Shane Obata, portfolio manager, Middlefield Capital

FOCUS: Global large-cap stocks 

MARKET OUTLOOK:

It was a great first half for the tech bulls, with the Nasdaq 100 rising around 39 per cent for its best start to a year ever (with data going back to 1985).

The “magnificent seven” (Apple, Microsoft, Google, Amazon, Meta, Tesla and Nvidia) did most of the heavy lifting, returning around 58 per cent year to date. While leadership has been narrow, we believe it has been largely well deserved by some of the best companies in the world that are likely to be the first-order beneficiaries of the artificial intelligence (AI) cycle. In addition, we would note that narrow leadership is not necessarily a bad thing and is more commonplace than most believe. Goldman Sachs research notes that in any given year, equity returns tend to be concentrated in a small group of companies. For example, the top 10 contributors have accounted for 32 per cent of the S&P 500’s return in the median year since 1995.

Seasonality bodes well for future short-term gains. At the risk of “jinxing it,” the Nasdaq has traded higher in each of the last 15 years during the month of July. Furthermore, the market tends to continue moving higher when the first half of the year yields greater than 10 per cent and follows a negative year prior (i.e. 2022).

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TOP PICKS:

Broadcom (AVGO NASD)

Purchased at US$627.65 on April 21, 2023

Broadcom (AVGO) provides GARP exposure within the high-beta semiconductor industry. The company is well-diversified across reporting segments, end markets and functions. Key growth areas include data center networking and custom chips for AI acceleration. Taken together, we expect that Broadcom’s AI-related revenues could amount to at least $7.5 billion in 2024, which would position the company as the second-largest AI compute/networking semiconductor business behind Nvidia.

Blackstone (BX NYSE)

Purchased at $82.33 USD on May 18, 2023

Blackstone (BX) is the global leader in alternatives, with assets approaching $1 trillion. The company began in private equity but is now well diversified across end markets such as real estate, which is now its largest segment in terms of AUM. While we expect the market for office to remain challenging, Blackstone has been reducing its footprint over time. U.S. office now accounts for just two per cent of its real estate portfolio. With over $190 billion in dry powder, BX is well positioned to deploy capital into depressed assets as we move past peak inflation/rates.

Nintendo (7974 TYO)

Purchased at 6160.69 JPY on June 13, 2023

Nintendo is a Japanese video game company that is best known for its highly successful franchises such as Mario, Zelda and Pokémon. While the Switch console is clearly in the latter half of its life cycle, we believe that it will continue to generate resilient operating profits, especially on the software side, that will serve as the foundation for the next-generation device. Moreover, we believe that the massive success of the Super Mario movie, which has grossed over $1.3 billion worldwide, provides a glimpse into how Nintendo can maximize the value of its intellectual property (IP) going forward. In other words, great IP on the video game side (e.g. Mario) can translate into great results in the theatre, which can then drive sales on the video game side. 

PAST PICKS: July 22, 2022

Nvidia (NVDA NASD)

• Then: US$173.19
• Now: US$428.26
• Return: 147%
• Total Return: 147%

Motorola Solutions (MSI NYSE)

• Then: US$221.16
• Now: US$290.87
• Return: 32%
• Total Return: 33%

LVMH (MC EPA)

• Then: €634.70
• Now: €848.10
• Return: 34%
• Total Return: 36%

Total Return Average: 72%