Top picks from Ryan Isherwood, Founder and CIO, Significance Capital Management
Focus: U.S. large caps
Top picks: Knight-Swift Transportation, TAKE-TWO INTERACTIVE, Best Buy
MARKET OUTLOOK:
Significance Capital’s models continue to flag an unusually stretched environment for U.S. large caps. Earnings breadth remains historically strong, roughly 90 per cent of the index is showing forward earnings growth, a level that has historically preceded cyclical peaks rather than accompanied fresh legs higher. At the same time, several tertiary risk indicators, such as elevated margin debt relative to GDP, a surge in insider selling, and a momentum-factor volatility spike now roughly double anything seen outside the 2000 tech bubble, suggest the market is digesting meaningfully more risk beneath the surface than the index level implies.
The most important development for large-cap investors is deterioration inside the “Mag Seven” and hyperscaler complex. Correlations among mega-cap technology names have started to break down, credit markets are pricing in materially more risk than equities (record-wide CDS spreads on names carrying large off-balance-sheet debt loads), and free cash flow at several hyperscalers has come under pressure as AI-related capital expenditure accelerates. Combined with a technical breakdown in mega-cap relative performance versus the S&P 500, we see rising odds of a rotation away from mega-cap growth leadership.
We’re also watching a broader macro undercurrent: commodities-versus-rates data hint at the early stages of a possible “second wave” of inflation, a dynamic that historically favors value and commodity-sensitive sectors over long-duration growth. Our base case is one more push higher in the broad market near-term, supported by resilient cyclicals such as banks, even as underlying leadership likely rotates away from the mega-cap names that have driven this cycle.
- Market-moving news, fast: Get the BNN Bloomberg App now
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/newsletters
TOP PICKS:
Knight-Swift Transportation (KNX NYSE)
We just went through the worst freight cycle in generations. Capacity is tight and supply is still leaving the industry.
We are still early to mid innings where EPS power can continue to surprise to the upside. We think we see an elongated cycle as an effect of the past cycle being so poor for so long.
TAKE-TWO INTERACTIVE (TTWO NASD)
Grand Theft Auto 6 will launch in November and we think it is the most eagerly anticipated game of the last decade. We think it offers tremendous potential to be the key consumer item for the holiday season.
This will bring many lapsed users and new users out of the woodwork to play this game. Last release of GTA 5 was back in 2013, so there’s huge pent up demand.
Best Buy (BBY NYSE)
A five per cent dividend yield and no debt on its balance sheet with what we think will be accelerating fundamentals. RGB is spurring a new TV replacement cycle for the first time since OLED which led to a multi year period of comp acceleration.
Best Buy is the exclusive seller of these TVs in U.S. for one year. There’s potential for a halo effect with the ability to re-engage lapsed customers.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| KNX NYSE | N | N | Y |
| TTWO NASD | N | N | Y |
| BBY NYSE | N | N | Y |
