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[music] >> Hello, I'm Anthony Okolie and for Greg Bonnell and welcome to MoneyTalk Live, which is brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss what's ahead for the price of oil and what it means to the Canadian energy sector with TD Asset Management's Andriy Yastreb.
And in today's WebBroker education segment, head of today's US Federal Reserve rate decision, Jason Hnatyk will show us how you can stay up-to-date on economic news using the platform.
And here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
And before we get our Guest today, let's get you an update on the markets. We will start here in Canada where the TSX started off a little bit lower on the first trading day of May. We are seeing some weakness in healthcare and consumer Staples stocks, weighing on the index.
Investors, of course, are awaiting the US Federal Reserve rate decision later today and right now, the TSX is down to the tune of: 76 points or .3 percent. Now, let's look at Restaurant Brands International.
Edit their prices rose yesterday after reporting stronger than expect to Q1 sales. Today we are seeing a little bit of pullback, it is down nearly 4%.
Let's move south of the border where Wall Street open slightly lower ahead of the Fed rate announcement and markets closed out April on a lower note, snapping a five-month streak of gains and it was the worst month of the year for Wall Street.
And of course, today, in addition to getting the Fed rate decision, investors will also await a slew of economic data to gauge the state of inflation in the US economy. This one absorbing some job data.
We did get the ADP numbers which suggest that the labour markets are still stronger-than-expected.
Taking a look at the markets right now, some anxiousness ahead of the Fed rate decision, down about 17 points or .3%.
Let's take a look at the tech heavy NASDAQ. The NASDAQ composite index is trading in negative territory, down about 20 points or a modest .2%.
Taking a look at some of the big movers today, Pfizer shares are trading higher after the farm a giant reported first-quarter revenue that beat expectations on the company hiked its full-year outlook, benefiting from its broad cost-cutting program and strong sales of its non-COVID product. The stock right now is up to the tune of just over 3%. Some of the big movers, Advanced Micro Devices are under pressure today. The chipmaker reported first-quarter sales slightly ahead of Wall Street expectations but is forecast for the current quarter wasn't in line and that might have disappointed some investors. The stock is down to the tune of 10%.
And that is your market update.
Well, the price of oil is down some 8% from the Hyatt hit earlier in the year as concerns about a wider conflict in the Middle East have subsided.
But with risks on both the supply and demand side, where does the price of oil go from here and what does it mean for the energy sector? Joining us now discusses Andriy Yastreb, VP for portfolio research at TD Asset Management.
Andrew, thanks for joining us today. We will start with the price of oil.
This is a $70-$90 trading range for oil normal?
>> Thank you for having me. To answer directly, yes, I think it's the range we will probably continue to see the future.
We've seen it for about a year and 1/2 already. I think it's also and arrange that is sustainable because it satisfies both suppliers and customers, so we've seen over last year to robust demand growth, so $90 oil is not resulting in some declines in demand. From the supplier perspective, it's pretty much all about OPEC. If you think about OPEC, I don't think OPEC wants $100 plus oil.
Their function is not to maximize the price of oil but to have it high enough to satisfy their own internal needs like balancing their budgets. But at the same time, they don't want to incentivize the adoption of EVs or people switching away from gasoline cars and they don't want to incentivize increasing Production growth in other countries that they compete with.
So the 70, 80, $90 price range satisfies all of those and I think as we think over the next several months, we just need to see how OPEC and the Saudi's in particular think about potentially bringing back the million barrels that they did a voluntary cut of last summer. If we see oil at the lower end of that range,, but if we see it rebounded to 90, I think it's high probability that the million barrels will come back to the market from that perspective I don't think there's too much upside in the oil price from here.
>> From your perspective, that isn't necessarily a bad thing for oil companies.
How does this pricing environment set up oil companies in general?
>> When investors think about investing in oil companies, they want prices 20, 30, 40% higher. If it gets changed. We have seen a couple of really strong years of returns but from here it's not as much about oil going higher significantly, it's more about the fact that all these energy companies have very clean balance sheets, they have very low yields them because they don't grow and don't need to invest in capex is much as they used to, they can return more cash. When we talk about the free cash flow yields, for large integrated producers, those could mean seven or 8% range, for a lot of smaller producers, that's 10% and above. So if that perspective, having that confidence that there will be a return of cash back if they stay within the sustainable range over time and give the return through dividends and buybacks, so there is not that much risk of going out and invest in capex. Historically their cycle was oil prices hi, let's drill more and invest more, though oil prices crashed, let's move some of it back. I think they are a lot more disciplined now and I think it's a lot more healthier environment for investors to make money over time and compound is earnings.
>> Let's talk a little bit about the Canadian market.
When you look at the Canadian energy sector versus the US, how do they differ right now?
>> That's a good question.
The key catalyst, it has happened literally today, May 1, an operation is operational as of this morning and it's taking commercial crude and shipping it and soon it will be filling tankers.
>> This is a big deal for the Canadian energy sector.
>> What this means is they will have over half a million barrels of extra capacity to ship more products out of Canada which is great. It means that Canadian producers can grow capacity and it will be easier to invest in growth over time. Secondly, it means that the pricing of the Canadian producers will be getting will be more sustainable over time.
We have seen periods in the past where production was way above capacity to ship and those times, Canadian oil was trading at a significant discount because it was hard to get oil out. It now as we get into this new regime for the next few years until this pipeline is also full, there is the capacity and opportunity to grow.
>> How long do you think it will take for the capacity… >> The estimate is anywhere from 2 to 5 years. I think two years is too aggressive because looking at where discipline is, I don't think they will fulfil it within two years. Five years is probably too long. I think three or four years is more of a prudent estimate. The second factor you need to keep in mind for Canadian energy versus US energy is that Canadian energy actually benefits from a weaker Canadian dollar and we see in the US dollar going up. Year to date, across all major currencies. We have also seen weakness of the Canadian dollar.
We are seeing what has happened to the Canadian budget and some of the economic data here in Canada. If this weakness continues, that will be a big tailwind for Canadian producers. If we look at Canadian oil being price today in Canadian dollars, for Western Canadians, it submitted $90 and for synthetic crude oil is over hundred and $10 per barrel. Pretty good pricing for Canadian oil right now.
>> I want to pivot from oil to natural gas. How is this environment looking for this commodity?
>> Natural gas is an interesting story because obviously there isn't a lot of control in this market and what we have seen in this market recently over the last six, nine months, natural gas pretty much got… Natural gas prices in the US is just under two dollars per cubic feet and what that means is that we have just seen really weak demand and a lot of the driver behind that was we have seen to it really warm winters in a row, reserves are elevated, and this winter we saw that not only in North America but in Europe. On both sides we have a situation where temperatures are elevated in heating season, production is still quite robust and there is a risk that we will get to tank tops in September or October at which point you cannot produce more because we cannot store it.
So if you want, we can bring up a chart… >> Let's bring the chart up once more.
>> What this is showing is two things. One is the green line issuing the forward curve for natural gas. The forward curve is basically the price of natural gas in futures markets. You can trade natural gas delivering six months from now or even further in the future. We have seen this weakness as the green line is below the orange and grey line which is where the curve was 6 to 12 months ago but what I think is really interesting is the later part of that line in 2026 through 2028, those prices haven't really changed. That is I think where it becomes interesting for natural gas in the view of 2 to 4 years out as we know that in response to prices right now, some production has been reduced, especially in the US. We had a peak in production earlier this year.
The other part of that is that we know there is more capacity coming available next two years. We have LNG Canada wrapping up later this year. He has several facilities coming online in the US. What that means is that we know there's going to be more demand at the time, those elevated inventories will not last forever so what the market is telling you right now is that gas prices are under two dollars, the marginal producers to make money in that environment, but 2026 through 28 prices still four dollars and that expectation was there, pretty much the same level, about a year ago. So if markets correct and we go from two dollars to four dollars, I think that would be beneficial for natural gas prices and the companies moving forward.
>> A lot of factors in play. A great start to the conversation. We will get your questions about energy stocks for Andriy Yastreb in just a moment.
And a reminder that you can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Now, here's an update on the top stories in the business world today and a look at how the markets are trading.
As we were discussing, Wednesday marks the official start date of the long-awaited $34 billion transmountain oil pipeline expansion project which took more than four years to build. The pipeline which runs from Alberta to the BC coast is expected to increase shipping capacity to 890,000 barrels per day and open up global export markets for Canadian oil. The increase capacity is expected to help move the price Canadian oil companies received for their product.
In more earnings news, shares of Starbucks are under pressure after the coffee chain giant reported weaker than expected profits and revenue in the second quarter.
Starbucks reported falling traffic across all regions including the US and China, which is its second-largest market. The coffee giant cited a more cautious customer, greater competition and a deteriorating economic outlook for the disappointing results. Right now, Starbucks is down well over 16%.
Finally, Johnson & Johnson says it will pay $6.5 billion to settle almost all the lawsuits related to its talcum based products causing ovarian cancer. Under the deal, J&J will resolve thousands of lawsuits through a bankruptcy filing of a subsidiary company. The news kicks off a three-month voting. For claimants to reach a settlement. Here's how the benchmark index in Canada is trading.
Take a look at the TSX Composite Index… We will start with the S&P 500.
It is modestly down .3%, just over 17 points.
Okay, alright, we are back with Andriy Yastreb, take your questions about TD Asset Management. We will jump right in.
First question is, when do you expect the price Between Western Canadian select, versus West Texas intermediate will narrow and what would that, and with that benefit Canadian oil companies in 2024? I know we touched on that a little bit but what are your thoughts on that?
>> I think it's a really topical question.
I have a chart to show the differential over time.
>> I think we have the chart here.
>> Basically the short answer to that is that a lot of it has already happened. So the differential is now around $12, $12.40.
>> We have seen the differential shrinking over time.
>> Yes, and you can see that historically has been very volatile but averaged around $16 over the past 10 years, sometimes it was blown up significantly to 20, 30, $40 discount for Canadian oil versus WTI so I think the biggest impact from TMX having a lien is that the discount will shrink. We will have excess capacity and we won't need to sell our oil at such a big discount. The million-dollar question is, where is the new range going to begin marketing the consensus is it's going to be roughly $10-$15, at least that's what most of the producers are telling me from their perspective and where exactly it will be.
We think it will continue to be volatile but I don't think we will see it sustainably below $10 and the reason for that is that the transportation cost for TMX or alternative pipelines to bring Canadian oil to the Gulf Coast, whether Zweig West Vancouver or south to Texas, it's around eight dollars. So it's hard to get below that because we have to actually pay the transportation cost but the other part is that for West Canadian select, it's a heavy oil differential benchmark and heavy oil is usually having a quality discount to WTI which is a sweet light crude and because refineries have to process it through additional steps and remove more software from heavy oil.
So that makes a difference of several dollars per barrel. That's why think you will see the 10 to 15 range.
In the global space, volatility for the year, that will depend on how the refinery is run and where demand is.
So on an annual basis, we will be bouncing within that $10-$15 range.
>> That will be interesting to watch over time.
>> Yes.
Largely, we are already within that range right now and a lot of stocks that have been more in position to benefit from this have outperformed already and it will be interesting to see how they perform over the next several months as these new volumes start to flow West and what that means for the stocks from here.
>> Let's move to the next viewer question.
Andriy, your view on Canadian Natural Resources?
>> Canadian Natural Resources is the largest Canadian energy name. It does not have refining but it's also the second largest natural gas producer in Canada.
It's a very well run company, good management team, very well managed company but for that reason it also trades at a premium the others which is interesting.
It's going to be one of the major shippers so we will see to what extent it benefits from that. And I think one interesting point on Canadian natural for this year specifically is with the company provided guidance for this year, I think the guidance, they have built in some flex ability around their capex and what that means is that it has some lead projects on oil sands sites and they want to finish those and a lot of the spending will be in the first half of the year will be focused on those with spending more conventional oil is oriented towards the second half and the reason for that was depending on the market environment, where oil prices are, they will be able to flex that spending up or down depending on whether they want to invest more a step back and save cash.
I think that's one interesting differentiating factor for the company.
>> Of course, talking about risks, is a oil price or are there other risks that you see?
>> Mostly at the oil price and differentials but as I mentioned, a it always looks like an expensive company relative to peers so if you are looking for a bargain or for something that has a little bit more torque to specific areas, it's a very diversified company so it's not… It fits well for long-term investors who believe in energy and the company's story and they have performed really well historically, but not necessarily a good fit for all portfolios.
>> Okay. Let's move to the next question now. This is on uranium. Can you give me your thoughts on uranium stocks?
>> So uranium has been very topical the last couple of years since the war in Ukraine and we have seen recently the US government moving to put some sanctions on Russian uranium which is a pretty big deal in the whole supply chain and Americans are trying to figure out what that means and whether there will be exclusions from those new sanctions.
I think in the long term, it's very positive outlook for uranium.
And it's an interesting market where we see long-term contracts and we see utilities going out and buying uranium on five, 10, 15 year contracts into the future and we also have a lot of visibility on future demand because we know which countries want to build which reactors and reactors take 5 to 10 years to build so we have a lot of visibility on demand and we know that we will need more supply in the next five or 10 years. On top of that, on top of that visible supply demand imbalance that we are seeing, they also have small modular read is that are a relatively new technology that's ramping up right now. I wouldn't say it's completely new technology because for decades we have been using small reactors in submarines and aircraft carriers and its base for exploration purposes so it's kind of taking existing technology, something we have done before but applying it for commercial purposes.
So I think it will be done and it's not really an estimate for demand. It will take time, it's probably a 2030 story due to the time needed to develop the technology and start supplying it but the outlook is pretty good. I think on the flipside, in the short term, it becomes quite interesting because that imbalance in supply and demand is quite visible for everybody and uranium stocks performed really well and uranium as a commodity performed really well over the last two years. So from here, it becomes interesting, how much of the future growth is already pricing? A lot of it is priced at and then the second part is when you think about the stocks in the industry, there is Cameco which is one of the largest producers and it has several large high-quality minds, and then we have a number of other minors but most of them don't have a mind you, they will project and the need to raise capital and build a minor operate the mine.
>> A lot of steps.
>> A lot of stuff they have to execute and we are still quite early in the story.
>> Great questions to start.
As always, make sure you do your own research before making any investment decisions. We will get back to your questions for Andriy Yastreb on energy stocks in just a moment's time.
Now, let's get to today's educational segment.
We are all awaiting the US Fed rate decision later today and if you are looking to stay on top of big economic announcements, web broker has tools which can help. Joining a centre discusses Jason Hnatyk, Senior client education instructor with TD Direct Investing. Jason, welcome.
Let's jump right in.
How do client stay informed on major economic events and reports?
>> Nice to see you, thanks for having me on today's show. Staying up-to-date with the news is a constant battle for all investors, whether or not it's something that's more spur of the moment or something that's planned out well in advance like today's rate announcement.
Liberal principles of can help. Let's jump in and I will happy to walk us through to find this. The first thing I would like to show everybody is here on the homepage and web broker, I want to point out a couple of useful updates that I don't want us to sleep on. The first is going to be your market updates on the top right-hand corner of the web broker homepage. You will notice here that there are two new stories O. These are things that are driving the market, big new stories for us to keep ourselves informed of and just below here there is 11 minutes and 13 minutes, so things as they change, you are going to be notified in this particular area. I would like to highlight for everybody looking to do a light reading in the morning, keeping abreast of the big new stories ahead of the market, we have a report that's available for both the Canadian and US markets to get you those hot button issues. Maybe you are looking to dive a little bit deeper into some news.
I'd like to bring you into the research tab at the top of the page and under the markets column, we got our reports area.
Here, you will find many high quality reports from analysts at TD as well as many respected animals outside of TV is such as from Argus and MorningStar. It's an opportunity to get insight and commentary from TD Economics. You will get that by scrolling down the screen. About halfway down the page on the right-hand side, you can access this TD economics area.
This will bring you to their page. Lots of great information that's here to impact.
One that I really like is this weekly bottom-line report. You can go ahead and select that and it will keep you up-to-date with many of the overarching economic hot button issues that are going to be affected, yourself, the housing market, employment data, the markets themselves. Beyond that, you will notice on the top of the page you can highlight specific geographical region. We are able to hone in on what's happening for our neighbour says of the border. We can look at different updates and publications and insights that we've been able together. We can also dig deeper into specific areas of the economy such as labour, real estate, etc. Get in here and take a look for yourself. There is also the government and finance section where you can look at more reports.
There are lots of tools here to make sure you are never out of the know.
>> That's a great overview, Jason.
Is there a way to have web broker notify when there are important events making the news?
>> Great question.
There certainly is.
Alerts can be tailored to your specific need from a news and commentary perspective. Let me do a quick demo on how that can be accomplished in the site.
Just like where we found our research reports, we will go back to the research tab at the top of the screen but this time under the tools column, we are going to be going down to the alerts area. In alerts, there's two sections.
There is our managing alert section where we can search for different stocks. You can see on my screen about a couple of well-known companies there. But what I want to show everybody today is over to the right where it says set news and research alerts, by selecting there, it brings us into an area where we can either choose broader market analysis or what I want to show off here today is the news and research. You can search by specific categories or if you are looking at a new show what's important to you, you can select keywords, in line with what's going on today, we can type in interest rates.
That will scan all of the news stories for interest rate specific information and then we can choose what we want to have sent to us. I don't have to go fishing for data, it's went to be provided in my email inbox.
It's another tool in web broker making it easy to stay informed.
>> Jason, great information as always.
Thanks for joining us.
>> My pleasure.
>> Our thanks to Jason Natyk, Senior client education instructor at TD Direct Investing.
For more educational resources, you can check out the learning centre on web broker or use this QR code to navigate to TD Direct Investing's YouTube page where there are more informative videos.
Now, before you get back your questions about energy stocks for Andriy Yastreb, a reminder of how you can get in touch with us.
>> Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
>> Okay, we are back with Andriy Yastreb, take your questions about energy stocks and this is on LNG. Why does Canada continue to stay out of the overseas LNG market? It seems like such a missed opportunity. That's a great question.
>> We will not be out of the LNG market forever. LNG Canada phase I is coming on line. That's going to start operations in the second half of this year and ramping up into next year.
We will become part of the LNG market globally. The problem is why we are so late and I think there's a number of reasons for that. Some of them are economic and what we have seen, whether it's the TMX pipeline where Coastal GasLink pipeline, the cost of those were two, three times more than originally planned. Building for structure North America takes a lot longer and cost a lot more than it used to.
Companies are very careful about that.
I think the other part is political.
We've seen a push towards climate change and neutrality and this back and forth from a political perspective. On one hand, we want to reduce our emissions here in Canada. We are among the leaders globally and fighting climate change. At the same time, economically, it makes sense for us to export more and I would argue from a climate perspective globally, it also makes sense to export more natural gas because natural gas is mostly used to displace other forms of energy.
If you displace coal generation with natural gas generation, you are reducing emissions by several times.
>> Is better for the environment.
>> It's better for the environment.
It's also better from a pollution perspective and for health as well. That's why in Europe, they designate natural gas is one of the transition fuels. It does emit CO2 so it's not completely clean as solar or wind. But it's much better than most alternatives.
After the war in Ukraine started a couple of years ago, we have seen I believe it was a German Chancellor who came to Canada and was asking for more LNG and basically, the answer was, we cannot really build this. But when you talk to Canadian companies that produce this, they have a lot of resources. Some of the companies say we have 50, seven years of resources that we can continue to build out and we don't even have-- we have not even discovered everything in the ground.
I do think it's a missed opportunity and hopefully policy changes that will allow us to play a bigger role over time.
>> Next question is on peak oil. When you expect oil demand to peak? In another decade or two?
>> That's another interesting question and I think almost everybody now agrees that peak oil will come at some point in the question is when and how quickly will decline from there.
Some estimates I think could be as early as 26 and 27. It doesn't feel like were going to get there because we are already 2024 and oil demand is quite robust and driven by emerging markets that don't really have infrastructure in terms of green charging stations to switch to EVs.
They are quite expensive. The way think about it is I think we see a peak in the next 5 to 10 years and the way I'm getting there is if you think about oil demand, it might grow by a million barrels per year.
See the baseline is 10 to 15 million barrels per year of growth. If you get to 30% EV penetration over the next 10 years, China is pretty much there already in terms of sales. Europe is getting there.
So we get to the 30%, if you think about oil supply and how is it being used, most oil goes to gasoline for passenger vehicles.
So if we replace 30% of that with EVs, that would be an impact of 7 1/2 million barrels. At least half of total growth over a decade would be removed just from EV adoption going to 30% which I think is quite reasonable for 10 years.
But then the second part of that is a lot of automakers are also pushing on hybrids and we have countries putting stricter commission recommendations for auto producers. We know that regular cars and hybrids will be more efficient over time.
So that will also eat into some of the current demand. On top of that, we are having electrified trucks and buses.
Replacing plastic spoons and things like that, over time, that will lead up to incremental headwinds oil demand. I think that's why over the next five or 10 years we will probably see a peak but the flipside of that is there is a lot of demand sources which will be very hard to replace. For example, for aviation, we are talking about doing something about that.
There is some oil types. People talk about sustainable aviation fuel but what we are seeing is under 10%. The oil demand for aviation is stable.
Having batteries in airplanes is not feasible even though there some demand. On top of that, we have petrochemicals.
These are all things that go into consumer products and cars as well and just physical plastics and other items. A lot of that demand will continue to grow so I think the tale of demand for oil would be a lot longer than we would expect.
>> Important insights there.
I will move to the next question.
Do you expect more M and a activity in the US energy sector, especially companies drilling in the Permian basis?
>> I think we have seen quite a lot of activity over the last 12 months or so, some of the biggest seals ever announced by Chevron in Excel last year. I think it will continue for several reasons. One of them is that it just makes sense for shale companies to consolidate more land from two perspectives.
One, to drive more activity and to have stronger margin, they need longer runs and that was one of the biggest levers they have two lower their breakeven prices terms of costs and generate… But in order to do that you need to have a lot of continuous land, big parcels of land which means needing to consolidate a lot more of that. That was one driver. The other drivers that we have a lot of companies in the industry and a lot of the money was invested around 10 years ago when shale was booming. Usually private equity companies look to IPO their company or seller company so we seen a lot of that, a lot of private companies selling to public ones.
So I think that that continues that we are probably past the peak of that.
I think the other interesting point, if you look at Chevron and Exxon,, it's not a shell company but it mostly operates offshore the Gulf of Mexico but the real asset at Chevron is going after is the gross. That deal has been challenged by Exxon who says they have right of first refusal on the asset, they have the right to buy it preemptively. It will go through arbitration and we will see how it plays out.
If Exxon is right in the deal fell apart, it will be really interesting question what will Chevron do because they have already shown that they need to consolidate to grow through MNA so will there would be another big deal the table in that case? Maybe. We'll have to see.
>> Alright, we will get back to your questions on energy stocks for Andriy Yastreb in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you get in touch with us at any time.
>> Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
[music] >> Okay, we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. We are looking at the heat map function here which gives you a view of the market movers on the TSX 60 by both price and volume.
We will take a look at energy which is at the top left corner. We are seeing some pressure on some of the big energy names here in Canada. Cenovus is down, Suncor seeing some weakness there.
We take a look at some of the basic materials, Cameco, uranium company, it is up more than 2%.
The stock was under pressure Tuesday after reporting a loss in the latest quarter. We are seeing some bids today. Alright, let's take a look at the S&P 100.
And here, we will take a look at technology stocks.
There is some weakness in the US chipmakers. Of course, AMD announced that its first quarter sales topped estimates but perhaps it's a headline forecast in the current quarter did not meet expectations. We are seeing a little bit of weakness there and it's having a bit of a ripple effect.
We are seeing other chipmakers like Nvidia.
If we look just below technology on the left, the cyclical consumer goods and services sector, Starbucks is down quite a bit, chairs are under pressure, of course, it missed its second-quarter estimates.
Take a look at Amazon. We are seeing some green on the screen there after it topped its first-quarter forecasts.
All right, we're back with Andriy Yastreb from TD Asset Management with more of your viewer questions. We will go to the next question. What is your opinion on Tourmaline Oil?
>> Tourmaline Oil is the largest natural gas producer.
It's another very large capital and high quality name.
I think the investment thesis on that is it provides pretty good dividend yields.
They do good returns in cash and they do special dividends is that of buyback. You get a pretty good deal from that. It provides natural gas over the next couple of years.
The setup looks quite interesting.
And then on top of that, it provides some growth so they are looking to, as LNG pulls more gas from North America over the next several years, they are planning to grow in single digits in terms of their production over the next several years. I think on the flipside the outlook for gas is bleak and inventories are high.
In terms of the natural gas sector overall, stocks have stayed range bound recently and they also have some sensitivity to oil. On days like today, when oil is down, natural gas is done as well.
>> Will move to the next question. Your take on Whitecap?
>> Whitecap is oil focused… Intermediate company in Canada. I think there are several interesting things happening there.
It's a company that also has some growth but they have been quite acquisitive.
They've done smart deals over time.
I think one of the overhangs on the stock specifically is, are they want to go and buy something else?
Are they want to use the stock as a currency and buy something else? I think in the last year or so, we have seen from them, because they did some acquisitions and over the last several years, the company grew, they restructured it so they have East and West divisions. West division is more focused on growth.
[video cut out] In the fields of Saskatchewan and Alberta.
Those have really good economics and that's where we have seen them do some acquisitions. I think there is a debate around this name. It's are they going to do a big deal and overpay for something?
That's on the risk side. But Will They Do A Lot Of Smaller Deals That Are Economical and Produce Returns? That Would Be a Positive Driver for the Stock. I Think Another Consideration Strategically over Time, If They Continue to Move West and acquire more assets in land, they are going to see more production coming from gas versus oil over time.
The other part, not specific to Whitecap but a number of Canadian names that are under $5 billion and market And below, a lot of them traded a discount and we haven't seen the discounts really close.
As we have seen oil prices go up over this year, the whole industry is trying to figure out how do we… Have this smaller and oil gas producers get recognized by the market? Because even in a $90 environment, we have not seen a flow of investor money going from large-cap to smaller cap names.
>> Great insights. Thanks for joining us.
>> Thank you for having me.
>> Our thanks to Andriy Yastreb, VP of Portfolio research at TD Asset Management.
Coming up later today, we will be getting an instant reaction to the US Federal Reserve's right decision with Scott Colbourne, managing Dir.
and head of active fixed income at TD Asset Management.
So look out for that video on your inbox or on our website, moneytalkgo.com, later today. On Thursday show, Sam Chai, VP of active fixed income portfolio management will be our guest, taking your questions about fixed income.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all for our show today. Take care.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss what's ahead for the price of oil and what it means to the Canadian energy sector with TD Asset Management's Andriy Yastreb.
And in today's WebBroker education segment, head of today's US Federal Reserve rate decision, Jason Hnatyk will show us how you can stay up-to-date on economic news using the platform.
And here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
And before we get our Guest today, let's get you an update on the markets. We will start here in Canada where the TSX started off a little bit lower on the first trading day of May. We are seeing some weakness in healthcare and consumer Staples stocks, weighing on the index.
Investors, of course, are awaiting the US Federal Reserve rate decision later today and right now, the TSX is down to the tune of: 76 points or .3 percent. Now, let's look at Restaurant Brands International.
Edit their prices rose yesterday after reporting stronger than expect to Q1 sales. Today we are seeing a little bit of pullback, it is down nearly 4%.
Let's move south of the border where Wall Street open slightly lower ahead of the Fed rate announcement and markets closed out April on a lower note, snapping a five-month streak of gains and it was the worst month of the year for Wall Street.
And of course, today, in addition to getting the Fed rate decision, investors will also await a slew of economic data to gauge the state of inflation in the US economy. This one absorbing some job data.
We did get the ADP numbers which suggest that the labour markets are still stronger-than-expected.
Taking a look at the markets right now, some anxiousness ahead of the Fed rate decision, down about 17 points or .3%.
Let's take a look at the tech heavy NASDAQ. The NASDAQ composite index is trading in negative territory, down about 20 points or a modest .2%.
Taking a look at some of the big movers today, Pfizer shares are trading higher after the farm a giant reported first-quarter revenue that beat expectations on the company hiked its full-year outlook, benefiting from its broad cost-cutting program and strong sales of its non-COVID product. The stock right now is up to the tune of just over 3%. Some of the big movers, Advanced Micro Devices are under pressure today. The chipmaker reported first-quarter sales slightly ahead of Wall Street expectations but is forecast for the current quarter wasn't in line and that might have disappointed some investors. The stock is down to the tune of 10%.
And that is your market update.
Well, the price of oil is down some 8% from the Hyatt hit earlier in the year as concerns about a wider conflict in the Middle East have subsided.
But with risks on both the supply and demand side, where does the price of oil go from here and what does it mean for the energy sector? Joining us now discusses Andriy Yastreb, VP for portfolio research at TD Asset Management.
Andrew, thanks for joining us today. We will start with the price of oil.
This is a $70-$90 trading range for oil normal?
>> Thank you for having me. To answer directly, yes, I think it's the range we will probably continue to see the future.
We've seen it for about a year and 1/2 already. I think it's also and arrange that is sustainable because it satisfies both suppliers and customers, so we've seen over last year to robust demand growth, so $90 oil is not resulting in some declines in demand. From the supplier perspective, it's pretty much all about OPEC. If you think about OPEC, I don't think OPEC wants $100 plus oil.
Their function is not to maximize the price of oil but to have it high enough to satisfy their own internal needs like balancing their budgets. But at the same time, they don't want to incentivize the adoption of EVs or people switching away from gasoline cars and they don't want to incentivize increasing Production growth in other countries that they compete with.
So the 70, 80, $90 price range satisfies all of those and I think as we think over the next several months, we just need to see how OPEC and the Saudi's in particular think about potentially bringing back the million barrels that they did a voluntary cut of last summer. If we see oil at the lower end of that range,, but if we see it rebounded to 90, I think it's high probability that the million barrels will come back to the market from that perspective I don't think there's too much upside in the oil price from here.
>> From your perspective, that isn't necessarily a bad thing for oil companies.
How does this pricing environment set up oil companies in general?
>> When investors think about investing in oil companies, they want prices 20, 30, 40% higher. If it gets changed. We have seen a couple of really strong years of returns but from here it's not as much about oil going higher significantly, it's more about the fact that all these energy companies have very clean balance sheets, they have very low yields them because they don't grow and don't need to invest in capex is much as they used to, they can return more cash. When we talk about the free cash flow yields, for large integrated producers, those could mean seven or 8% range, for a lot of smaller producers, that's 10% and above. So if that perspective, having that confidence that there will be a return of cash back if they stay within the sustainable range over time and give the return through dividends and buybacks, so there is not that much risk of going out and invest in capex. Historically their cycle was oil prices hi, let's drill more and invest more, though oil prices crashed, let's move some of it back. I think they are a lot more disciplined now and I think it's a lot more healthier environment for investors to make money over time and compound is earnings.
>> Let's talk a little bit about the Canadian market.
When you look at the Canadian energy sector versus the US, how do they differ right now?
>> That's a good question.
The key catalyst, it has happened literally today, May 1, an operation is operational as of this morning and it's taking commercial crude and shipping it and soon it will be filling tankers.
>> This is a big deal for the Canadian energy sector.
>> What this means is they will have over half a million barrels of extra capacity to ship more products out of Canada which is great. It means that Canadian producers can grow capacity and it will be easier to invest in growth over time. Secondly, it means that the pricing of the Canadian producers will be getting will be more sustainable over time.
We have seen periods in the past where production was way above capacity to ship and those times, Canadian oil was trading at a significant discount because it was hard to get oil out. It now as we get into this new regime for the next few years until this pipeline is also full, there is the capacity and opportunity to grow.
>> How long do you think it will take for the capacity… >> The estimate is anywhere from 2 to 5 years. I think two years is too aggressive because looking at where discipline is, I don't think they will fulfil it within two years. Five years is probably too long. I think three or four years is more of a prudent estimate. The second factor you need to keep in mind for Canadian energy versus US energy is that Canadian energy actually benefits from a weaker Canadian dollar and we see in the US dollar going up. Year to date, across all major currencies. We have also seen weakness of the Canadian dollar.
We are seeing what has happened to the Canadian budget and some of the economic data here in Canada. If this weakness continues, that will be a big tailwind for Canadian producers. If we look at Canadian oil being price today in Canadian dollars, for Western Canadians, it submitted $90 and for synthetic crude oil is over hundred and $10 per barrel. Pretty good pricing for Canadian oil right now.
>> I want to pivot from oil to natural gas. How is this environment looking for this commodity?
>> Natural gas is an interesting story because obviously there isn't a lot of control in this market and what we have seen in this market recently over the last six, nine months, natural gas pretty much got… Natural gas prices in the US is just under two dollars per cubic feet and what that means is that we have just seen really weak demand and a lot of the driver behind that was we have seen to it really warm winters in a row, reserves are elevated, and this winter we saw that not only in North America but in Europe. On both sides we have a situation where temperatures are elevated in heating season, production is still quite robust and there is a risk that we will get to tank tops in September or October at which point you cannot produce more because we cannot store it.
So if you want, we can bring up a chart… >> Let's bring the chart up once more.
>> What this is showing is two things. One is the green line issuing the forward curve for natural gas. The forward curve is basically the price of natural gas in futures markets. You can trade natural gas delivering six months from now or even further in the future. We have seen this weakness as the green line is below the orange and grey line which is where the curve was 6 to 12 months ago but what I think is really interesting is the later part of that line in 2026 through 2028, those prices haven't really changed. That is I think where it becomes interesting for natural gas in the view of 2 to 4 years out as we know that in response to prices right now, some production has been reduced, especially in the US. We had a peak in production earlier this year.
The other part of that is that we know there is more capacity coming available next two years. We have LNG Canada wrapping up later this year. He has several facilities coming online in the US. What that means is that we know there's going to be more demand at the time, those elevated inventories will not last forever so what the market is telling you right now is that gas prices are under two dollars, the marginal producers to make money in that environment, but 2026 through 28 prices still four dollars and that expectation was there, pretty much the same level, about a year ago. So if markets correct and we go from two dollars to four dollars, I think that would be beneficial for natural gas prices and the companies moving forward.
>> A lot of factors in play. A great start to the conversation. We will get your questions about energy stocks for Andriy Yastreb in just a moment.
And a reminder that you can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Now, here's an update on the top stories in the business world today and a look at how the markets are trading.
As we were discussing, Wednesday marks the official start date of the long-awaited $34 billion transmountain oil pipeline expansion project which took more than four years to build. The pipeline which runs from Alberta to the BC coast is expected to increase shipping capacity to 890,000 barrels per day and open up global export markets for Canadian oil. The increase capacity is expected to help move the price Canadian oil companies received for their product.
In more earnings news, shares of Starbucks are under pressure after the coffee chain giant reported weaker than expected profits and revenue in the second quarter.
Starbucks reported falling traffic across all regions including the US and China, which is its second-largest market. The coffee giant cited a more cautious customer, greater competition and a deteriorating economic outlook for the disappointing results. Right now, Starbucks is down well over 16%.
Finally, Johnson & Johnson says it will pay $6.5 billion to settle almost all the lawsuits related to its talcum based products causing ovarian cancer. Under the deal, J&J will resolve thousands of lawsuits through a bankruptcy filing of a subsidiary company. The news kicks off a three-month voting. For claimants to reach a settlement. Here's how the benchmark index in Canada is trading.
Take a look at the TSX Composite Index… We will start with the S&P 500.
It is modestly down .3%, just over 17 points.
Okay, alright, we are back with Andriy Yastreb, take your questions about TD Asset Management. We will jump right in.
First question is, when do you expect the price Between Western Canadian select, versus West Texas intermediate will narrow and what would that, and with that benefit Canadian oil companies in 2024? I know we touched on that a little bit but what are your thoughts on that?
>> I think it's a really topical question.
I have a chart to show the differential over time.
>> I think we have the chart here.
>> Basically the short answer to that is that a lot of it has already happened. So the differential is now around $12, $12.40.
>> We have seen the differential shrinking over time.
>> Yes, and you can see that historically has been very volatile but averaged around $16 over the past 10 years, sometimes it was blown up significantly to 20, 30, $40 discount for Canadian oil versus WTI so I think the biggest impact from TMX having a lien is that the discount will shrink. We will have excess capacity and we won't need to sell our oil at such a big discount. The million-dollar question is, where is the new range going to begin marketing the consensus is it's going to be roughly $10-$15, at least that's what most of the producers are telling me from their perspective and where exactly it will be.
We think it will continue to be volatile but I don't think we will see it sustainably below $10 and the reason for that is that the transportation cost for TMX or alternative pipelines to bring Canadian oil to the Gulf Coast, whether Zweig West Vancouver or south to Texas, it's around eight dollars. So it's hard to get below that because we have to actually pay the transportation cost but the other part is that for West Canadian select, it's a heavy oil differential benchmark and heavy oil is usually having a quality discount to WTI which is a sweet light crude and because refineries have to process it through additional steps and remove more software from heavy oil.
So that makes a difference of several dollars per barrel. That's why think you will see the 10 to 15 range.
In the global space, volatility for the year, that will depend on how the refinery is run and where demand is.
So on an annual basis, we will be bouncing within that $10-$15 range.
>> That will be interesting to watch over time.
>> Yes.
Largely, we are already within that range right now and a lot of stocks that have been more in position to benefit from this have outperformed already and it will be interesting to see how they perform over the next several months as these new volumes start to flow West and what that means for the stocks from here.
>> Let's move to the next viewer question.
Andriy, your view on Canadian Natural Resources?
>> Canadian Natural Resources is the largest Canadian energy name. It does not have refining but it's also the second largest natural gas producer in Canada.
It's a very well run company, good management team, very well managed company but for that reason it also trades at a premium the others which is interesting.
It's going to be one of the major shippers so we will see to what extent it benefits from that. And I think one interesting point on Canadian natural for this year specifically is with the company provided guidance for this year, I think the guidance, they have built in some flex ability around their capex and what that means is that it has some lead projects on oil sands sites and they want to finish those and a lot of the spending will be in the first half of the year will be focused on those with spending more conventional oil is oriented towards the second half and the reason for that was depending on the market environment, where oil prices are, they will be able to flex that spending up or down depending on whether they want to invest more a step back and save cash.
I think that's one interesting differentiating factor for the company.
>> Of course, talking about risks, is a oil price or are there other risks that you see?
>> Mostly at the oil price and differentials but as I mentioned, a it always looks like an expensive company relative to peers so if you are looking for a bargain or for something that has a little bit more torque to specific areas, it's a very diversified company so it's not… It fits well for long-term investors who believe in energy and the company's story and they have performed really well historically, but not necessarily a good fit for all portfolios.
>> Okay. Let's move to the next question now. This is on uranium. Can you give me your thoughts on uranium stocks?
>> So uranium has been very topical the last couple of years since the war in Ukraine and we have seen recently the US government moving to put some sanctions on Russian uranium which is a pretty big deal in the whole supply chain and Americans are trying to figure out what that means and whether there will be exclusions from those new sanctions.
I think in the long term, it's very positive outlook for uranium.
And it's an interesting market where we see long-term contracts and we see utilities going out and buying uranium on five, 10, 15 year contracts into the future and we also have a lot of visibility on future demand because we know which countries want to build which reactors and reactors take 5 to 10 years to build so we have a lot of visibility on demand and we know that we will need more supply in the next five or 10 years. On top of that, on top of that visible supply demand imbalance that we are seeing, they also have small modular read is that are a relatively new technology that's ramping up right now. I wouldn't say it's completely new technology because for decades we have been using small reactors in submarines and aircraft carriers and its base for exploration purposes so it's kind of taking existing technology, something we have done before but applying it for commercial purposes.
So I think it will be done and it's not really an estimate for demand. It will take time, it's probably a 2030 story due to the time needed to develop the technology and start supplying it but the outlook is pretty good. I think on the flipside, in the short term, it becomes quite interesting because that imbalance in supply and demand is quite visible for everybody and uranium stocks performed really well and uranium as a commodity performed really well over the last two years. So from here, it becomes interesting, how much of the future growth is already pricing? A lot of it is priced at and then the second part is when you think about the stocks in the industry, there is Cameco which is one of the largest producers and it has several large high-quality minds, and then we have a number of other minors but most of them don't have a mind you, they will project and the need to raise capital and build a minor operate the mine.
>> A lot of steps.
>> A lot of stuff they have to execute and we are still quite early in the story.
>> Great questions to start.
As always, make sure you do your own research before making any investment decisions. We will get back to your questions for Andriy Yastreb on energy stocks in just a moment's time.
Now, let's get to today's educational segment.
We are all awaiting the US Fed rate decision later today and if you are looking to stay on top of big economic announcements, web broker has tools which can help. Joining a centre discusses Jason Hnatyk, Senior client education instructor with TD Direct Investing. Jason, welcome.
Let's jump right in.
How do client stay informed on major economic events and reports?
>> Nice to see you, thanks for having me on today's show. Staying up-to-date with the news is a constant battle for all investors, whether or not it's something that's more spur of the moment or something that's planned out well in advance like today's rate announcement.
Liberal principles of can help. Let's jump in and I will happy to walk us through to find this. The first thing I would like to show everybody is here on the homepage and web broker, I want to point out a couple of useful updates that I don't want us to sleep on. The first is going to be your market updates on the top right-hand corner of the web broker homepage. You will notice here that there are two new stories O. These are things that are driving the market, big new stories for us to keep ourselves informed of and just below here there is 11 minutes and 13 minutes, so things as they change, you are going to be notified in this particular area. I would like to highlight for everybody looking to do a light reading in the morning, keeping abreast of the big new stories ahead of the market, we have a report that's available for both the Canadian and US markets to get you those hot button issues. Maybe you are looking to dive a little bit deeper into some news.
I'd like to bring you into the research tab at the top of the page and under the markets column, we got our reports area.
Here, you will find many high quality reports from analysts at TD as well as many respected animals outside of TV is such as from Argus and MorningStar. It's an opportunity to get insight and commentary from TD Economics. You will get that by scrolling down the screen. About halfway down the page on the right-hand side, you can access this TD economics area.
This will bring you to their page. Lots of great information that's here to impact.
One that I really like is this weekly bottom-line report. You can go ahead and select that and it will keep you up-to-date with many of the overarching economic hot button issues that are going to be affected, yourself, the housing market, employment data, the markets themselves. Beyond that, you will notice on the top of the page you can highlight specific geographical region. We are able to hone in on what's happening for our neighbour says of the border. We can look at different updates and publications and insights that we've been able together. We can also dig deeper into specific areas of the economy such as labour, real estate, etc. Get in here and take a look for yourself. There is also the government and finance section where you can look at more reports.
There are lots of tools here to make sure you are never out of the know.
>> That's a great overview, Jason.
Is there a way to have web broker notify when there are important events making the news?
>> Great question.
There certainly is.
Alerts can be tailored to your specific need from a news and commentary perspective. Let me do a quick demo on how that can be accomplished in the site.
Just like where we found our research reports, we will go back to the research tab at the top of the screen but this time under the tools column, we are going to be going down to the alerts area. In alerts, there's two sections.
There is our managing alert section where we can search for different stocks. You can see on my screen about a couple of well-known companies there. But what I want to show everybody today is over to the right where it says set news and research alerts, by selecting there, it brings us into an area where we can either choose broader market analysis or what I want to show off here today is the news and research. You can search by specific categories or if you are looking at a new show what's important to you, you can select keywords, in line with what's going on today, we can type in interest rates.
That will scan all of the news stories for interest rate specific information and then we can choose what we want to have sent to us. I don't have to go fishing for data, it's went to be provided in my email inbox.
It's another tool in web broker making it easy to stay informed.
>> Jason, great information as always.
Thanks for joining us.
>> My pleasure.
>> Our thanks to Jason Natyk, Senior client education instructor at TD Direct Investing.
For more educational resources, you can check out the learning centre on web broker or use this QR code to navigate to TD Direct Investing's YouTube page where there are more informative videos.
Now, before you get back your questions about energy stocks for Andriy Yastreb, a reminder of how you can get in touch with us.
>> Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
>> Okay, we are back with Andriy Yastreb, take your questions about energy stocks and this is on LNG. Why does Canada continue to stay out of the overseas LNG market? It seems like such a missed opportunity. That's a great question.
>> We will not be out of the LNG market forever. LNG Canada phase I is coming on line. That's going to start operations in the second half of this year and ramping up into next year.
We will become part of the LNG market globally. The problem is why we are so late and I think there's a number of reasons for that. Some of them are economic and what we have seen, whether it's the TMX pipeline where Coastal GasLink pipeline, the cost of those were two, three times more than originally planned. Building for structure North America takes a lot longer and cost a lot more than it used to.
Companies are very careful about that.
I think the other part is political.
We've seen a push towards climate change and neutrality and this back and forth from a political perspective. On one hand, we want to reduce our emissions here in Canada. We are among the leaders globally and fighting climate change. At the same time, economically, it makes sense for us to export more and I would argue from a climate perspective globally, it also makes sense to export more natural gas because natural gas is mostly used to displace other forms of energy.
If you displace coal generation with natural gas generation, you are reducing emissions by several times.
>> Is better for the environment.
>> It's better for the environment.
It's also better from a pollution perspective and for health as well. That's why in Europe, they designate natural gas is one of the transition fuels. It does emit CO2 so it's not completely clean as solar or wind. But it's much better than most alternatives.
After the war in Ukraine started a couple of years ago, we have seen I believe it was a German Chancellor who came to Canada and was asking for more LNG and basically, the answer was, we cannot really build this. But when you talk to Canadian companies that produce this, they have a lot of resources. Some of the companies say we have 50, seven years of resources that we can continue to build out and we don't even have-- we have not even discovered everything in the ground.
I do think it's a missed opportunity and hopefully policy changes that will allow us to play a bigger role over time.
>> Next question is on peak oil. When you expect oil demand to peak? In another decade or two?
>> That's another interesting question and I think almost everybody now agrees that peak oil will come at some point in the question is when and how quickly will decline from there.
Some estimates I think could be as early as 26 and 27. It doesn't feel like were going to get there because we are already 2024 and oil demand is quite robust and driven by emerging markets that don't really have infrastructure in terms of green charging stations to switch to EVs.
They are quite expensive. The way think about it is I think we see a peak in the next 5 to 10 years and the way I'm getting there is if you think about oil demand, it might grow by a million barrels per year.
See the baseline is 10 to 15 million barrels per year of growth. If you get to 30% EV penetration over the next 10 years, China is pretty much there already in terms of sales. Europe is getting there.
So we get to the 30%, if you think about oil supply and how is it being used, most oil goes to gasoline for passenger vehicles.
So if we replace 30% of that with EVs, that would be an impact of 7 1/2 million barrels. At least half of total growth over a decade would be removed just from EV adoption going to 30% which I think is quite reasonable for 10 years.
But then the second part of that is a lot of automakers are also pushing on hybrids and we have countries putting stricter commission recommendations for auto producers. We know that regular cars and hybrids will be more efficient over time.
So that will also eat into some of the current demand. On top of that, we are having electrified trucks and buses.
Replacing plastic spoons and things like that, over time, that will lead up to incremental headwinds oil demand. I think that's why over the next five or 10 years we will probably see a peak but the flipside of that is there is a lot of demand sources which will be very hard to replace. For example, for aviation, we are talking about doing something about that.
There is some oil types. People talk about sustainable aviation fuel but what we are seeing is under 10%. The oil demand for aviation is stable.
Having batteries in airplanes is not feasible even though there some demand. On top of that, we have petrochemicals.
These are all things that go into consumer products and cars as well and just physical plastics and other items. A lot of that demand will continue to grow so I think the tale of demand for oil would be a lot longer than we would expect.
>> Important insights there.
I will move to the next question.
Do you expect more M and a activity in the US energy sector, especially companies drilling in the Permian basis?
>> I think we have seen quite a lot of activity over the last 12 months or so, some of the biggest seals ever announced by Chevron in Excel last year. I think it will continue for several reasons. One of them is that it just makes sense for shale companies to consolidate more land from two perspectives.
One, to drive more activity and to have stronger margin, they need longer runs and that was one of the biggest levers they have two lower their breakeven prices terms of costs and generate… But in order to do that you need to have a lot of continuous land, big parcels of land which means needing to consolidate a lot more of that. That was one driver. The other drivers that we have a lot of companies in the industry and a lot of the money was invested around 10 years ago when shale was booming. Usually private equity companies look to IPO their company or seller company so we seen a lot of that, a lot of private companies selling to public ones.
So I think that that continues that we are probably past the peak of that.
I think the other interesting point, if you look at Chevron and Exxon,, it's not a shell company but it mostly operates offshore the Gulf of Mexico but the real asset at Chevron is going after is the gross. That deal has been challenged by Exxon who says they have right of first refusal on the asset, they have the right to buy it preemptively. It will go through arbitration and we will see how it plays out.
If Exxon is right in the deal fell apart, it will be really interesting question what will Chevron do because they have already shown that they need to consolidate to grow through MNA so will there would be another big deal the table in that case? Maybe. We'll have to see.
>> Alright, we will get back to your questions on energy stocks for Andriy Yastreb in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you get in touch with us at any time.
>> Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
[music] >> Okay, we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. We are looking at the heat map function here which gives you a view of the market movers on the TSX 60 by both price and volume.
We will take a look at energy which is at the top left corner. We are seeing some pressure on some of the big energy names here in Canada. Cenovus is down, Suncor seeing some weakness there.
We take a look at some of the basic materials, Cameco, uranium company, it is up more than 2%.
The stock was under pressure Tuesday after reporting a loss in the latest quarter. We are seeing some bids today. Alright, let's take a look at the S&P 100.
And here, we will take a look at technology stocks.
There is some weakness in the US chipmakers. Of course, AMD announced that its first quarter sales topped estimates but perhaps it's a headline forecast in the current quarter did not meet expectations. We are seeing a little bit of weakness there and it's having a bit of a ripple effect.
We are seeing other chipmakers like Nvidia.
If we look just below technology on the left, the cyclical consumer goods and services sector, Starbucks is down quite a bit, chairs are under pressure, of course, it missed its second-quarter estimates.
Take a look at Amazon. We are seeing some green on the screen there after it topped its first-quarter forecasts.
All right, we're back with Andriy Yastreb from TD Asset Management with more of your viewer questions. We will go to the next question. What is your opinion on Tourmaline Oil?
>> Tourmaline Oil is the largest natural gas producer.
It's another very large capital and high quality name.
I think the investment thesis on that is it provides pretty good dividend yields.
They do good returns in cash and they do special dividends is that of buyback. You get a pretty good deal from that. It provides natural gas over the next couple of years.
The setup looks quite interesting.
And then on top of that, it provides some growth so they are looking to, as LNG pulls more gas from North America over the next several years, they are planning to grow in single digits in terms of their production over the next several years. I think on the flipside the outlook for gas is bleak and inventories are high.
In terms of the natural gas sector overall, stocks have stayed range bound recently and they also have some sensitivity to oil. On days like today, when oil is down, natural gas is done as well.
>> Will move to the next question. Your take on Whitecap?
>> Whitecap is oil focused… Intermediate company in Canada. I think there are several interesting things happening there.
It's a company that also has some growth but they have been quite acquisitive.
They've done smart deals over time.
I think one of the overhangs on the stock specifically is, are they want to go and buy something else?
Are they want to use the stock as a currency and buy something else? I think in the last year or so, we have seen from them, because they did some acquisitions and over the last several years, the company grew, they restructured it so they have East and West divisions. West division is more focused on growth.
[video cut out] In the fields of Saskatchewan and Alberta.
Those have really good economics and that's where we have seen them do some acquisitions. I think there is a debate around this name. It's are they going to do a big deal and overpay for something?
That's on the risk side. But Will They Do A Lot Of Smaller Deals That Are Economical and Produce Returns? That Would Be a Positive Driver for the Stock. I Think Another Consideration Strategically over Time, If They Continue to Move West and acquire more assets in land, they are going to see more production coming from gas versus oil over time.
The other part, not specific to Whitecap but a number of Canadian names that are under $5 billion and market And below, a lot of them traded a discount and we haven't seen the discounts really close.
As we have seen oil prices go up over this year, the whole industry is trying to figure out how do we… Have this smaller and oil gas producers get recognized by the market? Because even in a $90 environment, we have not seen a flow of investor money going from large-cap to smaller cap names.
>> Great insights. Thanks for joining us.
>> Thank you for having me.
>> Our thanks to Andriy Yastreb, VP of Portfolio research at TD Asset Management.
Coming up later today, we will be getting an instant reaction to the US Federal Reserve's right decision with Scott Colbourne, managing Dir.
and head of active fixed income at TD Asset Management.
So look out for that video on your inbox or on our website, moneytalkgo.com, later today. On Thursday show, Sam Chai, VP of active fixed income portfolio management will be our guest, taking your questions about fixed income.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all for our show today. Take care.
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