We are half-way through

Michael Rudd, CFA | President, CEO and Portfolio Manager

As regular readers of the Pathfinder Investment Outlook know, our writing follows the calendar of quarterly earnings reports. The companies that we invest in report financial data and management commentary on a regular basis, which is colloquially called “earnings season”. This is an important part of our investment process because we are able to check the progress of the companies that we own, as well as management’s expectations for the future of their firms.

Readers will recognize the aggregate sales data for North American companies noted in Figure 1. We traditionally use sales growth as a barometer for general growth as earnings can be somewhat manipulated. We also use the actual observed data as opposed to street expectations or “surprise” data as the focus for us is how the companies are actually operating as opposed to how they have done relative to what the various stock brokerage analysts predict. Some money managers use expectations as a tool to trade against (or with) “the market”, buying or selling companies based on their perception of what the rest of the community thinks, but our focus is less about what other people think of a particular company and more about what we think the actual value of the company is. This quarter, the actual data shows something interesting that we have noted before in our Investment Outlook and regularly remind each other of in our Investment Committee. The year-on-year (“yoy”) data that are published now are comparing the period of spring and summer of 2020, which was when the world was at its lowest point of activity due to the pandemic. Consequently, yoy data today looks extremely impressive, but it is not because this year’s number is higher than normal, it is because last year’s number is much lower.

  • So far, 95% of companies have reported their results this quarter and on aggregate sales have grown 28% yoy.
  • Cyclical companies (Commodities, Industrials and Consumer Discretionary) have had the strongest rebound from last year. However, essentially all industries have had strong double digit bounce back from the pandemic lows. This was similar to last quarter.
  • While we focus our analysis on actual sales growth, it is worth noting that this quarter’s, much like last quarter’s, results have been very strong and have again taken most investors by surprise.

“This means that” much like last quarter, the North American economy continues to recover. The financial community has been surprised by how strong recent results have been. While valuations remain high, in our opinion, the real question is whether or not companies will be able to continue to grow into those valuations.  We will continue to watch closely.

Pathfinder Asset Management Ltd. | Equally Invested™
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Sources: Pathfinder Asset Management Limited

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 Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High 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 Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).

Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.