Why this $23-billion money manager is buying Caterpillar and selling Boston Scientific
📈 Mike Archibald, portfolio manager at AGF Investments Inc., maintains a bullish outlook on U.S. stocks despite market risks like the Middle East conflict.
💰 He cites first-quarter earnings data showing over 80% of S&P 500 companies beat revenue and EPS expectations as key support for higher stock prices.
🤖 Archibald's fund, which oversees $23 billion in assets, sees the most growth potential in information technology and industrial sectors linked to artificial intelligence spending.
⚠️ He remains cautious on defensive sectors such as health care and consumer discretionary due to slower expected growth rates compared to tech and industrials.
📊 The AGF American Growth Class fund has delivered a 14.3% return year-to-date, with a one-year return of 33% and a three-year annualized return of 28%.
🚜 Caterpillar Inc. was identified as a key buy because it benefits from elevated commodity prices, manufacturing re-shoring, and its role in powering AI data centers.
⚡ GE Vernova was purchased to capitalize on the energy transition and its specific role in providing power equipment for the build-out of AI data facilities.
🔌 Corning Inc. was selected as a strategic buy after signing an agreement with Nvidia to supply high-speed fibre-optic cables essential for AI infrastructure scaling.
💰 Archibald averages bought Caterpillar at $661 and GE Vernova at $885, targeting revenue and earnings growth above trend over the next three years.
🛡️ Boston Scientific Corp. is being sold as part of a strategic move to reduce exposure to the health care sector where slower growth is anticipated.
📉 The manager exited his position in Boston Scientific with an average selling price of $89 after holding the stock since an average purchase price of $49.
🏥 The decision to sell Boston Scientific was influenced by a projected slowdown in the company's EPS growth rate from 22% annually to around 12%.
📉 Archibald notes that Boston Scientific's stock has continued to weaken in the second quarter, validating his earlier caution on the health care sector.
⚙️ His strategy focuses on companies acting as "picks and shovels" for the AI boom, such as providers of power, grid equipment, and data transmission infrastructure.
🌍 While global conflicts pose risks, Archibald believes fiscal and monetary stimulus will continue to drive broader U.S. business and consumer spending.
🚀 The portfolio's top five holdings include Nvidia, Alphabet, Amazon, Corning, and Applied Materials, reflecting a strong bias toward technology leaders.
📈 Management expects sustained 30% earnings per share growth rates for selected industrial plays like Corning over the next three years.
💡 Archibald highlights that Caterpillar has successfully repositioned itself as a critical infrastructure provider essential for the digital age's power needs.
⚠️ The investment approach involves taking profits in defensive sectors while doubling down on aggressive growth themes tied to AI and industrial expansion.
📉 Historical performance data for the AGF American Growth Class fund shows a five-year annualized return of 17.4% as of May 8.
- More than 80% of companies on the S&P 500 beat first-quarter revenue and EPS expectations, with growth spread across various sectors.
- AGF American Growth Class has returned 14.3% year-to-date and 33% over one year as of May 8.
- Caterpillar is successfully repositioning itself as a critical infrastructure provider for the digital age, driven by massive data centre build-outs.
- Revenue and earnings for Caterpillar are expected to grow above trend for the next three years due to construction, mining, and energy growth.
- GE Vernova has consistently beaten and raised guidance expectations while operating directly in the build-out of AI data centres.
- GE Vernova is expected to generate significantly more free cash flow in the future, pointing to higher capital returns for shareholders in 2026 and beyond.
- Corning recently signed an agreement with Nvidia to boost production capacity by more than 50% as a key supplier for high-speed data transmission.
- Corning is expected to achieve sustained 30% earnings per share growth rates for the next three years as a scaling partner for AI infrastructure.
- Health care sector, specifically Boston Scientific, is viewed with caution by fund manager Mike Archibald due to its slower growth profile compared to other sectors.
- Boston Scientific Corp. is being exited entirely as the company projects a slowdown in earnings per share (EPS) growth, dropping from an average of about 22% annually (2023-2025) down to projections of around 12% from 2025 to 2028.
- Despite a strong year with 33% one-year returns, the fund manager notes that not all sectors will outperform, indicating potential underperformance risks for defensive holdings like health care.
- The strategy involves significant concentration in artificial intelligence infrastructure and technology, leaving the portfolio vulnerable if demand for AI data centers or spending on these themes slows down.
- Rising market risks, including the ongoing conflict in the Middle East, could negatively impact broader business and consumer spending despite expectations of continued fiscal and monetary stimulus.
