Tim Regan, Managing Director, Kingwest & Company
Focus: North American Large Caps
Top Picks: GFL Environmental, Citigroup, Thomson Reuters
MARKET OUTLOOK:
The stock market has become concentrated. Research by Apollo Global Management found that about 23 artificial intelligence (AI) and energy stocks drove the S&P 500’s return this year while the other 477 companies collectively returned zero per cent.
In the United States, enterprise is awake. The investment in AI is real. The uncertainty is who will earn an adequate return on it. Semiconductor share prices already reflect substantial expectations for future growth. That makes their value difficult to assess with confidence. We would rather miss part of a rising market than pay for economics we cannot yet see.
Rising bond yields add another consideration. The 10-year US Treasury yield has risen from 4.21 to 5.29 per cent this year, raising borrowing costs, including for companies financing the AI build-out with debt.
Rates are not high by historical standards. But a rise of more than one percentage point in a year calls for care, particularly when investment plans depend on continued access to capital. In a concentrated market, we must be especially careful not to pay today for growth that has yet to materialize.
We cannot know how the AI cycle will play out. We can examine what businesses earn today, what they may earn tomorrow, and what their share prices already assume. The price we pay must leave room for what we do not know.
In Canada, enterprise is waiting. Canadian business capital investment fell for five consecutive quarters through the first quarter of 2026. A tariff can be modelled. A tariff threat cannot. When the rules are uncertain, waiting can be a rational response. South of the border, capital is moving. North of it, businesses are waiting for clarity.
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TOP PICKS:
GFL Environmental (GFL TSX)
Trash is cash! Today two consortia have bid, one of KKR, Blackstone and Energy Capital Partners, the other Brookfield and IFM Investors, and offers are expected in the US$50 to US$55 range against a market price near US$44. That is roughly $70 to $76 a share, 14 to 25 per cent above today, from buyers who will own it for years. Pricing power holds in a soft economy. Second-quarter revenue rose 16.3 per cent, including 6.4 per cent organic growth, and GFL raised its 2026 outlook for the second time despite weaker construction volumes and higher diesel costs. Margins are still expanding. GFL is targeting low to mid 30s by 2028 vs 30 per cent today. The Secure Waste deal is closed. Expands GFL’s presence in western Canada. Updated guidance excludes any Secure contribution, so 2027 starts from a bigger base than the current numbers show. Secure was a great deal but investors can’t wrap their heads around it.
Waste collection remains fragmented, and GFL keeps buying routes. Management said it won’t change its ordinary-course strategy, we would vote against the takeover as we think GFL should be $100 in three years.
Citigroup (C NYSE)
Services is the engine. Services grew fastest of Citi’s five businesses in the third quarter, with revenue up 15 per cent and profit up 27 per cent, and it earned US$2.6 billion at a 31.2 per cent return on tangible common equity. That is a payments and cash franchise multinationals can’t easily replace. Costs are falling as a share of revenue. The efficiency ratio was about 59 per cent, roughly 290 basis points better than a year ago excluding last year’s Banamex charge. Revenue is growing faster than expenses.
Capital is coming back to owners. Citi returned about US$16.5 billion year to date, including US$13.3 billion of buybacks, and raised the dividend 12 per cent to US$0.67 a quarter. Year-to-date ROTCE is 12.6 per cent, ahead of the 11 per cent target, and management reiterated 11 to 13 per cent near term with a longer path to 14 to 15 per cent. Rising returns on a shrinking share count compound per-share value.
Tangible book value per share rose to US$101.59, and near US$124.50 the stock trades at about 1.23 times tangible book. Paying US$1.23 for US$1.00 of equity earning 12.6 cents. That is roughly a 10 per cent earnings yield today and close to 12 per cent at management’s target. Should be $200 in three years.
Thomson Reuters (TRI TSX)
We bought Thomson in June when it was down almost 60 per cent from its high due to fears that AI would make the business redundant.
AI is a tailwind, not a threat. Around 22 per cent of recurring revenue already comes from AI-enhanced products, and TRI’s moat of proprietary content plus thousands of in-house attorneys and tax experts is something LLM startups cannot replicate. Represents a $275m cash flow opportunity. The core is recurring and accelerating. Recurring revenue is 82 per cent of the total, and the Legal, Corporates and Tax businesses, 83 per cent of revenue, grew 10 per cent organically last quarter. Disruption would show up as slowing growth. It is speeding up.
Cash is growing faster than revenue. Second quarter (Q2) margin expanded to 38.1 per cent and free cash flow rose 29 per cent to $727 million. Management has cleaned up the portfolio. TRI sold 51 per cent of Global Print to KKR for about $500 million and bought back $600 million of stock, cutting 6.5 million shares. Management raised 2026 organic growth to about eight per cent and the Big 3 to 9.5 to 10 per cent, while holding a 40 per cent earnings before interest, taxes, depreciation, and amortization (EBITDA) margin and about $2.1 billion of free cash flow.
Free cash flow yield plus organic growth points to low-teens annual returns before any re-rating. The stock traded near US$198 in mid-2025; it is about 40 per cent lower today with a bigger, faster-growing business.
Why it’s compelling. The AI fear has been priced in and the numbers keep disproving it. The Thomson family’s Woodbridge controls roughly 70 per cent, so we sit alongside an owner that thinks in generations. We see Thomson at $250 in three years.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GFL TSX | Y | Y | Y |
| C NYSE | Y | Y | Y |
| TRI TSX | Y | Y | Y |
PAST PICKS:
Strathcona (SCR TSX)
Special distribution (dividend) paid out to shareholders Dec 22, 2025
Then: $42.81
Now: $43.84
Return: 2%
Total Return: 29%
Quebecor (QBR.B TSX)
Then: $52.40
Now: $65.68
Return: 25%
Total Return: 28%
Blackstone (BX NYSE)
Then: US$138.65
Now: US$116.66
Return: -16%
Total Return: -13%
Total Return Average: 15%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| SCR TSX | Y | Y | Y |
| QBR.B TSX | Y | Y | Y |
| BX NYSE | Y | Y | Y |
