Teal Linde, Manager, Linde Equity Fund
Focus: North American stocks
Top picks: Uber, Blue Owl Capital, Pinterest
MARKET OUTLOOK:
With the S&P 500 trading at its highest valuation since the dot com bubble, the stock market is historically expensive.
But the deeper risk lies in whether the corporate profits supporting those valuations can last. Forecasts call for strong 2026 earnings growth, yet these estimates may overlook how dependent profits have become on forces in play that are now weakening.
U.S. profit growth since the 2008 to 2009 financial crisis has been driven largely by government deficit spending, low interest rates, and heavy corporate borrowing used for stock buybacks. After the crisis, fiscal support and cheap credit boosted profits; later, the 2018 tax cuts added another surge.
During the COVID-19 pandemic, an initial spike in the savings rate was followed by an explosion in stimulus checks and transfer payments, swelling household and business balance sheets, which prompted a massive rebound in consumer spending during a period of serious supply constraints.
By 2024, savings fell to multi-decade lows while the AI boom saved the day by lifting markets further, amplifying spending through wealth effects. But these profit engines are now under strain: fiscal capacity is shrinking, deficits may tighten after 2026, and tech firms are depleting their cash reserves and borrowing money to finance massive AI-related capital spending at an accelerated and unsustainable rate. Meanwhile, AI-driven job insecurity could prompt households to save more, directly reducing corporate profits.
Market commentators warn of an AI-fueled valuation bubble, yet many assume profits will keep rising. If deficits shrink, corporate leverage peaks, households rebuild savings, and AI starts eliminating more jobs, the long-running profit bubble that has supported U.S. market exceptionalism could finally burst.
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TOP PICKS:
Uber (UBER NYSE)
Uber dominates the global ride-hailing and food delivery markets. This massive scale creates a powerful network effect - more riders attract more drivers and delivery partners, which in turn improves service quality and attracts even more users.
The company has successfully shifted from a cash-burning disruptor to a profitable, cash-generating business. And with its autonomous vehicle strategy, Uber is strategically positioning itself as the “distribution layer” for the future of transportation.
By partnering with multiple AV companies instead of bearing the heavy research and development and capital costs itself, it ensures a capital-light path to integrating robotaxis, which could drastically lower costs for users and expand margins long-term.
Blue Owl Capital (OWL NYSE)
After starting 2025 on a high note, private credit lenders are mostly down so far this year due to macroeconomic concerns resulting from trade uncertainty and the bankruptcy of Tricolor and First Brands in September.
However, worries that where there is one cockroach, there must be more, appear overdone as credit spreads are at historically tight levels. Equity markets are near all-time highs, which usually wouldn’t be the case if there were problems in the credit market. Therefore, among the alternative asset managers with heavy private credit exposure, Blue Owl is trading at the most compelling valuation at 16 times next year’s expected EPS.
Blue Owl’s peers typically trade between 20 to 30 times earnings. In anticipation of Blue Owl’s eventual return to a 20 plus price-to-earnings ratio, investors can also collect an attractive dividend which currently yields 5.5 per cent.
Pinterest (PINS NASD)
We recommended Pinterest three months ago when it was trading at 21 times 2025 expected earnings per share.
Due to a recent decline in share price, it can now be bought at 15 times 2025 expected earnings per share.
It’s not that the outlook of the company has changed that much. It hasn’t. It’s more that Pinterest stock is highly volatile, and recent volatility has swung its share price sharply downward.
In fact, following the last 21 quarterly results announcements, the average move, up or down, has been 14 per cent, ranging from a gain of 36 per cent to a loss of 18 per cent.
Consequently, with revenues and earnings per share expected to both grow 15 per cent next year, you can pick up shares of Pinterest at just over 13.5 times 2026 expected earnings per share. Anytime you can find a mid-teens growing company trading at a mid-teens price-to-earnings ratio, it usually turns out to have been a buying opportunity.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| UBER NYSE | Y | Y | Y |
| OWL NYSE | Y | Y | Y |
| PINS NASD | Y | Y | Y |
PAST PICKS: NOV. 4, 2024
UiPATH (PATH NYSE)
Then: US$12.32
Now: US$16.30
Return: 32%
Total Return: 32%
TD BANK (TD TSX)
Then: $76.54
Now: $126.68
Return: 65%
Total Return: 71%
ALPHABET (GOOGL NASD)
Then: US$169.24
Now: US$308.10
Return: 82%
Total Return: 83%
Total Return Average: 62%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| PATH NYSE | N | N | N |
| TD TSX | Y | Y | Y |
| GOOGL NASD | Y | Y | Y |
