Summary of "Market Call: Ernest Wong's outlook on North American Large Caps (May 11, 2026)"
Summary of “Market Call: Ernest Wong’s Outlook on North American Large Caps (May 11, 2026)”
Market resilience despite unresolved conflict
- Ernest Wong said North American markets have remained robust even though the Middle East conflict is unresolved, noting that most firms have already reported Q1 earnings that were largely resilient.
- He argued the US market recovery has disproportionately benefited “AI-adjacent” companies—suppliers and enablers of data centers (parts/components powering AI).
- Meanwhile, he sees the broader consumer and industrial economy as sluggish, especially the low-end consumer:
- DoorDash strength contrasts with McDonald’s, which is needing price cuts without a strong demand recovery.
Capex concerns from late last year: easing for “AI suppliers,” not fully for Big Tech
- Wong said investor fears earlier in the year—about capex being excessive with weak returns—appear to have eased because the market expects big tech to keep spending on AI regardless of near-term returns.
- He added that AI suppliers have benefited more than the big tech names themselves, noting big tech’s share prices haven’t risen as much as the ecosystem around them.
KUSMA/USMCA review: Canadian markets may face more direct risk than priced
- Regarding the KUSMA renegotiation expected around mid-year, Wong said markets have largely moved on due to the dominance of Middle East headlines.
- He expects volatility, emphasizing it could be more consequential for Canadian equities and the Canadian economy than many investors currently appreciate.
- He believes the renegotiation will ultimately be successful, but expects substantially different details between Canada vs. Mexico:
- US priorities for Canada: natural resources/supply security (e.g., sulfur, rare earths, oil)
- US priorities for Mexico: auto jobs, onshoring, etc.
- When asked whether it becomes separate bilateral deals, he suggested it may remain three-party, with the content diverging by country focus.
Utility sector: less attractive defensively; tariffs/regulation limit upside
- Capital Power: Wong characterized it as a merchant electricity utility (more exposed to market power pricing) rather than a fully contracted dividend-style utility. He said it has upside if electricity shortages occur, but he would not view it primarily as a dividend “safe” compounder.
- TransAlta: he said weakness is partly sector-wide—markets are disfavoring defensive names (also seen in consumer staples).
- He also explained why utility mergers are less common:
- Regulated rates restrict how much an acquirer can improve returns.
- Superior returns often come from investing in existing infrastructure rather than buying and combining.
- He cautioned that some serial utility acquirers haven’t performed well.
Software/AI narrative: selloffs reflect uncertainty, but winners depend on AI integration and moat
- Adobe: Wong said the stock sold off with the broader software group after worries that AI could disrupt demand for products like Creative Cloud/Photoshop.
- Reasons he exited (two portfolio factors):
- He felt the market was not discriminating between quality and weaker software setups, so he redeployed capital.
- A CEO change occurred amid debate about the company’s future.
- Reasons he exited (two portfolio factors):
- Element Fleet Management: the decline fits within broader software-adjacent worries; he said recovery depends on evidence the company is winning contracts and adding AI solutions for customers—highlighting the importance of stickiness and upsell.
- Meta (Facebook): the stock pulled back despite strong results due to investor concerns about AI capex and whether returns are clear.
- Wong argued Meta’s AI use is translating into business outcomes: better recommendations and ad targeting, plus AI-driven content/video generation that improves engagement.
- He emphasized Meta’s approach differs from hyperscalers (Amazon/Google/Microsoft) by keeping compute in-house and potentially using excess capacity later via third-party compute opportunities.
- Thomson Reuters (TRI): Wong said the selloff reflects expectation recalibration (valuation still high even before the drop).
- His framework for software/information services: difficulty replicating proprietary data and workflows.
- He expects TRI to benefit from AI via improved efficiency, while legal ecosystems may keep users reliant on trusted providers where accuracy/standards matter.
Regulated finance example: concerns about “competition in credit scores” may be limited
- Fair Isaac (FICO): Wong said investors fear regulator-driven changes could allow alternative scoring methods in mortgage securitization.
- His view:
- Competition could affect pricing/volumes, but switching at scale across the value chain is very difficult.
- Price pressure may be limited because the score’s cost is small relative to total home-closing costs.
- He said the firm initiated a position despite the concerns.
Energy/minerals/agriculture: geography and supply constraints drive relative value
- Barrick’s proposed IPO/spin on North American assets: Wong interpreted the plan as isolating lower-risk jurisdictions to attract a premium.
- He said mining valuations may still look expensive under current gold-linked assumptions, so he’s not broadly enthusiastic about gold miners.
- Nutrien: he did not provide a short-term 3–6 month view, but argued longer-term it benefits as a reliable North American fertilizer supplier, contrasting it with fertilizer logistics constraints tied to the Middle East (especially natural-gas-based fertilizers that can’t be shipped).
- Kamiko/Kamico (uranium):
- He noted flooding in Saskatchewan might temporarily affect operations.
- He positioned uranium as a hot theme due to nuclear power’s relevance for data centers and the energy transition.
- He cautioned that prior uranium booms often lead to new supply contracts from global producers, making current valuations something he’s not eager to chase.
Past picks and thematic positions (Netflix, Domino’s, Live Nation)
- Netflix: after dropping out of a Warner Bros bid, performance didn’t rebound as expected, and the Q1 outlook disappointed.
- Wong still sees Netflix as a secular streaming winner with scale, subscribers, and content investment levers (sports/live/podcast/games), including geographic expansion.
- Domino’s: the stock declined after earnings due to worse-than-expected same-store sales and a tougher low-end consumer.
- Wong said Domino’s is increasing promotions in a way that pressures competitors, but he still believes it can keep gaining market share long-term.
- Live Nation: addressed regulatory/antitrust legal issues.
- Wong expects resolution given reserved funds and a strengthened model through venues ownership and global diversification (more attendance outside the US, plus vertical integration).
New picks highlighted near the end
- Stryker (orthopedics/intra-body implants): Wong cited tailwinds (more surgeries as joints improve versus rehab) and hospital incentives.
- He noted weakness tied to a cybersecurity incident affecting production, but still sees attractive valuation and strong ongoing growth.
- MSCI (index/data licensing): Wong described it as a high-margin, cash-flowing data/index provider benefiting from global diversification demand.
- Shares sold off partly due to “data services volatility” and debate about active vs. passive, but he sees resilience and ETF market presence.
- Waste Connections: Wong liked operational quality and safety culture.
- He cited the acquisition strategy in smaller/vertically integrated markets and said a prior landfill incident has been remediated, while noting fuel-price sensitivity risk.
Presenters or contributors
- Mela Fernandez (host/presenter)
- Ernest Wong (guest; Head of Research, Baskin Wealth Management)
Category
News and Commentary
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