John Zechner, chairman and lead equity manager at Toronto-based J. Zechner Associates Inc. Illustration by Joel KimmelThe Globe and Mail
John Zechner is surprised by the markets’ continuous rise and is maintaining a cautious stance in his portfolios.
“We’re still at the party but standing close to the door,” says Mr. Zechner, chairman and lead equity manager at Toronto-based J. Zechner Associates Inc., who oversees about $100-million of his firm’s $1.3-billion in assets.
Mr. Zechner has recently taken profits in sectors that have seen major market run-ups, such as technology and health care in the U.S., and is seeking value stocks in sectors that have been left behind, such as Canadian energy, telecom and railways.
Still, he’s hesitant to take on too much risk in the current environment, given how volatile markets have been in recent months and the impact of tariffs, which haven’t hit the economy as hard as expected – at least not yet.
“Given how significantly tariff levels were raised compared to historically, I think we’ll start to see an economic impact fairly soon,” Mr. Zechner says, adding the on-again, off-again tariff threats from U.S. President Donald Trump are making it hard for businesses and investors to respond.
Although there are economic tailwinds, such as artificial intelligence (AI) and fiscal spending, particularly on infrastructure and defence, he notes the real estate market and consumer spending remain a drag on growth.
Given the economic picture, Mr. Zechner is keeping about 5 to 10 per cent cash in his average balanced portfolios. About 50 per cent is invested in stocks (40 per cent Canadian, 10 per cent U.S.) and the rest is in fixed income, including various types of bonds and some preferred shares.
His average balanced account returned 17.5 per cent over the past year. Its three-year annualized return is 14.8 per cent and its five-year annualized return is 11.1 per cent. The performance is based on total returns, net of fees, as of Dec. 31.
The Globe asked Mr. Zechner to discuss three stocks he owns and likes right now and one he sold recently.
Name three stocks you like right now and why.
Adobe Systems Inc. ADBE-Q, the giant software company behind flagship products such as Photoshop and Acrobat Reader, is a stock we started buying a few weeks ago for about US$330 a share, which is about half of where it traded in January, 2024. We bought more of the stock on Wednesday, when it dropped again to about US$267. I think the fear factor in the sector is totally overdone and the valuation is even more compelling now than when we started buying it.
Many software stocks have been hit hard; they’re out of favour with some investors who believe AI will make their businesses less relevant. Adobe’s valuation has come down quite dramatically, but I have yet to see a significant deterioration in its earnings growth.
Adobe is an industry leader and I think it’s still growing. Its software is embedded in many people’s and companies’ systems, and they’re unlikely to get rid of it anytime soon – they’ve invested too much in it and there’s no viable alternative at this point. Markets, as they typically do, have reacted too far ahead of the curve on this one.
Torex Gold Resources Inc. TXG-T is a stock we’ve owned for a couple of years. We started buying it at around $10 a share. Torex, based in Toronto, is Mexico’s largest gold producer. Its big deposit, the El Limón Guajes mine, was coming to the end of its useful life, but the Media Luna project was brought online seamlessly to replace the production.
Torex has also extended its reserves and the company’s valuation is very attractive. To me, it ticks all the right boxes. This week’s announcement of the CEO transition in June was a surprise. [Outgoing CEO Jody Kuzenko] is well regarded in the industry. But the story is the same, in my view: Torex is one of the most undervalued gold stocks in a relatively safe geopolitical region.
Gold stocks have been incredibly volatile over the past week, but this is not surprising given how sharp and quick the upward move has been. I think the gold story is far from over. We’ll see pullbacks and volatility, but central banks and investors will continue to buy gold as people try to diversify away from the U.S. dollar. We also own a few other Canadian gold stocks, such as Agnico Eagle Mines Ltd. AEM-T and B2 Gold Corp. BTO-T.
Rogers Communications Inc. RCI-B-T, the telecom, media and entertainment company, is a stock I’ve held for several years and have been buying more of over the past couple of weeks.
Telecom stocks have been out of favour for the past couple of years. I get it: population growth has slowed and competition has increased, but I think we’ve seen the worst. Rogers will also probably sell a minority stake in its sports portfolio, which should help it pay down debt. Its latest earnings show that it’s generating decent cash flow.
To me, it’s also an infrastructure asset. I like the story: it’s out of favour, cheap and still has decent assets. It also pays a dividend [yielding about 3.9 per cent]. We also own BCE Inc. BCE-T and Telus Corp. T-T. Rogers’ fundamentals give me greater confidence that the upside is closer for this sector.
Name a stock you’ve sold or trimmed recently.
Oracle Corp. ORCL-N, the giant U.S. software company, is a stock we held for a couple of years and sold after its big move up last September.
We sold it at around US$300 a share. It was a good performer, but I was concerned about the quality of its growth. It expects to generate negative free cash flow for the next four to five years as it continues to invest in AI.
Maybe it will ultimately be the dominant player in AI data centres; however, in the meantime, the stock is expensive and the company is going to be doing a lot of borrowing to fund its investments, which is something from which we prefer to stay away.
This interview has been edited and condensed.