Brendan Caldwell, president and CEO, Caldwell Investment Management

FOCUS: North American large-cap stocks


Heading into 2022, a concoction of headwinds created the perfect storm for equity markets and the ensuing sell-off has led most benchmark equity indices down 20 per cent or more from recent highs. Russia continues its assault on Ukraine, which has impacted global flows for key commodities. China’s zero-COVID policy forced port shutdowns, exacerbating existing supply chain issues. Lastly, persistently high inflation means the Federal Reserve (and other central banks) may have to act much more aggressively in raising rates than investors expected just a few months ago.

We believe the market is grappling with the fact that interest rates could remain high if inflation remains elevated. And after 12 years of near-zero interest rates, no more pandemic stimulus and increasing odds of a recession, the outlook is highly uncertain. One thing we are reasonably sure of is that the markets will likely experience elevated levels of volatility for the foreseeable future. We will continue to focus our efforts on finding high-quality, well-managed companies with proven histories of navigating through tough environments and believe professional investment advice is extremely valuable in times such as these. 

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Brendan Caldwell's Top Picks

Brendan Caldwell, president and CEO of Caldwell Investment Management, discusses his top picks: Quanta Services, Capital Power, and Murphy USA Inc.

Quanta Services (PWR NYSE)

Quanta Services is no longer a fund holding but remains high on our watch list

  • It is a well-run engineering and construction company with a lower risk profile than its peers
  • End markets are benefiting from strong secular tailwinds
    • Utilities are investing to strengthen the grid as well as expand to prepare for things like EV charging
    • Telecoms are building out 5G infrastructure over a multi-year period
  • The majority of revenue comes from smaller maintenance-type contracts that are unit price/cost-plus, which means they account for higher input costs vs. fixed-price contracts
  • These contracts also contribute to greater revenue and earnings stability over time versus other engineering and construction peers (PWR has done a great job to minimize exposure to larger fixed-price contracts over time)
  • Lastly, the industry is highly fragmented and PWR has demonstrated a strong history of growth through acquisition; so we think there’s still a long growth runway there
  • More recently: we don’t think solar industry disruption is a meaningful headwind
    • Biden’s admin is looking to temporarily eliminate Trump-era tariffs
    • Solar is crucial to U.S. carbon reduction goals, investment cannot be avoided and domestic supply is likely to become a bigger focal point in coming years
    • PWR’s management has said they can shift work to other areas to make up for delayed solar projects in 2022

Capital Power (CPX TSX)

Held in CVM; most recent purchase: May 18, 2022, at $44.92

  • Capital Power is an independent power producer with ~6,600 megawatts of generation capacity at 27 facilities across North America
  • They’re operating in a strong pricing environment which we view as sustainable over the near to medium term given favourable supply and demand dynamics for power pricing in Alberta. Specifically:
    • Oil and gas demand is returning
    • Aging thermal power generation assets in the industry are being retired with no significant replacements until 2024-25
    • Marginal costs to produce are higher than pre-pandemic
  • They’re in an envious position relative to peers, having sold forward roughly 60 per cent of 2023 baseload power generation while locking in 90 per cent+ of its natural gas feedstock requirements at well below market prices
  • Lastly, they’re committed to spending $0.5B of capital annually to build out its renewable platform both organically and inorganically
  • Noted a strong acquisition pipeline on the inorganic side


Most recent purchase: June 21, 2022, at $223.78

  • Murphy USA is a leading vender of refined fuel products in the U.S.
  • It serves customers through a network of ~1,700 retail gas stores and through unbranded sales to wholesale customers
  • It is a strong organic growth story that still has legs. Historically top-line results were driven by a combo of new store builds and renovating and upsizing existing stores with management, aiming for 2-4 per cent store growth annually
  • Recent mergers and acquisitions should accelerate growth by bolstering the company’s convenience store offerings
    • Similar to Couche-Tard, MUSA is hoping to apply learnings from the QuickChek acquisition, which has industry-leading gross margins in merchandising and was historically strong in food and convenience items, compared to the rest of the chain
  • This should drive company margins higher over time
  • MUSA’s core operations have an industry-leading cost structure, partially afforded by its owned real estate portfolio, and lower retail fuel breakeven levels vs. the industry, which is helping to drive market share gains while expanding fuel margins
    • In the current inflationary environment, the price gap at MUSA is widening vs. smaller competitors that must pass along higher costs to survive; MUSA is reinvesting some margin expansion to capture market share (so we’re looking at this as a consumer trade-down play)
  • Q1 2022 gallons sold surpassed Q1 2019 levels; management. Seeing smaller ticket sizes but more frequent trips is helping merchandise attach rates (i.e. buying something inside with your gas purchase) recover




PAST PICKS: May 3, 2021

Brendan Caldwell's Past Picks

Brendan Caldwell, president and CEO of Caldwell Investment Management, discusses his past picks: Martin Marietta Materials, Inc., Watsco, and Fastenal Company.

Martin Marietta (MLM NYSE)

  • Then: $354.56
  • Now: $302.79
  • Return: -15%
  • Total Return: -14%

Watsco (WSO NYSE)

  • Then: $295.46
  • Now: $235.18
  • Return: -20%
  • Total Return: -18%

Fastenal (FAST NASD)

  • Then: $53.00
  • Now: $50.97
  • Return: -4%
  • Total Return: -2%

 Total Return Average: -11%