Earnings Season

Michael Rudd, CFA | President, CEO and Portfolio Manager

Since the end of January, we have focused our Investment Outlook on macro analysis and geopolitical events as they relate to the pandemic. This topic is top of mind and seems to take up much of the media focus, so we do need to address it. However, as an investment team, we spend most of our time discussing and analyzing the businesses that we own in the various portfolios that we manage. We continually revert back to our core tenant that “stocks” are just fractional ownership in operating businesses that happen to be offered for purchase or sale at a market. The price of stocks can (and do!!) bounce all over the place, but we must focus on the intrinsic value of the business and be ready for day-to-day trade opportunities from stock price movements. Regular readers of our note will recognize the earnings tables below. Every 3 months, companies report their financial results and as analysts, we go into “earnings season”, which we are in the middle of today.

  • Figure 1 presents sales, so far this quarter, for the 1,000 largest companies in the US. We focus on sales because revenue is harder to manipulate than earnings. Sales in Q1 are essentially flat in aggregate, and materially lower than the 3-4% growth rates we have seen in prior quarters. There is also significant dispersion amongst the various industries with cylical companies having a larger decrease than the “defensives” (as expected).
  • Figure 2 is similar data, but in this case for large companies in Canada. As you can see, the commodity exposure and lower diversification to consumer and discretionary companies means that the impact, so far this quarter, has been more severe here. While the financials sector looks bad, the big banks have not reported yet, so we need to wait a little longer for that information.

“This means that” much like the GDP comment we made last week, because Q1 represents only a partial impact of mitigation policies, we should expect Q2 to be worse. We are most of the way through the quarter and we will update these tables again after the Canadian banks report… “The Banks” represent the official end of earnings season for us.


Pathfinder Asset Management Ltd. | Equally Invested™
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National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Pathfinder Real Fund are presented based on the masters series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Real Fund (April, 2013), and Pathfinder International Fund (November 2014).

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