of the AI boom.

Grantham Nailed Bubble Bursting Now Things Get “More Complicated”
Jeremy Grantham was right. The legendary investor, bubble historian and Long-Term Investment Strategist and Co-Founder of GMO, wrote about a year ago that the stock market “super-bubble” was starting to unwind. His confidence came from studying what he considers the largest super-bubbles of modern times ( excluding tulips and a few other manias), 1929, 2000, U.S. housing in 2007, the dual real estate and market bubbles in Japan in 1989, and the multiple super-bubbles that peaked around November of 2021. Grantham says these manias all have similar characteristics in part because human behaviour doesn’t change too much. Here are the hi-lights of Grantham’s most recent letter to clients in which he explains that the first leg of the super-bubble unwind is mostly complete. But now things get more complicated.

These Companies Leading New Innovation Revolution
Don’t miss this replay of the live Davis Rea quarterly update. Mark Bunting, Publisher & Host of Uncommon Sense Investor, and John O’Connell, Chairman, CEO & CIO of Davis Rea Investment Counsel, delve into several compelling investment topics. There are also some viewer poll questions and results. Topics and themes covered during this live show include: TOP REGRETS, MISTAKES, ERRORS IN 2022. WHAT’S COMING THIS YEAR? MAKING THE RIGHT DECISIONS AFTER CONSIDERING DIVERSE OPINIONS. IS THERE ORDER WITHIN MARKET CHAOS? HOLDING STOCKS LIKE META DURING A STEEP DOWNTURN. KNOWING WHEN TO SELL. PICKING STOCKS BASED ON INNOVATION THEMES.

Three Outlier Stocks with as Much as 78% Upside
Who wants to follow the herd when you can stand out? There is consensus when it comes to corporate earnings and stock price targets, and there are outliers. Those analysts who have conviction the consensus is incorrect and that certain companies will outperform or underperform based on a variety of factors that some may be under-appreciating or unaware of. We have access to some concise research on three outlier stocks that could gain as much as 78 per cent over the next 12 months.

Top Lithium Pick Could Gain 50%+ As It Nears Production
We are sure you are aware of the increasing global demand for electric vehicles (EVs), the batteries required to run them, and the critical minerals needed to make those batteries. The main mineral is lithium, of which there is a global deficit, so there are opportunities for investors in the lithium sector. But some companies are more advanced than others and less risky. One example is a Canadian-listed, Brazilian-based firm that will be producing lithium by the second quarter of this year. National Bank of Canada Financial Markets Research has made this firm a top pick and believes the stock could gain more than 50 per cent over the next 12 months. This after the shares surged nearly 2,400 per cent in the last five years. First, a brief overview with some nice charts on the lithium sector in terms of pricing, supply and demand, and global sales of EVs. And then, a snapshot of why National Bank believes this company, with its focus on sustainability, can be a big winner in the big shift to green energy.

Four Top Internet Stock Ideas
Let’s acknowledge right out of the gate that 2022 was a “disaster” for a lot of stocks, especially internet stocks. Will 2023 be any better? No one knows. But it’s always worth turning to the professionals who are well-paid to try to answer those kinds of questions. We’ve got access to four favourite internet stock ideas from a research team, along with a sprinkling of other names that they like. The title of this abbreviated report is 2023 Internet Outlook: Bringing Secular Back? For those of you not familiar with Justin Timberlake’s song catalogue, it’s a mildly clever take on a hit he had several years ago called SexyBack. Secular as in these companies are driven by forces that are likely to remain in the foreseeable future and are sometimes separate from overriding economic and market trends.

Eight Top Global Stock Ideas for 2023
Once again this year we’re updating the Canadian companies included on a list of 30 top global stock ideas from a global strategy team. There are eight on the list to kick off 2023. These names are “high-conviction, long-term” investing picks with “significant upside potential.” What follows is a summary of commentary on these global leaders from the strategy team’s analysts.

Quality Companies Powering Through Ebb & Flow of the Market
If there’s one word that encapsulated the stock market this year, it would be “unpredictable.” In a way, “awful” would also work. The 20% year-to-date collapse in the S&P 500 Index is the worst year since 2008. Happy holidays, indeed. Keep reading…

“World Class” Resource & Proprietary Green Technology: The Case for VanadiumCorp
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What do you know about Vanadium?
We’ll admit we didn’t know too much about the hard, silvery-grey, critical metal until we conducted research on VanadiumCorp Resource Inc. (TSX-V:VRB), a Canadian company with a large, “world class”, nearly one million tonne vanadium and titanium resource in Quebec. Combined with that, VanadiumCorp has developed a proprietary, patented and low carbon method to extract vanadium from the rock. The company has two parallel goals: One is to develop its resource and the second is to generate revenue in 2023 by producing electrolytes from vanadium pentoxide to supply vanadium redox flow batteries (VRFB). VRFBs are superior to lithium-ion batteries, commonly used in electric vehicles, in five main ways making them highly effective in energy storage of wind, solar, and other types of renewable energy. Ian Mallory is the Chairman of VanadiumCorp, and in this conversation with Mark Bunting, he explains the company’s mission to develop its mine, supply the VFRB market, and what he believes is a historic opportunity for investors.

Contrarian Wins Our 2022 Stock Picking Challenge with Gain of 40%
It can pay to be a contrarian. Especially when things escalate quickly, to borrow from Ron Burgundy in Anchorman after a ferocious battle with rival news teams. The seven participants in our stock picking challenge of 2022 were armed for the daily skirmishes of the stock market. They conducted deep research into various companies, considered the competitive landscape in which they operate, crunched the numbers to determine growth at a reasonable price, and weighed the probabilities of a healthy return. Alas, not much of that mattered because very few anticipated what transpired in 2022.