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Happy Tuesday, Trade Off friends.
Jon Erlichman here with another edition of Trade Secrets, our weekly newsletter for The Globe and Mail’s stock picking contest, Trade Off.
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The leaderboard
A quick peek at the leaderboard tells a pretty clear story about what’s been working since gameplay began in late March. Tech strength, and more specifically the strength of the chip companies at the centre of the AI boom, has helped the top performers stand out. Quick math shows a double-digit percentage return for the NASDAQ 100 in that stretch, and some of the hottest names within it, such as AMD and Western Digital, are showing up in a lot of the better performing portfolios.
And it’s not just an American story. Canadian companies viewed as having an AI advantage have done well too. That’s why a name like Celestica keeps popping up in outperforming portfolios.
Players who leaned into the AI trade early have been rewarded. But the bigger question for long-term investors is figuring out which of these names have the staying power to keep delivering when the market gets choppy again.
This week in markets
One of the most beneficial parts of a competition like Trade Off is that it forces you to think about what actually makes a stock worth owning. Not just this week, but over time.
A few weeks ago, we talked about how resilient markets can be. After the S&P 500 flirted with correction territory earlier this year, it has come roaring back, on pace for its best performing month since 2020. But not every stock bounces back the same way. Some never do. So how do the pros decide which names are worth sticking with when the market gets choppy?
On the latest episode of my investing show, Ticker Take, I put that question to Thomas Martin, senior portfolio manager at Globalt Investments. Martin starts with companies that can perform sustainably, meaning growing revenues, expanding margins, and earnings per share that consistently beat Wall Street expectations. From there, he looks for something extra: a clear leadership position, a durable competitive advantage, and a culture of innovation. The discipline, he says, is in separating the hiccups from the breakdowns.
Martin shared 12 names he believes are bruised but built to last, including Microsoft, Visa, Uber, Palantir, Spotify and AppLovin. You can find his full breakdown on Ticker Take.
Built to last as a group
The ‘built to last’ idea is also showing up at the sector level. Investor Josh Brown recently coined the term HALO stocks, which stands for Heavy Assets, Low Obsolescence. In a world where investors worry about which businesses AI might disrupt, there’s a group of companies with massive physical footprints, such as railroads, pipelines, utilities and heavy industrials, that are much harder to replace with a piece of software.
Bloomberg has a basket of HALO stocks easily beating the market this year. The 10 names with the strongest ratings right now are Freeport-McMoRan, Entergy, Mosaic, Evergy, Intel, Texas Instruments, Albemarle, Duke Energy, AutoZone and Micron. What determines a stronger rating? Steady investments in the business (measured through CapEX) and low inventory-to-sales ratios, which suggests company products aren’t sitting on the shelf too long.
Whether you’re looking at Martin’s picks or the HALO basket, the lesson for Trade Off players is the same. The stocks most likely to keep showing up on leaderboards over time tend to share a few traits: durable businesses, real competitive advantages, and the ability to take a punch and keep moving forward.
Trade Secret tips
Here are a few reads from The Globe and Mail worth your time this week.
We talk a lot about AI in this newsletter, but figuring out which companies are actually capitalizing on it versus just talking a good game is tricky. This breakdown highlights 10 efficient U.S. large-caps putting AI to work in ways that show up in the numbers. A helpful framework for separating the real beneficiaries from the hype.
Energy stocks have been front and centre this season, but as many of you have learned, the sector can be volatile. Here’s a stock that could help smooth out some of those gyrations while keeping you in the energy cash flow story.
And a great read that pairs well with this week’s theme: It’s easy to get caught up in flashy, attention-grabbing stocks. But the investors who do best over time tend to focus on long-term returns rather than one-hit wonders.
That wraps it up for this week.
Good luck with your picks!
Jon
Jon Erlichman is the founder of Ticker Take on YouTube and a contributor to BNN Bloomberg.