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Brendan Caldwell, president and CEO, Caldwell Investment Management
FOCUS: North American equities
In a recent commentary to the markets, the U.S. Federal Reserve signalled a willingness to tolerate a recession – hopefully mild – rather than allow persistently high inflation. As a result, rising rates helped push the U.S. into a recession in the second quarter of 2022 (technically defined as two consecutive quarters of negative GDP growth). Inflationary pressure from higher wages and other inputs (e.g. commodity prices, shipping rates) have led corporations to pass along higher costs which have pressured consumer spending on a real basis. Spending in “re-opening” categories such as travel and leisure seems robust but consumers are making trade-offs in other goods-based categories (e.g. electronics, furniture, cars and even everyday household products). This leads investors to question what happens to the economy if, or when, growth in service-based categories begins to slow. Additionally, as consumers’ willingness or ability to handle higher prices wanes, companies’ ability to maintain margins, and thus earnings, may also come under pressure which is a sharp contrast to the strong earnings growth seen over the past two years.
Given all the uncertainty, it’s no surprise that nine of 11 sectors in the S&P 500 are down year-to-date, with the market down above 10 per cent overall. As far as our outlook, predicting the future is extremely challenging in the best of times and increasingly more so in the current environments. We will continue to focus on identifying high-quality, well-managed, companies with proven histories of navigating through tough environments and believe professional investment advice can be extremely valuable in times such as these.
Brendan Caldwell, president and CEO of Caldwell Investment Management, discusses his top picks: Costco, LKQ, and Electronic Arts.
Leading operator of supercenter, multi-category retail warehouses; third largest global retailer with 830 warehouses worldwide serving 64 million households.
Why we like it? (more specifically, why now?)
Most recent purchase - July 21, 2022
LKQ is the leading supplier of aftermarket (AM) auto parts in North America and Europe; 20x bigger than its number two competitor in NA; 2-3x bigger in Europe.
In North America, it primarily sells to independent and large chain collision repair shops; the business is driven by total vehicle miles driven and safety standards on vehicles.
In Europe, LKQ sells to collision and repair shops with a greater focus on mechanical replacement parts (windshield wipers, belts, air filters) vs. collision.
LKQ is undergoing restructuring aimed at improving margins; targeting sustainable DD segment EBITDA margins vs. eight per cent historically
Most recent purchase - July 29, 2022
Electronic Arts is a leading game developer whose content and services can be played and watched on game consoles, PCs, smartphones and tablets.
Its portfolio of games includes wholly-owned properties - such as Battlefield, The Sims, Apex Legends – and licensed brands such as FIFA, Madden NFL, NHL and Starwars.
Brendan Caldwell, president and CEO of Caldwell Investment Management, discusses his past picks: CME Group, Quanta Services, and Micron Technology.
CME Group (CME NASD)
Quanta Services (PWR NYSE)
Micron Technology (MU NASD)
Brendan Caldwell's Top Picks: August 5, 2022
John Zechner's Top Picks: August 4, 2022
Kim Bolton's Top Picks: August 3, 2022
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