David Driscoll, President & CEO, Liberty International Investment Management
Focus: Global Stocks
Top Picks: Hammond Power Solutions Inc., NextEra Energy, Singapore Stock Exchange
MARKET OUTLOOK:
There is currently a lot of market volatility caused by rising interest rates, higher debt levels, higher oil prices, pressure on supply chains, sector rotation and some earnings weakness. The CBOE volatility index touched its highest intraday level last Friday since April (the last major market selloff).
By sectors, there’s been a sell-off in tech stocks from the June highs, caused by investors questioning the viability of artificial intelligence (AI) in everyday life and whether it will be profitable or if the high capital expenditures are worth it and don’t destroy corporate balance sheets.
For the market bulls, the argument is that we’re in the early innings of AI rollouts and that the expensive foundations laid today will have payoffs in the future at the sacrifice of current free cash flows.
For the market bears, the argument is that after years of operating under the assumption that all money lent to or invested in AI would yield phenomenal returns, sober questions are being asked about Returns on Equity (ROE) and Returns on Invested Capital (ROIC).
Other canaries in the coal mines include the high issuance of debt by corporations and countries and an increase in financial engineering to support growing profits. The three Ds of investing are Debt Doesn’t Disappear.
Investors need to be disciplined about how much tech exposure they wish to have, how much cash they wish to hold and how much diversification they choose to help smooth out long-term returns.
- How to set BNN Bloomberg as your preferred source on Google
- 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:
Hammond Power Solutions Inc. (HPS/A TSX)
Enables electrification through dry-type transformers, power quality products, and magnetics. Its latest quarter included record revenue growth, continued margin expansion and improved cash generation. Pricing actions, higher factory output, more custom products and better efficiency helped offset tariffs and rising copper and aluminum costs.
The stock currently trades at 18 times current earnings and 15 times 2028 earnings. Return on invested capital is 15 per cent and weighted average cost of capital is 10 per cent so management is allocating capital appropriately without taking on too much debt – debt to equity is only 23 per cent.
NextEra Energy (NEE NYSE)
Is an electric utility company involved in wind, solar, battery storage and nuclear power in Florida and Iowa. Compared to other U.S. utilities, It has been able to keep customer electric bills low at a time when other utilities are raising rates. It’s merger with Dominion Energy is still awaiting approval but the combination will give NextEra exposure to data centres in Virginia.
It currently trades at 19 times current earnings but that’s projected to drop to 16 times earnings in the coming years. Dividend growth has been a steady 10 per cent annually, which the firm says it can continue for a number of years.
Singapore Stock Exchange (SGX SP)
Operates Singapore’s securities and derivatives exchanges and their related clearing houses. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indexes of China, India, Japan and ASEAN. In foreign exchange, the company is Asia’s leading marketplace and most comprehensive service provider for global F/X over-the-counter and futures participants.
This investment is a play on economic growth in Asia, with a population of five billion and markets that continue to grow its trading volumes greater than other markets.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| HPS A TSX | Y | Y | Y |
| NEE NYSE | Y | Y | Y |
| SGX SP | Y | Y | Y |
PAST PICKS: JUNE 2, 2025
Toromont Industries (TIH TSX)
Then: $118.95
Now: $207.05
Return: 74%
Total Return: 77%
UNILEVER PLC (UNA AS)
Then: €55.14
Now: €58.31
Return: -1%
Total Return: 3%
Microsoft (MSFT NASD)
Then: US$467.68
Now: US$511.41
Return: 9%
Total Return: 10%
Total Return Average: 30%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TIH TSX | Y | Y | Y |
| UNA AS | N | N | N |
| MSFT NASD | Y | Y | Y |
