Darren Sissons, Partner & Portfolio Manager, Campbell, Lee & Ross Investment Management
Focus: Global and technology stocks
Top Picks: Alphabet, McKesson, Nestlé
MARKET OUTLOOK:
Two significant and unexpected developments shaped the quarter: declining inflationary pressure and generally positive corporate results. Lower inflation was driven partly by falling oil prices, reflecting increased Russian and U.S. crude exports and strategic reserve drawdowns by China. Corporate reporting trends were broadly positive or largely in line with guidance.
Consumer-related indicators also remained constructive. Visa continued to report double-digit growth metrics, suggesting resilient consumer activity, while New York City rents rose to a median of US$5,000 per month. The latter supports the market heuristic that, when Wall Street is healthy and growing, financial stress in Middle America is less acute.
A less obvious development, given indexes are at or near all-time highs, is the gradual rotation out of some Magnificent 7 (MAG7) names and into artificial intelligence (AI) exposures and other growth segments. This shift is less visible at the index level: ETF proxies SPY (S&P 500) and IWM (Russell 2000) gained 21.75 per cent and 34.75 per cent, respectively, over the last twelve months. However, perceived non-AI-exposed MAG7 names Meta Platforms Inc and Microsoft Corporation declined 28.95 per cent and 6.85 per cent, respectively, while Tesla Inc. posted only a 3.55 per cent gain. Although it may be too early to call this a deteriorating trend, caution is warranted for technology names perceived as lacking meaningful AI exposure.
Looking ahead, and as noted in prior appearances, investors make money when they buy. Those who added exposure to names facing excessive AI pessimism performed strongly this quarter, as did oil, select pharmaceuticals, and medical-technology tools.
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TOP PICKS:
Alphabet (GOOGL NASD)
Alphabet offers strong earnings-per-share growth, which has compounded at an annualized rate of 26 per cent over the past decade and supported the introduction of a progressive dividend in 2024. The dividend currently yields 0.25 per cent. Alphabet’s online properties continue to show strong momentum.
Advertising remains the primary revenue driver, while subscriptions, platforms and cloud have become meaningful businesses. Management continues to invest in artificial intelligence assets to support future growth. It shares trade at 16.7 times forward private equity (PE), which is an attractive entry level relative to the company’s average historical high price-to-earnings ratio (P/E) of 30.2 times and average historical low P/E of 19.1 times.
McKesson (MCK NYSE)
McKesson offers a progressive dividend yielding 0.50 per cent. It is the largest U.S. pharmaceutical distributor and operates within a highly consolidated three-player oligopoly. The company benefits from a wide economic moat supported by high switching costs and a network of more than one million healthcare providers and 50,000 pharmacies.
It is also a defensive growth business, as prescription pharmaceuticals are typically resilient through economic downturns and 95 per cent of revenue is generated through a stable, flat-fee procurement model. Higher-margin channels, including its captive oncology network, continue to support earnings growth. Over the past decade, McKesson has generated a 10-year annualized total return of 17.5 per cent in Canadian dollars.
Over the same 10-year period, dividends grew at an average annual rate of 15 per cent and share buybacks reduced shares outstanding by an annualized average of six per cent.
McKesson announced plans to spin out its Medical-Surgical business through an initial public offering (IPO) in mid-2027, with current estimates valuing the entity at US$13 billion, or 11 per cent of market capitalization.
Nestlé (NESN SW)
Nestlé offers a progressive dividend currently yielding 4.2 per cent, with dividends growing in Canadian-dollar terms by 6 per cent annually since 2016. The company has a leading global consumer-staples franchise, with brands spanning Nescafé coffee, Häagen-Dazs ice cream, Purina pet food, DiGiorno pizza, KitKat chocolate, Perrier bottled water, and Starbucks Coffee At Home. Its portfolio also includes a broad range of food, beverage, healthcare nutrition, and pet-care brands.
Nestlé remains attractive for long-term dividend focused Canadians as the four per cent annualized dividend growth over the last decade was turbocharged by a 29 per cent currency appreciation of the Swiss franc vis-à-vis the Canadian dollar. Nestle’s shares trade at an attractive entry level as it trades four per cent below its 20-year average PE low and 31 per cent below its average 20-year PE high.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GOOGL NASD | Y | Y | Y |
| MCK NYSE | Y | Y | Y |
| NESM SW | Y | Y | Y |
PAST PICKS: AUG. 26, 2025
Novo Nordisk (NVO NYSE)
Then: US$55.34
Now: US$46.62
Return: -16%
Total Return: -12%
Tourmaline Oil (TOU TSX)
Then: $57.98
Now: $61.78
Return: 7%
Total Return: 10%
Visa (V NYSE)
Then: US$351.18
Now: US$367.76
Return: 5%
Total Return: 5%
Total Return Average: 1%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| NVO NYSE | Y | Y | Y |
| TOU TSX | Y | Y | Y |
| V NYSE | Y | Y | Y |
