Brian Madden, chief investment officer, First Avenue Investment Counsel

FOCUS: North American equities


2022 is proving to be a year that tests the mettle of investors in virtually every asset class, with stocks, bonds and real estate falling in unison. After an epic washout culminating in mid-June, U.S. stocks rallied mightily through the first six weeks of the third-quarter. The S&P 500 bounced 19 per cent off its mid-June low and the S&P TSX Composite Index bounced 12 per cent off its mid-July low. Both were stopped dead in their tracks in mid-August only to make a full-round trip back to the prior lows. 

For our part, having strategized, researched and tabled a wide-ranging checklist of indicators to guide us as to when markets are poised for a sustainable upturn (the “bull market game plan,”) we were not lulled in by the “buy the dip” siren song other investors succumbed to. Instead, we took incremental steps to shore up and de-risk equity portfolios, raising cash balances and selling riskier holdings whilst investors were merrily pushing share prices upwards early in the quarter.

We need to see a number of things fall into place before the rout in the stock markets can end. Firstly we need to see inflation coming back under control. Secondly, the relentless rally in the U.S. dollar abating. We need to see the worst selloff in global government bonds since the Second World War coming to an end. We need to see the spike in stock and bond market volatility, as measured by options traders, fizzle out. We will also need to see sentiment, which we measure objectively in various ways, turn predominantly downbeat. The meme stock mania of 2021 needs to give way to an ethos of “stuff the money in the mattress” or “bury it in the backyard,” because sentiment is the purest of contrarian indicators. 

When, not if, these conditions fall into place, our portfolios will pivot towards a more aggressive stance, owning stocks with more operating and financial risk, more cyclicality, discounted valuations and washed-out but improving price charts. The early stages of a new bull market are very lucrative and we expect that our “bull market game plan” will be handsomely rewarded once enacted, but until then it is very much “defence on the field.”

  • Sign up for the Market Call Top Picks newsletter at
  • Listen to the Market Call podcast on iHeart, or wherever you get your podcasts



Brian Madden's Top Picks

Brian Madden, chief investment officer at First Avenue Investment Counsel, discusses his top picks: NextEra Energy Inc, Stella-Jones Inc, and Albemarle Corporation.

NextEra Energy (NEE NYSE)

Latest purchase Sept 2022 at $87.31:

NextEra is the largest utility in America and is the parent company of Florida Power and Light. It is an integrated, rate-regulated electric utility that generates 29,000MW of electricity from natural gas, nuclear power, coal and solar energy for nearly six million Floridians. The company also owns NextEra Energy Resources, one of the world’s largest producers of renewable power (wind, solar, etc.) and nuclear reactors with generating assets in 40 U.S. states and four Canadian provinces. A consistent grower, NextEra has grown its dividend at an 11 per cent compound rate over the past decade. Its shares currently yield 2.2 per cent, in line with its five-year average yield. The recently enacted Inflation Reduction Act should advantage NextEra and other renewable energy producers as it features some lucrative clean energy tax credits.

Stella Jones (SJ TSX)

Latest purchase Sept 2022 at $39.71: 

Stella Jones is a $2.5 billion producer of telephone and electrical poles; railway ties, marine pilings and foundations as well as residential outdoor lumber. Three back-to-back quarters of better-than-expected sales and earnings convinced us in recent weeks that momentum has returned to this business. The company now faces easy growth comparisons after enduring a 13-month long drawdown that shaved 44 per cent off the stock price. This brought the shares to an attractive entry point, trading at 1.7x book value – well below the 10-year average of 2.7x. The two per cent dividend yield is near an all-time high. The company is also aggressively buying back shares – eight per cent of the total outstanding share count this year. Price charts turned up decisively in June and have now stabilized above 50, 100 and 200-day moving averages. The final kicker here is that the company benefits from a strong U.S. dollar as it manufactures in Canada and exports to the U.S. 

Albemarle (ALB NYSE)

Latest purchase Sept 2022 at $267.19:

Albemarle produces bromine and petrochemical catalysts but is best known to investors for its lithium division. The company is the world’s second-largest producer of lithium, a strategic metal that is ubiquitous and indispensable to a range of electronics applications and electric vehicle batteries. Lithium prices are up 3x in the past year as the EV adoption curve has gotten much steeper. With world-class, long life, high-grade producing brine and hard rock mines in Chile, the U.S. and Australia; along with conversion/upgrading plants on five continents, the company is “net long.” It is a scarce resource and has the crucial know-how as well as conversion and upgrading capabilities close to the major demand centres for electric vehicles and electronics manufacturing.   

We see at least three more quarters of triple-digit earnings momentum here, led by strength in lithium pricing and volumes primarily, along with strength in the bromine unit to a lesser extent. Longer term, this is the highest quality, purest play exposure to an important global trend with a very, very long tail to it given the electrification of the vehicle fleet. Currently trading at a discount to historic multiples (11x earnings versus five-year average of 24x) and having pulled back 15 per cent off a very recent high we think today’s price is a timely entry point. 




PAST PICKS: October 5, 2021

Brian Madden's Past Picks

Brian Madden, chief investment officer at First Avenue Investment Counsel, discusses his past picks: NFI Group, Canada Goose Holdings Inc, and Open Text Corp.


  • Then: $23.45
  • Now: $13.03
  • Return: -44%
  • Total Return: -43%

Canada Goose (GOOS TSX)

  • Then: $45.70
  • Now: $22.79
  • Return: -50%
  • Total Return: -50%

Open Text (OTEX TSX)

  • Then: $61.12
  • Now: $37.81
  • Return: -38%
  • Total Return: -37%

Total Return Average: -43%