Brian Madden’s Top Picks for Feb. 9, 2026

Brian Madden, Chief Investment Officer, First Avenue Investment Counsel

Focus: North American equities

Top picks: Shopify, Service Corp, Lennox

MARKET OUTLOOK:

2026 has begun in intriguing fashion. Incoming economic data signals modest growth - albeit higher in the United States than in Canada - and inflation has settled down close to central bank targets. However, several long entrenched “internal” market themes are being disrupted. Notably:

• U.S. markets are broadening out with the “Magnificent 7” stocks minus four per cent year to date, the S&P 500 plus one per cent, the equally weighted S&P 500 plus five per cent and the Russell 2000 small cap index plus seven per cent.
• U.S. sector leadership has inverted versus the 2025 pattern with energy and consumer staples leading and technology lagging
• Gold which posted a 65 per cent gain last year - its biggest advance since 1979 - rallied a mighty 30 per cent over four weeks, before suffering a sharp drawdown in late January/early February
• The Institute for Supply Management surveys are showing a return to growth for the long beleaguered (three years and counting) manufacturing sector, whilst the service sector is decelerating

This is a good environment for stock pickers – the proverbial rising tide is lifting (almost) all boats – not just a select and magnificent few. Dispersion of returns between sectors (plus 12 per cent to minus 25 per cent in Canada and minus four per cent to plus 19 per cent in the U.S.) and stocks is unusually high year to date, and intuitively it seems investors are more thoughtfully sorting out winners from losers along themes like artificial intelligence, for instance. Accordingly, our team was busy in January, spotting inflection points, seizing upon opportunities and trading roughly twice as actively as in a typical month.

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TOP PICKS:

Shopify (SHOP TSX)

Shopify offers e-commerce enablement services to small and mid-size enterprises and increasingly, large multinationals as well, via tiered price point recurring subscription fees as well as ancillary merchant solutions such as payments, working capital financing, AI tools, etc. A robust and ever-expanding partner network, an aggressive international expansion strategy and the long-term secular tailwinds behind e-commerce adoption globally, support long term growth in the total addressable market.

Ongoing innovation to address ever broader merchant use cases supports an increasing “take-rate” – the per cent share of gross merchandise value transacted by their merchants - that Shopify earns in merchant solutions revenues. We foresee a compound growth rate in earning per share of 33 per cent over the coming three years.

The 40 per cent pullback in the share price since late October rivals the two other drawdowns the stock has endured since this cycle began in late 2022. Today’s price affords an attractive entry point for new investors, with the shares trading at 58 times earnings - a valuation that is both discounted versus the five year historic average trading multiple of 70 times as well as very compelling relative to its growth prospects.

Service Corp (SCI NYSE)

Service Corp. is North America’s largest death care company, with nearly 2,000 funeral homes and cemeteries in Canada and the U.S. The industry is fragmented with many single location mom and pop outfits, and SCI is the leading consolidator, holding a 17 per cent market share. Size and scale advantages are significant in this business which works to SCI’s advantage and allows them to earn premium profitability with a return on equity well above 30 per cent and rising. The advantage their financial strength affords them is best evidenced by comparison to the two other (far smaller) consolidators. Both had financial difficulties post-COVID, forcing a retrenchment in growth plans and one eventually succumbed to takeover by a private equity fund. After lapping several years of post-COVID growth headwinds, SCI is settling back into its historic pace of eight to 12 per cent earnings growth and commensurate dividend growth, supported by demographics, proactive “pre-needs” sales tactics they are executing, and a growing trend towards “premiumization” in cemetery plots.

Lennox (LII NYSE)

Lennox is a manufacturer and distributor of HVAC (heating, ventilation & air conditioning) systems to residential homeowners and into commercial and industrial markets. Approximately 75 per cent of their revenues stem from replacement units, with the remainder linked to new construction and to maintenance and repair parts on their existing units in service. Climate change is driving a secular increase in demand for bigger and more powerful air conditioning units as once temperate regions become uncomfortably hot for longer periods of time.

Moreover, a new environmental regulation that came into effect last year in the U.S. phasing out the use of R410-A refrigerants in air conditioners in favour of less greenhouse gas intensive refrigerants is creating favorable price and mix benefits for the company. With a ubiquitous distribution footprint, a new state of the art manufacturing facility ramped up to meet demand for commercial emergency replacement units and a focused plan to improve operating margins, we foresee a reacceleration towards double digit earnings growth over the next few years, as the industry moves off of cycle trough demand levels, which should enable the company to extend the 14 per cent compound pace of dividend growth it has delivered over the past decade.

PAST PICKS: JAN. 17, 2025

Costco Wholesale (COST NASD)

Then: US$943.19

Now: US$1000.02

Return: 6%

Total Return: 7%

TD Bank (TD TSX)

Then: $83.13

Now: $132.43

Return: 59%

Total Return: 64%

Broadcom (AVGO NASD)

Then: US$237.44

Now: US$338.77

Return: 43%

Total Return: 44%

Total Return Average: 38%