David Burrows, Chairman and Chief Investment Officer, Barometer Capital Management
Focus: North American Large Caps & ETFs
Top Picks: ARC Resources, Agnico Eagle, Banco Santander
MARKET OUTLOOK:
Steady improvement in equity market breadth and commodities since the Trump tariff shock suggests that the more fulsome factors impacting markets continue to be positive for risk assets. With both monetary policies getting looser globally and populist fiscal spending remaining the order of the day, investors need to protect themselves from the debasement of their purchasing power.
Liquidity drives equity prices and especially pro-cyclical investments. Clear outperformance of both equities and commodities versus bonds and bond proxies sends a clear message that flows continue to favour economic expansion. Market leadership globally is found in financials, industrial companies including defence, materials, and some areas of energy. After a year of correction, semis have re-emerged as cyclical leadership as well. Barometer is focusing on self-financing, free cash flow producing companies that have pricing power and a record to solid dividend growth.
TOP PICKS:
Video of top picks.
ARC Resources (ARX TSX)
One of Canada’s largest and most efficient natural gas producers, ARC is well-positioned to benefit from long-term structural tailwinds in the energy sector
Key Catalysts:
Leading Montney operator - ARC holds a dominant position in the Montney, one of North America’s most cost-efficient natural gas plays, giving it a competitive advantage in production costs and scalability.
Strong free cash flow and shareholder returns - With low sustaining capital requirements, ARC generates robust free cash flow, enabling consistent dividend growth and share buybacks. Large portion of FCF being returned to shareholders. ARC has a three-year dividend growth CAGR of over 35 per cent -low cost structure, strong operational performance and sustainable returns to shareholders are why we consider ARC a good company
LNG Export Catalyst: The upcoming commissioning of LNG Canada (2025) will unlock international pricing for Canadian gas, improving realized prices and boosting margins for ARC’s production. ARC also has contracts with Cheniere Energy in the U.S. which see its exposure to LNG gradually increasing over the decade, another reason we think it’s getting better
Attachie: Attachie Phase I became operational at the end of 2024 and has been ramping to full capacity. Attachie Phase II is planned for 2026 to 2028 and will add another 40,000 boe/d, another reason we think the company is getting better.
Risks:
A sell off in commodities, demand lower than expected and higher supply – if power demand is on the back of AI/data centres is less than expected it could hurt sentiment
Agnico Eagle (AEM TSX)
Premier 3.5M oz producer operating in the best geological and political jurisdictions to build over the long-term.
Why we think it is a good company
Ninety per cent of production comes from Canada and Australia. It’s a low-cost producer with a strong pipeline of mostly brownfield development opportunities focused in Canada. It finished last quarter in a strong liquidity position with $922 million in cash and $2 billion undrawn credit facility.
Capital allocation priorities in the near term remain on debt repayment, targeting $540M in debt within the next 12 months. It currently plans on maintaining their $0.40 per share dividend over the next 12 months, while putting a greater focus on buybacks.
Why we think it’s getting better
Pipeline projects: Ongoing work at East Gouldie, Odyssey, Detour Lake underground, Patch 7 at Hope Bay, all showing strong exploration potential
Strategic M&A: 2025 acquisition of O3 Mining added ~1.3 Moz of reserves; integration and solidifying its position as a top global gold producer
Risks
Commodity weakness, operational issues at mines, development/exploration risks
Banco Santander (SAN NYSE)
Santander is a $124 billion globally diversified bank including Europe, Latin America and the U.S.
They have a very strong balance sheet, strong return on tangible equity of 13-15 per cent and present an excellent way to gain exposure to global equities opportunity that have only just recently started to outperform.
SAN is good capital-returner with a dividend yielding just over 3 per cent growing about 28 per cent CAGR over the last three years. They pay a semi-annual dividend and are continually buying back shares. They have been a leader in EU banking, and they are the largest EU bank by market cap. Against a backdrop of solid results, they have been shifting focus from less profitable regions to more profitable regions which should help them longer term and have an excellent digital banking platform and presence.
SAN is very inexpensive and could get a significant re-rating versus US and CAD banks at 9x PE versus. JPM at 15x, BAC at 13x, RY at 14x, CM at 12x