Chris Blumas, Portfolio Manager, Raymond James Investment Counsel
Focus: North American large caps
Top Picks: KKR, Thomson Reuters, Mainstreet Equity
MARKET OUTLOOK:
There is no shortage of uncertainty in financial markets these days. The war in Iran has caused a spike in energy prices that has reverberated around the world and while prices have moderated recently, this may not last. In addition, the build out of artificial intelligence (AI) infrastructure has increased the demand for commodities and power and has also contributed to higher inflation. In the end, U.S. inflation has remined above the U.S. Federal Reserve’s two per cent goal for more that five years and this gives the Fed less flexibility to ease interest rates.
Currently, around one-third of U.S. Treasury Securities are owned by foreign countries. The persistent U.S. trade deficit helps to finance the increase in government debt. However, with greater onshoring and the repatriation of manufacturing capacity, there could be less demand for U.S. Treasury Securities in the future. In the end, the U.S. should be able the finance this increase in government debt, but it must be willing to continue growing its balance sheet.
Looking forward, higher inflation and lower demand for U.S. debt are significant catalysts that could push interest rates higher and create a headwind for economic growth.
Over the last year, there are some exceptional companies that have seen their share prices decline significantly as a “guilty until proven innocent” mindset has gripped the markets and created some unique opportunities for long-term investors. While it’s important to understand the fears in the markets, it is also important to recognize the opportunities and position yourself to benefit from the powerful long-term impacts of compounding.
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TOP PICKS:
KKR (KKR NYSE)
KKR is an alternative asset manager with a unique business model and a global presence. The company earns a variety of fees (management, transaction, monitoring, and performance) from managing third party capital. KKR has around US$750 billion in assets under management (AUM) and around half of this AUM is perpetual in nature.
Overall, KKR’s business is scaling very well, and the company is expected to continue raising large amounts of capital over the medium term as institutional investors continue to shift more of their assets into higher yielding asset classes with less apparent volatility.
Over the last six months, KKR’s share price is down by around 25 per cent as concerns about private credit have negatively impacted the entire industry. While KKR’s sponsored entity, KKR FS Income Trust, only meet around 80 per cent of its recent redemption requests, this is well within its contract rights and redemption requests for the fund, which were around 6.5 per cent of assets under management, are among the lowest in the industry.
The shares currently trade at around 16 times forward estimates of adjusted net income per share and have a dividend yield of around one per cent.
Thomson Reuters (TRI TSX)
Thomson Reuters is a leading provider of specialized business information. The company generates most of its revenues (approximately 75 per cent) from the North American marketplace and has three main operating segments (legal professionals, corporates; and tax, audit, and accounting professionals). Last year, Thomson Reuters’s “Big Three” segments accounted for more than 80 percent of revenues and the remainder was generated by its news and global print businesses.
Over the last year, the shares of Thomson Reuters are down by almost 60 per cent as fears around AI have negatively impacted the company. Going forward, these fears could be misplaced as the company has a number of competitive advantages that may allow it to maintain and potentially deepen its moat. Thomson Reuters has the proprietary content and staff expertise required to deliver professional results. While AI or large language models (LLMs) are very good at automating general tasks, they do not have the content or people required to compete with Thomson Reuters and obtaining these assets would require a massive upfront investment for a product market that is relatively small.
On the positive side, Thomson Reuters has been incorporating AI tools across its product suite and within its technology development process and is likely to be a beneficiary of AI over the long term. In addition, the company has the balance sheet and cash flow characteristics required to continue investing in its products and generating value for its shareholders. The shares currently trade around 18 times forward earnings and have a trailing free cash flow yield of almost six per cent.
Mainstreet Equity (MEQ TSX)
Mainstreet is a real estate corporation the owns mid-market multi-family apartment buildings. The company is focused on the Western Canadian market and has more than 75 per cent of its total units in Alberta (approximately 55 per cent) and British Columbia (approximately 20 per cent). Mainstreet’s unique business model (structure, market focus, and operating capabilities) has allowed it to generate tremendous value for shareholders over the long term. Going forward, the company has the capabilities and balance sheet required to continue growing and to take advantage of opportunities to increase densification across its portfolio. Over the last three years, the compound annual growth rate (CAGR) for funds from operations (FFO) per share is 22 per cent. The shares currently trade at around 15 times forward funds from operations and at around 85 per cent of their International Financial Reporting Standards (IFRS) book value per share.
Note: Mainstreet is a smaller market capitalization company with high insider ownership (approximately 50 per cent) and investors should consider using limit orders when buying and/or selling shares.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| KKR NYSE | Y | Y | Y |
| TRI TSX | Y | Y | Y |
| MEQ TSX | Y | Y | Y |
PAST PICKS: JUNE 19, 2025
Descartes Systems (DSG TSX)
Then: $137.00
Now: $96.90
Return: -29%
Total Return: -29%
Alphabet (GOOGL NASD)
Then: US$173.32
Now: US$359.10
Return: 107%
Total Return: 108%
Brookfield Infrastructure Partners (BIP-UN TSX)
Then: $45.23
Now: $53.02
Return: 17%
Total Return: 23%
Total Return Average: 34%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| DSG TSX | N | N | Y |
| GOOGL NASD | Y | Y | Y |
| BIP-U TSX | N | N | Y |
