This edition of Market Factors starts with a series of investment recommendations suited for changing market conditions from CIBC Capital Markets analyst Sid Mokhtari. Potential cockroaches in the AI investment story are next, followed by a diversion covering my new morbid fascination with the TV show Animal Kingdom.
Stock picks
Low vol, high quality now outperforming
CIBC Capital Markets analyst Sid Mokhtari has been on a roll with his top monthly domestic stock picks outperforming the S&P/TSX Composite in each of the past four years. The 2025 excess return of 23 percentage points was particularly remarkable.
We’ll start with the important part – recommendations – off the top. The analyst currently likes Gildan Activewear Inc. (GIL-T), TC Energy Corp. (TRP-T), CIBC (CM-T) and Agnico-Eagle Mines (AEM-T).
Mr. Mokhtari’s U.S. company recommendations for current market conditions include Canadian depository receipts for Gilead Sciences Inc. (GILD-T), Nextera Energy Inc. (NEE-T), Coca-Cola Co. (COLA-T), Deer Consumer Products Inc. (DEER-T), Johnson & Johnson (JNJ-T), Apple Inc. (AAPL-T), Caterpillar Inc. (CATR-T) Lockheed Martin (LMT-T), Walmart (WMT-T), Exxon-Mobil Corp (XOM-T) and Arista Networks (ANET-T).
Now let’s talk about why he likes these stocks.
A research report this week from Mr. Mokhtari highlighted rapidly changing market leadership with growth stocks giving way to defensive value and high-quality sectors. He defines quality stocks as those with low debt, stable profit margins and high free cash flow yields.
The pain under the surface of index results has been severe in many cases. The Nasdaq Composite is higher by 1.0 per cent over the past three months but half of index constituents are trading 20 per cent or more below their 52-week highs. This condition is usually associated with the onset of bear markets.
Economically sensitive sectors with low valuations have significantly outperformed growth and momentum sectors in the past 90 days. The same is true for low volatility and dividend yield portfolios that have easily beaten index returns.
The recommended investments listed above are derived from the emerging leadership of value, high quality, defensive, and low volatility stocks where upwards momentum for stock prices is accelerating.
Gildan, TC Energy and CIBC were chosen for stock price reversals higher with improving price action. Gilead, Coca-Cola, Caterpillar and Nextera are also selected for increasing strength in price momentum. Johnson & Johnson is a low volatility stock with strong relative performance while Apple, Lockheed Martin and Walmart qualify as high-quality companies with improving stock price growth.
The underlying assumption with these picks is that tech stock volatility will persist and the leaders of 2025 will continue to lag. Mr. Mokhtari has adopted the CIBC U.S. strategy team’s view that, in his words, “this is not a broad economic collapse but a re-pricing and distribution of risk that may linger for some time.”
It will be a while before trust is rebuilt in companies that led the S&P 500 lower over the past three months – stocks like Intuit Inc. (INTU-Q), Servicenow (NOW-N), Workday Inc. (WDAY-Q), Datadog (DDOG-Q) and Paypal Holdings (PYPL-Q). In the meantime, CIBC’s Sid Mokhtari has helpfully provided a list of low volatility, high-quality stocks for investor investigation.
Cockroaches locked in a container.ANNE-CHRISTINE POUJOULAT/AFP/Getty Images
Tech
AI cockroaches?
Evercore ISI strategist Julian Emanuel (a new favourite of mine by the way) has uncovered what might eventually serve as the first cockroach under the AI investing story. The cockroach theory of investing says that there’s never just one, and for every visible insect you see there’s ten more.
Mr. Emanuel’s latest report notes that ongoing hyperscaler AI investment has crippled free cash flow growth and that this constitutes “the first systemic yellow flag” in the AI investment theme.
The strategist himself remains confident in AI-related stocks. The hyperscalers can afford the predicted US$650-billion in investment over the next 12 months, leverage remains low, and circular-economy risks are “muted”.
The last one, a circular mini-economy where hardware makers loan funds to AI companies so they can buy more hardware (a practice popular at Lucent Technologies and Nortel Networks back in the day) is the area I’m watching closely. Nvidia Corp. almost launched a US$100-billion deal funding OpenAI that would have qualified for the category. That deal was withdrawn, but the chipmaker is now on the verge of a smaller investment with OpenAI.
Mr. Emanuel emphasized that AI-related stocks including the hyperscalers are still trading on fundamentals rather than sentiment as they did in the late 1990s. He considers recent market volatility as a sign markets are rational and are adjusting profit outlooks for new information. He also argued that upside surprises - AI stocks outperforming by more than expected - is as equally likely as a deep decline.
Evercore ISI continues to recommend stocks on their Enablers, Adopters and Adapters list of AI-affected companies. Popular names on the list include Nvidia, Amazon.com, Micron Technology Inc., Snowflake Inc., Toast Inc., Ball Corp., Booz Allen Hamilton Holding Co., Dayforce Inc., and ADT Inc.
Joel Edgerton and Mirrah Foulkes in Animal Kingdom
Diversions
Likeable animals
I’m watching a show called Animal Kingdom which ran on the U.S. TNT network from 2016 to 2022. The first season made living in a crime family look like a lot of fun. Ellen Barkin, whose been famous since Barry Levinson’s Diner in 1982, plays Janine Cody, the matriarch and crime boss for four sons and one grandson, some of whom are blood relatives and others drafted in from abusive parents or the foster care system.
I am finding myself rooting for the family and against the police despite the fact they are terrible people doing terrible things and now I’m thinking about what kind of criminals are likeable in TV and movies.
The main characters are all physically attractive and their partners, three and four at a time in the case of Craig Cody, are also attractive which is part of it I think. Pretty privilege is underrated as a subconscious factor helping us root for the wrong people.
Culturally we are in an era of anti-status quo and I think this plays a part too. The cops in the show, particularly the detective played by Gil Birmingham, are played as a cruel, unlikeable, ham-handed and thick. Easy to root against, in other words.
The novelty of actor Shawn Hatosy, currently playing Dr. Abbott in The Pitt, as the deeply psychotic Pope Cody is part of the attraction of the show. The same is true for Molly Gordon who plays a modern version of a gangster Moll here but Carmy Berzatto’s mistreated doctor girlfriend Claire Dunlap in The Bear.
Can I recommend the show? I don’t know, it’s not The Wire. I’m going to keep watching because I like a good caper - brother Deran boosted a fleet of exotic sports cars and drove them right into shipping containers at the port of Los Angeles in the episode I just watched - and this question of what makes a likeable criminal still interests me.
The essentials
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Globe Investor highlights
Norman Rothery devises a new high-yield portfolio for dividend fans
Tim Shufelt reports on how micro-selloffs are now a daily market hazard
Ted Dixon notes that corporate insiders are snapping up shares in four mining stocks
The case for Allied Properties is fading, but not gone, says David Berman
Tom Bradley shares his thoughts on how to bring private assets to individual investors
Quick hits
U.S. earnings are still coming in strong. BofA Securities quant strategist Savita Subramanian calculates a 12 per cent year-over-year gain in profits - five per cent above consensus. Reports of the Magnificent Seven’s demise were apparently exaggerated - they reported 26 per cent year-over-year earnings growth.
There needs to be a new rule. Morgan Stanley Wealth Management chief investment officer Lisa Shalett’s most recent report indicates that investor interest has shifted to “productive deployers” of AI on page one and then doesn’t mention any of these companies in the rest of the report. It should be like Chekhov’s gun - if you introduce a gun in the first act of a play, it has to be fired by the third act.
Citi analyst Atif Malik previewed the February 25th earnings report from Nvidia Corp., the world’s most important company. Mr. Malik expects sales of B300, the newest evolution of the company’s Blackwell GPU, to push second half 2026 sales 34 per cent higher than the first half. The analyst doesn’t expect a big reaction from the earnings report as investors are focused on a planned management presentation in mid-March at the company’s annual GPU technology conference. Citi expects first quarter earnings of US$73-billion, ahead of consensus US$67-billion for whatever that’s worth.
See our full earnings and economic calendar here