Christine Poole, President & Co-Chief Investment Officer, Davis Rea
Focus: North American Large Caps
Top Picks: Siemens AG, Stryker, Pembina Pipeline
MARKET OUTLOOK:
Equity markets continue to scale the “wall of worry,” supported by robust corporate earnings growth and sustained investment in artificial intelligence (AI). However, beneath the surface, narrow market breadth and momentum-driven gains warrant caution. Second quarter gains were largely driven by physical infrastructure-related companies supporting the development of agentic AI, resulting in sharp gains across hardware and semiconductor manufacturers - industries that have historically been cyclical and prone to boom-and-bust cycles. The subsequent correction in these sectors, coupled with a broadening of price gains across other areas in July, represents a healthy development.
After two consecutive quarters of gross domestic product (GDP) contraction, the Canadian economy is showing signs of returning to growth, supported by a rebound in exports and business investment. Improving business sentiment points to stronger capital expenditure, which should provide a foundation for future economic growth. While the labour market remains soft, conditions are stabilizing, with the unemployment rate edging down to 6.4 per cent in July.
However, household purchasing power remains constrained, presenting an ongoing headwind for consumer spending. Adding to these challenges is Washington’s recent announcement of a new 50 per cent tariff targeting roughly $20 billion (or about five per cent) of Canada’s exports to the U.S., set to take effect Aug. 19. The 30-day grace period before implementation suggests the announcement may be more a negotiating tactic rather than finalized policy.
The Bank of Canada is expected to keep rates on hold through the remainder of the year, given weaker-than-projected GDP growth, and continued trade uncertainty, particularly as the Canada-United States-Mexico Agreement (CUSMA) transitions into annual reviews through 2036 rather than a 16-year renewal. While Canadian economic growth has lagged the of the United States, greater policy clarity and trade diversification initiatives provide a supportive backdrop for longer-term growth.
The U.S. economy continues to exhibit resilience, with GDP growth tracking near the two per cent range. Business investment remains firmly anchored by AI-related capital spending, while manufacturing activity hit a four-year high in July and the services sector expanded further. The labour market remains stable, with the unemployment rate holding just above four per cent. Yet, forward-looking inflationary risks are building. The convergence of renewed Middle East hostilities, looming tariff threats, and sustained demand for AI infrastructure could reignite price pressures, increasing the likelihood of Federal Reserve rate hikes later this year.
In this dynamic environment, we remain steadfast in our disciplined, long-term approach. We continue to focus on high-quality, profitable companies with strong balance sheets and the ability to compound capital through economic cycles.
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TOP PICKS:
Siemens AG (SIEGY US)
Siemens is a global industrial technology leader with operations spanning automation and digitalization for process and manufacturing industries, intelligent building and distributed energy infrastructure, smart mobility solutions for rail transportation, and healthcare services. The company is well positioned to benefit from several secular growth trends including artificial intelligence, automation, digitalization and electrification. Siemens maintains a progressive dividend policy and provides a dividend yield of two per cent.
Stryker (SYK NYSE)
Stryker is a leading medical technology company offering a broad portfolio of products and services across neurotechnology and orthopedics, including knee and hip implants, surgical equipment, and neurovascular devices. Approximately 75 per cent of the company’s revenue is generated in the United States, with the remaining 25 per cent derived from international markets. Stryker is estimated to hold 75 per cent of the U.S. orthopedic surgical robotics market, providing a strong competitive position. Stryker is also well positioned to benefit from demographic trends, particularly an aging population and the associated increase in demand for joint replacements and surgical procedures. Stryker has a track record of dividend growth and offers a dividend yield of 1.1 per cent.
Pembina Pipeline (PPL TSX)
Pembina is a North American energy infrastructure company providing energy transportation and midstream services. Its diversified asset base includes liquids and natural gas transportation and storage infrastructure, as well as gas gathering and processing facilities, serving customers across Canada. The company’s business is diversified across the energy value chain, with nearly 70 per cent of cash flow supported by long-term contracted, take-or-pay or cost-of-service agreements. This provides strong cashflow visibility and resilience across commodity cycles. Pembina offers an attractive dividend yield of 4.4 per cent.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| SIEGY US | Y | Y | Y |
| SYK NYSE | Y | Y | Y |
| PPL TSX | Y | Y | Y |
PAST PICKS: JUNE 27, 2025
CN Rail (CNR TSX)
Then: $141.65
Now: $175.36
Return: 24%
Total Return: 26%
Fortis (FTS TSX)
Then: $64.64
Now: $77.53
Return: 20%
Total Return: 24%
Xylem (XYL NYSE)
Then: US$128.23
Now: US$122.44
Return: -5%
Total Return: -3%
Total Return Average: 16%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CNR TSX | Y | Y | Y |
| FTS TSX | Y | Y | Y |
| XYL NYSE | Y | Y | Y |
