In this Market Factors we first try and uncover why the returns for Scotiabank’s top 30 stock picks keep crushing the benchmark. Section two addresses the AI-related unemployment catastrophe and in the diversion I talk about a TV show, maybe for the last time, because people keep emailing me worried I don’t get out enough.
People walk by a Bay Street sign inside the financial district in Toronto.Mark Blinch/Reuters
Top picks
Top 30 stocks, top performance
Scotiabank strategist Jean-Michel Gauthier updated his in-depth stock screen for the most attractive 30 stocks on the TSX. The result was the removal and replacement of six stocks but I want to focus on what we can learn from the process that drives the decisions because the approach has outperformed the S&P/TSX Composite Index by 11.6 percentage points year to date and 37.3 percentage points in the past year.
Every TSX stock is judged by four criteria – value, growth, momentum and quality – and given a score between zero and 100. Stocks with the best price momentum outperformed by a significant margin in April.
The big development for the month is the flagging price momentum in precious metals stocks and the feverish momentum in energy stocks. Iamgold Corp, Endeavour Mining PLC, Aris Mining Corp., K92 Mining Inc. and G Mining Ventures Corp. were removed from the top 30 as a result of the trend (the sixth removal was Advantage Energy).
Insider buying is one criteria driving the overall momentum score. April found insiders in domestic tech stocks buying more stocks while selling among precious metals insiders is near record levels.
Mr. Gauthier expressed some near-term concern about bank stocks. The sector has dramatically outperformed the benchmark since November 2025 and the momentum scores are still high. However, forward PE ratios stand near all-time highs last seen in 1998. The strategist is not recommending reducing exposure yet but is following closely.
The report highlights Methanex, a new addition to the list, as a promising pick as it is currently benefiting from Middle East-related shortages. Scotiabank expects these disruptions to continue to support profits in North American chemical companies.
Outside of Methanex, the new additions to the main top 30 list are Bird Construction, NFI Group, Cenovus Energy, 5N Plus, and Skeena Resources.
The remainder of the list in the top 30 are Parex Resources, Athabasca Oil, Vermilion Energy, Enerflex, CES Energy Solutions, Tamarack Valley Energy, Peyto Exploration & Development, Allied Gold, Centerra Gold, SSR Mining, Discovery Silver, OceanaGold, Wesdome Gold Mines, Aecon Group, Finning International, Exchange Income, Linamar, Magna, Aritzia, Saputo, TD Bank, CIBC, Sprott and ATCO.
The multi-factor nature of the stock picking approach – the use of value, growth, momentum and quality criteria lies at the center of the methodology’s success. Focusing on stocks that are attractive on more than one basis, and are not throwing up any red flags in other categories, is a strong recipe for success.
Artificial Intelligence
Historic precedents for AI and labour
BofA Securities economists Benson Wu suggested that fears regarding AI-related mass unemployment are misplaced and that task substitution – counting future unemployed workers for every task that AI can perform competently – is too simplistic a lens through which to forecast the future of labour.
Mr. Wu emphasizes that agriculture was 40 per cent of U.S. employment in 1900 and only 1 per cent today. The mechanization trend that massively reduced the need for farmers also provided jobs on assembly lines. (One of my favourite undergrad lectures ever argued that the migration from farm to urban manufacturing centres created demand for the pastoral, untimed sport of baseball).
He notes also that jobs like data scientist, social media managers, and cloud computing developers barely existed 20 years ago but are mainstream now. Mr. Wu estimates that 60 per cent of current U.S. jobs didn’t exist in 1940.
The historic pattern is that technology replaces tasks but motivates an increase in the overall number of jobs in the economy. Mr. Wu writes, “During the Industrial Revolution, machines displaced skilled artisans and triggered social unrest, but rising productivity lowered prices, expanded demand, and created new occupations.”
The report highlights the importance of productivity on developed world economies and why lack of domestic productivity growth is such a big problem. Efficiency through technology raises incomes and this in turn increases demand for goods and services that require workers.
I believe this argument but also recognize the initial economic pain caused by automation. Yes, new technology creates new jobs but only after a period of severe dislocation and high unemployment that government programs should be standing by to address.
A young adult watching TVMarcelo Poleze/Getty Images/iStockphoto
Diversions
My one reality show
I really dislike reality television but there’s one big exception: Couples Therapy with Orna Guralnik, available on Crave in Canada. For those unfamiliar, different partners having issues agree to have couples therapy filmed and documented. I admitted I feel squeamish about intimacy in a newsletter last month so even I’m surprised I can tolerate, never mind enjoy this show.
One of the big attractions is figuring out which partner is screwing up the relationship. The producers must be well aware of this because they are careful to mix up toxic males and females within the heterosexual partnerships.
I’m guessing that Ms. Guralnik would be uncomfortable with me playing the blame game with the show but uncovering the villain (another word I bet she’d prefer I didn’t use) provides the narrative arc every season for the viewer.
The in-depth analysis of relationships is informative as the viewer can objectively see the effects of different behaviours on others and relationships. There are a vast array of ways to help or hurt partnerships.
And there are some very entertaining villains. I find it very easy to see why most women would happily watch Mau pulled apart by horses after season one. Sean in season three is awful. Ping, in season two, still gives me nightmares and being married to Michal would, for me, represent another level of Dante’s hell.
It’s not just morbid curiosity that has me now watching season four, the most recent. At its best, the show provides moments of real enlightenment, even joy. Elaine in season one discovering the roots of the intense clinginess in her relationship with Desean, and seemingly a solution for a couple that clearly wanted to stay together, was a joy to watch.
The essentials
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Globe Investor highlights
David Berman argues investors should hold on to their Canadian National Railway shares
Ian McGugan went hunting for reasons for why chip makers had such a strong April
CIBC’s chief market technician Sid Mokhtari reveals his top 10 stock picks for May
Anwar Husain on the pros and cons of investing in dividend stocks
Don’t be so fast to assume you should sell in May and go away
Quick hits
BofA Securities analyst Matthew DeYoe made a compelling argument for Nutrien in a Thursday report. Global fertilizer prices are currently high because large amounts of natural gas are necessary for production. Saskatoon-based Nutrien is significantly insulated from higher gas prices as they are close to production. Seasonal mass buying of fertilizer is imminent in India and Brazil. The potential for higher soft commodity prices is rising as some producers may lose access to reasonably priced fertilizer. Higher grain prices lead eventually to more profits for farmers, which means they buy more fertilizer next season.
The end of Tim Cook’s tenure as Apple CEO is getting a lot of understandable attention but there’s another retirement deserving of recognition - Reed Hastings is stepping down from Netflix, the company he co-founded. His ability to steer Netflix from a DVD-by-mail service to the dominant online streamer was one of the most remarkable feats of management in history.
Refiners are enjoying themselves. TD analyst Menno Hulshof highlighted 3-2-1 crack spreads - the profit generated from turning three barrels of crude into two barrels of gasoline and one barrel of diesel or heating oil - hit decade highs above US$80 per barrel. U.S. product demand is predictable as planting and driving season begins and U.S. exports are higher with the Strait of Hormuz closed to Middle East exports.
Thanks to Citi chief U.S. equity strategist Scott Chronert, I learned about the VIXEQ this week. Unlike the VIX index, which uses index options to assess implied volatility of the S&P 500, the VIXEQ is the average of the implied volatility of each stock within the benchmark index. The difference between the two measures is near all-time highs which implies there’s a lot more volatility in the market than indicated by index options.
Read this week’s earnings and economic calendar here