Title: Pro Picks: Global Bargain Hunting: 3 Stocks Flying Under the Radar Show: In the Money with Amber Kanwar Guest: Alex Letko (Letko Brosseau & Associates) Date: 2026-06-04 URL: https://youtu.be/HqZjfF6ogB4 Length: 12:24 Note: fillers (um/uh/you know/sort of/kind of as verbal tic) and stutters removed; wording otherwise verbatim. Name fixes: "Copel" (Companhia Paranaense de Energia), "Bolsa Mexicana" (Bolsa Mexicana de Valores), "Calin Rovinescu" (former Air Canada CEO), "Letko Brosseau".
00:00 Perfect segue. Now, let's go find out what that opportunity is and get into Pro Picks. Pro Picks is brought to you by ATB Financial. With over 100 billion in assets, ATB Financial is powering possibilities for more than 843,000 financial services clients. ATB Capital Markets is a leading North American investment firm providing holistic corporate and capital markets advice >> >> and full-service financial solutions.
00:31 Visit atb.com/inthemoney for more information. You brought three ideas, very geographically diverse. One is in Canada. I'm going to save that one for last, but we were just talking about Brazil. You think there's optimism because of political change as well as just the fact that the market is kind of given up on it at the time when GDP remains robust.
00:57 So, the way you play that is through a company called Copel. What does it do? Why is it exciting? >> Yeah, so Copel is one of those >> Copel, sorry. >> Copel is one of those examples of, I think, a very high-quality company that is on sale in the Brazilian market. And so, Copel is an integrated utility player.
01:20 So, first of all, they own a portfolio of power generation assets, hydropower stations, and wind farms. And Amber, if you were to travel on down to Brazil and want to manufacture an electron, hard-pressed to do so for cheaper than Copel. They're towards the bottom end of the industry cost curve, and that's because their input cost, hydro and wind, is free.
01:42 What a nice industry positioning to have. On top of that, they own the transmission business. On top of that, they own the distribution business, and they have different regulated rates of return on each one of those, which sort of smooth their earnings and don't force them to rely purely on the power generation side for growth and earnings.
02:02 They have sustainability of earnings through the cycle and that low beta is something that I think is very valuable. And so if you think about that combination of power gen, of distribution, of transmission, and they operate in a very populous state, the state of Paraná, 12 million people. That's a great industry positioning to have.
02:21 And the company is growing. We think they can grow their earnings at about 15% per year here. The company pays you, on 2027, it pays you about a 5 and 1/2% dividend. And that's if they only pay out about 75% of their earnings. Last 2 years has been more like 100%, so there's upside to the dividend yield.
02:42 And the stock only trades at about 13 times next year's earnings. And so >> Well, that's what I was going to say. It's pulled back on any reason or just because the Brazil vibes felt off? >> it's general volatility there. But this is an example of the sort of opportunity that we see in emerging markets that draws us to this asset class, which is this combination of a very high-quality company with an industry moat and a great positioning.
03:07 Earnings growth, double-digit earnings growth, a great dividend yield, and trading in the low teens. I mean, this is a fantastic combination. >> This is a stock that would be in your new retail offering for emerging markets. >> Correct. >> Okay. And is it a big holding? Like a high conviction idea? >> It's our top holding in the emerging markets fund.
03:27 >> Your second idea, Mexico, the stock exchange there, Bolsa Mexicana. Why do you like it? >> So Bolsa Mexicana is another example of a company with a really good industry positioning. So it's the Mexican stock exchange, first of all. So if you think about the trading volume in Mexico, 80% of all the country's trading volume flows through Bolsa Mexicana.
03:50 They're also a monopolist when it comes to custodial services. So, if you need a custodian in Mexico, you have to go through their subsidiary. So, again, that is a fantastic industry positioning. And then, if you're somebody, Amber, who believes in the theory, perhaps, of greater financial penetration in a country like Mexico, a country that only 50% of the adult population has a bank account.
04:14 You think that maybe grows over time. You think maybe more and more people trade in their personal accounts over time. What a high-quality way of playing a secular trend like that than with the monopolist. And so, that's a company that we think can grow faster than GDP. In fact, we think they can grow their earnings at double digits over the next several years.
04:35 The company trades at 11 times next year's earnings. Yields around 6%. Again, what a fantastic combination here. And it's the type of combination that you'd be hard-pressed to find in developed markets for that price. But in emerging markets, these are the types of opportunities that we find on sale. >> Now, two questions.
04:57 One just about Mexico in general. They're in the same situation as we are in Canada, doing a big negotiation with the US. Is that a risk? >> Of course, it is. Of course, it's a risk. At the end of the day, it comes back to what I said before, which is we do feel like there is a community of interest that will prevail.
05:14 And at the end of the day, also, what we want to do in our portfolios is fall back on companies that are particularly high quality, and that are not on the fringes of their industries, but that are industry leaders, and that can weather periods of downturn and volatility. We think those are the companies where it's best to park your assets in a safer part of the market as you go through these periods of uncertainty.
05:39 >> The exchange business globally, I think about the TMX, I think about Nasdaq or ICE. I mean, those shares have been under pressure for a number of, I think, almost technology development reasons. Like, are prediction markets going to take over? Are they disruptable by things like AI and technology like that? I don't see that affecting Bolsa Mexicana as much, but have you spent some time thinking about why these exchanges have rolled over so much?
06:14 >> Yeah, so I think first of all, what's important to understand when it comes to that is that if you have an exchange that is an industry leader and that has such a massive market share in a country like that, hopefully they're one of the first that would be able to move on new potential lines of business and that kind of a thing and maybe get in front of disruptions like that.
06:43 And so having exposure to very high-quality businesses like that, I think is part of our more defensive kind of strategy. And I think also when you look at the valuation at about 11 times earnings, a company like Bolsa Mexicana, there's not a ton of upside that's priced in.
07:05 And so, if you do see some disruption around the edges, it's not like the stock is trading at 25 times earnings. And so, it's a relatively safer position, I think, in terms of being exposed to that sort of a secular trend that you're bringing up. >> Okay, I'm so excited about your third one. Air Canada. That stock can give you a double in 2 months or wipe you out in 2 months.
07:28 It's a very volatile stock. You've brought it to us today at a time where we're worried about jet fuel, we're worried about the traveler, their ability to pass on these prices. Stock's actually perked up quite a bit from the March lows, but tell me why Air Canada now. >> So we're not oblivious to the fact that there's an oil price crisis out there and that a pick like this raises eyebrows, but I think if we're doing our jobs right as active investment managers, some of our picks will engender
08:02 that sort of a reaction. And so why would you want exposure to an airline in the midst of an oil price crisis? Well, we think the current volatility masks what is an underlying growth story for the company. And if you think about >> Driven by what? >> Well, driven by a shift in consumer preferences towards more of a premiumization of the airline experience.
08:27 And so you've seen that with their counterparts in the United States and Delta investing heavily in more premium cabins. Air Canada's going through a pretty heavy capital expenditure inflection at the moment where they are bringing on new aircraft. So one of them would be the A321XLR, the Airbus.
08:49 This is a narrow-body jet. And what that's going to be able to do is connect Air Canada's hubs to more secondary cities in Europe. And they'll be able to offer more ticketing at a premium level. And so they'll be able to increase their revenue on a per seat basis. At the same time, these are relatively low cost.
09:11 The price of jet fuel per mile here is about 30% lower. Or the jet fuel burn per mile is about 30% lower with these new aircraft. And so on a cost basis, their costs are not going to rise commensurate with the revenue opportunity for these new aircraft.
09:31 And so as long as they can get them flying, and I think the first one is actually going to fly this month in June. As long as they can get the fleet off the ground and get them flying over the next several years, they should be able to grow their revenue at a much faster clip than their costs, and that should increase their margins.
09:46 So, their margins should trend towards the high double digits per management guidance. And so higher margins, 5% increase in their overall capacity as well. So, higher volumes, higher margins. And so, we think their EPS, I mean, if they printed about a buck 50 this year, we think they can get to $6 by the end of the decade.
10:09 And so, you don't need to be a hero on your valuation assumption to make a lot of money on a stock like that. >> So, that was going to be my follow-up. You can make a quick 30, a quick 50% in Air Canada. And I wanted to know about your time horizon. I think you gave it away by talking about the end of the decade.
10:28 But are you chasing the Calin Rovinescu era pricing when the stock got to $50? Or are you just in it, you understand Air Canada can be a great trading stock, and you're just in it for the short term? >> Well, so first of all, by the end of the decade, if you assume $6, you only need to assume maybe an eight times multiple or so.
10:51 And so, that's not necessarily chasing a high valuation. I know the stock has traded at much higher valuations in the past. Like I said, you don't need to be a hero on valuation. And so, that's what we like to see in our investment thesis. >> Eight times six is 48. >> Yeah. >> Do the math. We are talking, we can round up to $50.
11:09 >> Call it a $50 stock. >> more than double from here. >> It is a long-term investment horizon, but again, I think if you come back to Letko Brosseau, who we are, we are very long-term oriented investors. I think that's something that our clients have really benefited from over time.
11:24 And so, what we know is that it's not going to be a straight line from here to the next five years in a thesis like that, necessarily. And so, what we want to make sure when we invest in a company like that is that it's high quality, it has a good balance sheet, and it can withstand any period of volatility like that.
11:42 And so, we believe that the company is high quality enough to be able to withstand those periods. And we'd rather get in front of something like that than miss it. And so, if you think about their catalysts on the horizon, it's really closer to 2028 that you'll see an inflection in free cash flow if they're able to execute.
11:59 And so, maybe if you invest at the end of last year, maybe the price will already be reflecting that. And so, we don't mind holding the stock here at all. >> All right, this is great perspective. I like it. I love an under the radar pick or an underdog pick. I really appreciate it, Alex.
12:15 Thank you so much for joining me on this episode. >> Thanks for having me.