Damian Fernandes – 07/06/2022

We will take you through the markets, what's moving them and answer your questions about investing. If you jump on the platform at high noon, we apologize for the delay. The machines don't always cooperate. Coming up on today show, Damian Fernandes from TD Asset Management will be our feature guest. He will explain why he thinks many investors are asking the wrong questions in today's investing environment. In today's WebBroker education segment, we will look at WebBroker's different charting tools with Nugwa Haruna. Here's how you can get in touch with us. Email moneytalklive@td.com or you can fill out the viewer response box here on WebBroker. Before we get to your questions about equities, let's get you an updateon the market action. we will start with the TSX. There is a substantial pullback on crude oil. It is weighing on both sides of the border. the TSX is down 249 points or 1 1/3%. It's some of the heavyweight energy names under pressure. We will start with Baytex. At this hour, there is a slide across the energy majors. Baytex among them to the downside to the tune of about 8% right now, five bucks and $0.38 a share. Let's check in on another related name, this would be one of the drillers, Precision Drilling. It was under pressure last time I checked in on the name. Right now, you've got PD on the TSX Composite Index at 6825 a share, down almost 6 1/2%. Let's check in on the S&P 500, the broader read of the American market. We are awaiting the Fed minutes at 2 PM Eastern time today, so it's been a choppy trade south of the border. Energy is weighing, but you get the sense that you want to pull back that curtain as the Fed minutes do. It'll give you a little more insight on the path forward for the Federal Reserve. Right now, were down about 15 points, 1/3 of a percent, choppy in the morning between positive and negative, settling into a negative group before 2 PM. Checking out the NASDAQ a, tech heavy, DoorDash down to the tune of about 8 1/2%. Not news specific to DoorDash but Amazon taking a stake in food delivery company Grubhub. This has some of the other food delivery companies under pressure. This is a story haven't seen play out on the markets in a while. When Amazon decides to step into a space, they can really shake up that space. We are going to show you some other names in the food delivery space later on and how they are reacting to the news of Amazon taking a stake in Grubhub. That's your market update. Well, the market headlines are increasingly dominated with questions about a possible recession. Our guest today saysinvestors should be more focused on corporate earnings. When he is now is Damian Fernandes, portal you manager at TD Asset Management. great to have you. That does hold true. Every time you take a look at the website, any time you look at news about recession, that is the wrong place to focus. >> Thanks, Greg. I think people are inundated with this new cycle, are we going into recession, are we not. For all practical purposes, we are in a recession. What I mean by that is that in the US at least, Q1 GDP was negative. When you look at the Federal Reserve's own estimates, the Atlanta Fed publishes this DDP forecast, tracking negative for Q2. With GDP, is axiomatic that GDP and appointment are leading indicators. When you look at others, consumers sentiment and others, they are all slowing. whether it's marked as a recession, I think that's the wrong question. The question should be what's happening to earnings? ultimately, it's a earnings that drive performance of what we are talking about today, cash flows of stocks and how volatile they are going to be. >> Let's talk about some expectations on that front in this environment. We have seen the slowing down of the economy, soaring inflation. What should be expect out of corporate earnings, or corporate earnings revisions? > Next week it will be the start of Q2 reporting season in the US. A few of the big banks will report, I think one of the airlines is reporting next week. We will get a sense of it. My best guess is, look, we just talked about what's happening in the economy in real time. We talked about the dollar strengthening and that ways out earnings that these companies earn overseas. We can talk about what's happening in Europe, likely going into recession. China, fits and starts and reopening. All of these things doesn't lend itself to double-digit earnings growth, which is still within the cards and also still expecting something close to 15% earnings growth for this year. I think UT was going to be a breaking point. I don't know… I'm not sure how markets will react to it, but I think you will start seeing companies revise down guidance just to try to get a sense, get ahead of these really lofty expectations. You will start seeing companies revise on guidance and you will see panelists take their numbers from this year and next year. >> We've had discussions on the program in recent days about that very thing. If we start to see corporations take down their earnings forecasts, that changes our notion of what we are paying up for these names. With the pullback in the markets this year, you might be under the illusion that stocks are getting cheaper. But if the earnings have changed, then that part of the equation changes. You're saying is going to be hard to figure out how the market is going to react to that. Is there awareness of that so far? >> I think the markets correctly anticipated this. In the US market, we've had, peak to trough, more than a 20% drawdown. That's more than the European debt crisis over a decade ago. We've had a significant repricing of this. The multiples so far have come down. So what might happen in this scenario is that multiple stay the same and the earnings get repriced lower. But look, I think the negative earnings revisions are ahead of us. The question is where they bottom out, or when to be start seeing growth in the economy again? I don't want to sound like it's all doom and gloom, because I do think particularly if you're thinking about stock specifically, you want to be focused on stocks which have a fair amount of that pain, which you're pretty confident in the earnings outlook, and where you believe they have the pricing power, the wherewithal to actually go through this, what looks to be a pretty slow environment ahead of us. >> Is there a certain industry or industries that will perhaps not have to downward revise their earnings expectations to the same degree as others? >> I think it's magnitude. I think luckily, most industries will have to revise down. Some more than others. We are seeing the pullback right now. In the opening comments, you talk about what was happening in the energy and commodity spaces. I think you will start seeing more significant revisions there. I'm more interested in places where they are more defensive. Very profitable, large Tech, I'm talking about the Microsoft and the apples of the world. They should have more civility. Health care, we are in an election year. If memory serves me, and most election years, people are always… Healthcare is controversial. We talk about its orbit in drug prices and so on. This election year, because people are so focused on inflation and what's happening with remnants of the Byron's in China, lockdowns, no one's talking about healthcare. So healthcare earnings generally should be fine and are relatively insulated in this backdrop. When we are thinking about going into a slowdown, what we are think about in portfolios is high-grade in your portfolio. Finding companies where you are more comfortable with the earnings outlook and for a lot of these names, because they are high-growth names, they have seen a fair amount of pain over the past 12 months. You actually have some almost like downside protection because they have already been repriced lower. Dasha Damian, I understand, after the first half of the year that we had, a lot of people probably feel this. Would you call it a bit of a hangover. That we are in right now? >> Yeah. >> That gives me hope because eventually recover from a hangover? I think so. If we look at what got us into this period, we had extraordinary physical spending last year that supercharged consumer spending. We had a very accommodating Federal Reserve and accommodating central banks worldwide. That was probably a bit too loose. This year, the punch bowl has been taken away, the Federal Reserve has gone from 25 basis points to 175 now and more. All of these things are what you just referred to as this hangover effect. But this too will pass. What got us into this is likely what's going to get us out. You are already seeing evidence of the demand induced inflation start moderating. We can talk about companies that have reported so far. Bellwethers in the retail space. Target last week was off 25% because it said it had too much capacity, too much inventory and it higher to any people. Both those two things tell me that pricing power or the price of goods in the future are likely headed in the right direction, as in lower. As for what's happening in the energy space, that's been one of the biggest contributors to inflation. That looks as well to be taking a step lower. I guess the idea that inflation can remain at these really elevated levels and the Federal Reserve will have to continue on this very hawkish path, continual rate rises, this goes from the bank of Canada to global central banks, I think some of that, the air out of that thesis is going to come out. >> People in the finance space to be bearish and it's easy to be bearish. It feels contrary and not to be bearish in this market. >> I'm not fashionable, so. The easy thing is I don't think in that way, right? You want to be skating to where the puck is headed and everyone right now is very, very bearish because in real time, we are seeing the economy slow. But if my Outlook is somewhat directionally corrects, in the next 12 months, you should actually see this elevated level of rate increases start moderating. In fact, it tab in the last two weeks actually and I just put some numbers to that. They have expectations of where fed funds will be in the future. So the January 2024 expectation, a few weeks ago, was between three and 3 1/2%. That's a people thought the Fed funds rate would be. In 2 1/2 weeks, that's going down to 2.6. So what that is telling you is that the market is pricing and that sometime next year, we are actually going to have rate cuts. That's generally bullish. So the way I'm looking at this is, given how much… You talked about how volatile… [video buffering] Peak tightening for G space. I think markets are forward-looking and the outlook, at least, is then, given how much damage is being taken so far, that to me looks to be positive, particularly in stocks where they are more confident in earnings, sales, margins and so on. >> Great start the program. We will get your questions on equity for Damian Fernandes from TD Asset Management in just a moment. A reminder, you get those questions into us at any time. Email moneytalklive@td.com or fill out that viewer response box right under the video player here on WebBroker. Right now, I want to get you updated on the top stories on the world of business and on market action. Home prices continue to fall in Canada's two largest housing markets, the greater Toronto area posted its fourth monthly decline in June is the average selling priceFell more than 5% month over month, sliding to $1.15 million. The number of Toronto area properties changing hands was down more than 40% compared to last year. In Vancouver, the benchmark price of a home fell 2% month over month to $1.2 million. Several key Canadian markets have seen a cooling and housing activity in the face of higher borrowing costs. Rogers Communications says mediated talks focused on its proposed takeover of ShawHave failed to produce a resolution. While the two days of talks with the competition Commissioner did not resolve the regulator's concerns, Rogers says discussions can resume at any time. The competition Bureau as opposed to the $20 billion takeover, arguing it would lessen competition for Canadians. While the wireless business at Shaw is a particular concern, Rogers has agreed to sell freedom mobile in an attempt to win the favour of the Bureau. Resolute Forest Products are in the spotlight after paper excellence group said it's going to buy Resolute in a deal valued at some $2.7 billion. The transaction would see Resolute become a subsidiary of Domtar which in turn is a subsidiary of The Paper Excellence Group. The deal still requires shareholder and regulatory approval. You can see the shares at this hour up a little more than 63%. Let's check on the main benchmark index in Canada. We do have energy under pressure with the continued fall and price of American benchmark crude at 18,597, we are down 236 points or 1 1/4%. Definitely the energy names and some of the mining names to weighing on the trade. South of the border, energy is taking its toll on the market but you also have a bit of a wait and see with less than two hours to go before we get the Fed minutes. Of course, that just peeled back the curtain on that last meeting around the table in trying to figure out where their heads are out when it comes to a future path of interest rate hikes. Back now with Damian Fernandes of TD Asset Management taking your questions on equity. First one coming in is about the financials. Since the banking and financial service on a large percent of our Canadian economy, are you concerned about the sector considering it falling real estate prices, rising borrowing costs, potential default, etc.? >> Thanks, Greg. You were talking earlier about what happened to home prices and home pricing activity. To say you are not concerned about the financials in the face of headwinds for revenue would be… You'd have to be, you have to see… [video buffering] But look, I think, and I'm talking about our major Canadian banks vis-à-vis the rest of central banks globally, we are still in a strong position, with strong capital ratios. We are commodity economy. Commodity prices are of significant, that reduces some of the risk and business loans, and housing, while slowing, just look to be else's there is still a fair amount of equity backing those loans. Look, I think that ultimately when we look at especially the big five Canadian banks, you have very, very attractivecapital return options. that to me is very, very valuable particularly in a slower growth environment. Especially if we can talk about rates. I think that capital return, whether it's dividends or repurchases, yes, the banks will probably face some headwinds on the top line as we go through this and earnings growth might not be as strong as it was, but I don't think that we are headed into a devastating recession that's going to spike loan losses and so on, so I think the banks are fine at these levels. >> If we put the Canadian financials up against the US financials, what should we be mindful of? >> US financials are in a more difficult predicament because the US financials, Lester, remember, they all benefited from this tremendous growth in capital markets activity, whether it was companies raising debt, equity, all of that, one lost when he heard about an IPO? Right? so all of that capital markets activity, it's going to be a headwind for growth and plus, in the US markets, you have changes… You don't have the same degree of capital. You saw that more recently in… When the Federal Reserve release the stress test. What normally happens is that the US banks will, we are to after the stress text, the banks say they will return X amount of money to shareholders. the amount return to shareholders has been a halved. I think the Canadian banks are in a better capital position. The economic backdrop is better. and they didn't benefit from the same tailwinds last year which are not turning into headwinds this year in capital markets activity. >> Here is a question coming off the platform. Big tech has been beaten up in this selloff so far in 2022. What's your view on the space and particularly when a name like Microsoft? We grazed on Microsoft earlier. >> Let separate big tech from spec tech, specular of tech. What I mean by big tech is companies with bulletproof balance sheets generally have more cash than debt, have long-term contracts, runs of Scripture models were companies like our own will probably use Microsoft access their office products or cloud offerings, these are very stable revenue streams that have built-in growth platforms, compared to speculative tech… By the way, these companies are profitable today. Where speculative tech, there are some great companies in here, they are generally smaller, they have smaller revenue growth and have less spendings and earnings. I want to separate those two. If we are in a slow down and we want to talk about margins being under pressure and capital returns and consistency in revenue growth, outside of big tech, this is the Microsoft, the visas and to a certain degree, even a name like Adobe, all of these companies have pretty predictable revenue streams. Their revenues will be down a fraction of what some of the other players will be. To the question, the previous point, they've actually been under a lot of pressure as rates have risen the last six months. So you had a fair amount of depreciation of share prices but you have more confidence, clarity and their revenue and EPS models. Daphne comes the revenue of some of these big tech companies, they are getting it from overseas with a stronger US book. We now have to become forwarding change experts when looking at these names? >> Yeah, all of the names on the US market in general, between 30 and 40%, and the US dollar, as Canadians, we are feeling like the Canadian dollar strong, but they have been on their own orbit. In the rest of the world, currencies have depreciated. I don't think this is going to be a shift to a permanent Lehigh dollar. You are having what's happening in a conventional bear market. In such a market, the US dollar appreciates and we are saying that now. >> We will get back your questions in just a moment. Make sure to do your own research before making investment decisions. We are talking equity so they do so get your questions in. You can get your questions to us at any time, just email moneytalklive@td.com. Let's get to today's educational segment. If you are trying to analyse a stock, WebBroker has a lot of toolsThat can help you. Nugwa Haruna, Senior client education instructor at TD Direct Investing joins us now. Nugwa, always great to see you. What kind of data can we get from WebBroker when it comes to these charts? >> Thank you so much for having me, great. Now, investors who are speaking to analysing prices are able to use the web chart within WebBroker and this is important for investors who practice technical analysis. These investors would analyse things like price, time, volume for a specific security. The idea behind this is to help these investors potentially identify entry points or exit points when they are trading. So once in WebBroker, as an investor, that investors able to click on research. And under tools, you are able to pull up your charts. I'm going to stuck a little bit with today's theme. We talked about financial institutions in Canada, so I'm going to pull up a Canadian bank. So once here, and investors able to look at historical performance of a specific security and the reason why this is important, especially to an investor who practices technical analysis, is because these investors assume that all information is already accounted for in the pricing of a security. It means that when I am looking at the price of a security, I am already able to identify or know that the things like the fundamentals are going to be reflected in the pricing of that security. And then that investor can go ahead and potentially draw trendlines to help them identify supports, resistance, as well as uptrends or downtrends. And this could help them to determine probable future prices for that security. >> Over my career, I've done a lot of shows with technical… With technicians. I was glad they were the ones drawing all the lines. I don't know how accountable I would be drawing the lines. If you get an investor in WebBroker not comfortable on that front yet, is there a tool that can help them? >> Yes. I understand that. It can be intimidating. Trendlines can be very subjective. I could draw support line that would be a different price from another investor who draws another support line. So within WebBroker, there is actually a tool investors can use as they get started using technical analysis. So once in WebBroker, that investor is actually able to click on the tab that's called technicals. And the first thing I will point out is thereis sometimes a lot of technicaljargon that investors might not becomfortable with. so if investors want to learn a little bit more about some of these terms, they can do that by clicking on the education tab here. and once they are more comfortable and want to identify some key signals, you are able to scroll down, select your timeframe and then you will be able to see some of these signals already on this chart which will be giving you some of these bullish or bearish events. Finally, if an investor scores down, they are able to see things like support or resistance based off of the last 500 closing trades for the specific security, so that trendline is already drawn for them and they can go ahead and use this information to potentially help them make more informed trade decisions. That's always a pleasure having you. Thanks for dropping by. >> Thank you for having me. >> Nugwa Haruna, Senior client and education instructor at TD Direct Investing. Check out WebBroker for more free videos, master classes and webinars. Before we get back your questions, a reminder of how you can get them into 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 to get in touch with us. Send us an email any time, moneytalklive@td.com. Or you can use the question box right below the screen here on WebBroker. Just writing your question and its end. We'll see it if one of our guests can get you the answer right here at MoneyTalk Live. We are back now with TD Asset Management's Damian Fernandes. He is taking questions about equity. This question came on the platform. What is your take on Apple? >> Apple is a defensive large Tech company that's hugely profitable and is an oligopoly in thesmart phone market. I think Apple is a subscription model. if you have an iPhone, chances you are replacing it every 10 years at a 10% premium and Apple doesn't make iPhones, they outsource it. It's a very profitable company that does well. More recently, we are measuring this in days, Apple has been holding up. I think that's because the markets tone has turned more defensive. So a name like Apple provides that. If you want more consistency in cash flows, predict ability in revenues, high-margin a business, like Apple. >> When it comes to Apple, what could trip up the name in terms of challenges going forward? Do you think, and history of technology, there will be a king in the space, and disputable? And then suddenly go where did that company go? Does Apple face those risks? >> Existential threats are always there. When youthink about what Apple did to the Canadian smart phone… Where it stands right now,it's looking at the data and seeing if there any true competitors. It still feels like the Apple ecosystem, broadly from all of its products, the phone, the earphones, the watches, the services, they are still garneringa fair degree of interest. People aren't leaving it. That would be our first indicator. That's longer-term. I think near term, the risk is… That as growth slows, people differ their purchases. They start spreading it out. It doesn't mean they won't eventually come back to it, it just means that in the near term, if we go into more significant slowdown, you have deferrals to replace your phone, your highest and product, and that might weigh on apples revenues. >> We have another question coming in about the state of this market. Would you deploy new money in the market at this point or would you wait? >> Yeah, that's… when we started this conversation, I said the market is down over 20% peak to trough. historically, when you look at that, when you look at what sentiment readings are, I'll say one to you, the American Association of individual investors, they surveyed their clients, and right now, there are four times as many bears as there are both. Everyone is bearish right now. It's fashionable. So when I put those together, historically, those have been very good times to deploy capital if your time horizon stretches into month and quarters and not days. Historically, given how much we have drawn down versus where sentiment is, that's generally a good time to invest. I'm not saying you need to rush into a burning building, but I'm saying you should be thinking about, especially given your allocation, if you are wanting equities, this is the time. If you look at what I said, the time that hasn't worked historically, is if this bear market transitions into a more pernicious bear market, the times where bare sentiment readings did correctly lead to the market rallying, 2008, 2002. The call is, are we heading into those areas? I'm not there yet. So I do think, given was happened… I'll answer the question a little bit cheekily and differently. I don't think this is the time you should be pulling out of the market and running. It's too late to close the barn doors. >> I was going to say, we are always told us investors, and I struggle with this personally, to keep your motion out of it. After the first half of the year we had, I feel burned and I feel a little emotional and I know I'm not supposed to be. It's tough. >> As am I, as are our clients. To remove emotional context, look at the historical evidence. we have had one of the most significant drawdowns, we have experienced in the US market and the Canadian markets catching up, in the last 12 years since the financial crisis. So historically, all of those points, the darkest before dawn, the sick of those parts, where Europe was going to recession or in 2015 where we had commodity prices under pressure in the TSX, those were really good entry levels. I'm not sure… History will tell us whether this is, but I think given where sentiment is, if you are at least being compensated, take some risk. > We have a question coming in about the energy sector, clearly one of the winners earlier in the year but a lot of?. Canadian natural resources specifically, what we think? >> C and Q is a very profitable name. Let's put some context on the energy sector broadly. WTI, the benchmark for crude oil prices, has gone from 120 295 in two weeks. So all of these energy companies are less profitable than they were two weeks ago, just by definition, given that these are highly capital-intensive businesses which, every dollar of oil they extracted these prices is still profitable. Turning specifically to see and Q resources, when they last reported, they raised their dividend north of 20%. They are generating boatloads of cash, the amount of cash generated, if you take of those two, there breakeven's are, if memory serves, under $35. So yes, we are at $95 oil, the breakeven's are under 35. They are still massively profitable. Less profitable than they were at 120. But to be clear, I like the name, I like the capital return proposition, I like the fact that all of these energy companies have found capital discipline. You are not seeing the same level of M&A as you would in previous cycles. They have all committed to significant shareholder or purposes which is attractive in this environment. I like all of that but you have to be balanced. We talked about slowdowns and activities… >> And the risk in an economic slowdown. But if it's a recession that doesn't bounce back quickly, oil will be hit. >> We are at 95, oil as a commodity, it does, trade in a volatile old fashion and it could go down significant lead. Given CNQ profile,if we are in a slow down commoditiesgenerally, commodities or what you're gravitating to. >> We will be back for your questions with Damian Fernandes from TD Asset Management. We are talking equities. Make sure you do your own research before making an investment decision. You can get in touch with us at any time. Give a question about investing or what's driving the market? Our guests are eager to hear what's on your mind. [video buffering] MoneyTalk Live. Let's check in on the market action. We will start here at home on Bay Street with the TSX Composite Index. It is being weighed down by energy, mining names, some cyclical consumer stocks. We can see right now 18,601, we are down 231 points or 1 1/4%. Some energy names are showing potential pullbacks today. I want to show you Cenovus. I could've pulled any name out of the group. At 2208 a share, you got Cenovus down about 4%. Let's take a look at can for as well. Off the top of the show, we told you another story, paper excellence buying Resolute. In the wake of that, I'm noticing some other lumber producers in Canada making some gains. 2268 on can for right now. It's not part of that story directly but it seems to be a bit of an effect on some of the forest product names. For almost 1/2% on that one. For the broader read of the American market, the S&P 500, we are a little over an hour away from getting the latest Fed minutes, and exercise in pullingback the curtain. It can help inform investors as to where Fed officials have their heads and where they might be headed. it was a bit of a choppy trade in the morning. Right now, we are in negative territory. The S&P 500 down about 11 points. To check out the tech heavy NASDAQ as well,pretty modestly down right now, seven text. Let's look at it were. Earlier in the show, we showed you some other names in the food delivery space. Hooper doesn't have no specific to its namesake. It is down 4% though because we found that Amazon is taking a stake in food delivery company Grubhub. So we are seeing some of the other food delivery companies under some pressure in the wake of that. We have seen the story play out in the market over the years. Amazon makes a foray into some part of the market and some people get nervous about the behemoth that is Amazon getting into that game. We are back now with Damian Fernandes from TD Asset Management. We've got viewer questions coming in. Healthcare a big winner over the pandemic. It is a company like Pfizer still interesting? >> Yes, I think Pfizer is still very interesting because I don't think… Pfizer benefited in the pandemic from actually being one of the first ones to get us out of pandemic with its vaccine, right? Transformational medical technology scaled up and allowing humankind to move out of it. The interesting thing is what Pfizer and Moderna and so on had these vaccines, they were selling them at cost. They want to improve them. But now we know that you're gonna have to have boosters and boosters, whether it's mandated or not, a significant portion of the population is going to keep receiving boosters. Pfizer is no longer held to just offering it at cost. So these boosters are going to be sold at… And I think we have moved from pandemic to endemic and what I mean by that is that the virus has shown an ability to mutate so I think it's going to be with us, which means we will always have the need for improvements in vaccine and Pfizer is going to benefit from that for a multi-year period. In trades right now, people thought it was a flash in the pan that… What I mean by that is that the pandemic was a flash in the pan and the vaccines were eradicated. I think that thesis is slowly changing, which means you have a full stream of cash flows for Pfizer multiple years in the future as accused making changes to the vaccine to address the new variants. It's still really cheap, pays a dividend north of 3% that's going to grow quite nicely. And it's now looking to see how it can profitably deploy that cash. >> What's the risk here? We hinted at the top of the show about political risk in election times in the states. Are there other risks? >> The other risks are because it's cash burning a hole in your pocket, because it's generated so much money in the last few years, is looking to deploy that capital. The obvious risk to would be if it has a suboptimal capital allocation strategy. What I mean by that is it goes over pays for something that doesn't payout or pendant for it. We have some confidence that management will go through this gigantic one big acquisition and hopefully buy specific, small therapeutics, but there's always the risk that management, given how much money they make, similar to what we were talking about earlier with previous cycles in oil and gas, that they overpay for something on the top of the cycle. >> What do you think of alimentation Couche-Tard as a long-term hold? we can't speak to buy, hold anything on the show, what do you think? >> It's one of the largest distributors in terms of convenience stores and gas stations and so on. That business, by definition, is very stable and very… I don't think we are going to transition to EV cars in next five years. I'm hopeful that that happens but… I think the core business in terms of refining margins and providing and convenience is still very consistent. The risks for them is what comes next? It has been a very profitable company. It had a great M and a strategy. They managed to have these acquisitions and generate high capital returns on those. What's next? You're one of the largest players in the space. You're competing with two other players globally. And last year, a Member of it was last year when they were making a bid for the European supermarket, that pressures the stock. You go from a profitable convenience store format to something transformational… We have to think about the risk of all that. In the current environment, they are extremely profitable. Convenience stores, in terms of margins, all that works in its favour. >> We have a question about consumers spending concerns on that front, if you are in an economic downturn. What would that mean for credit card companies? >> Let separate credit card finance companies from credit card issuers, for example a Royal Bank card, from the platforms, the visas and the master cards themselves. So consumer spending is going to come under pressure. I want to be at the higher cohorts of credit card spend, a higher income consumers that will feel the same level of pressure from higher commodity prices and a slowdown, so that would impact American Express more than capital one, given the slowdown. I would much rather, in the question, be in the platforms, the visas and master cards don't take credit risk. The banks do. They are just the tollways. >> The idea of the tollbooth. Here comes the tollbooth, money. >> They don't take credit risk. By the way, the platforms, the visas and master cards, used to generate a significant portion of their revenue from cross-border, from you and I vacationing in Europe and using a credit card. That was like 30% of revenues. That obviously went away during the pandemic. The pandemic has on a few things. It has increased the digitization of cash, we are using less paper money now, people tap and use their credit card more often, and we are having revenge spending. Even though consumer spending is under pressure for goods, they still want to go on vacation, the consumer, en masse, has been locked away for the last two years so you are having this revenge spending on travel that still front and centre, and Visa and MasterCard are going to be a beneficiaries of this as people travel and use their credit cards in foreign jurisdictions and you have cross-border benefits from that. >> Is there risk that the appetite suspend could shift? One thing started easing up and got back to the spring, my wife and I had a few expensive getaways over the course of six and seven weeks and then she turned to me and said, "Take it easy, big guy." Let's spend this weekend at home. >> I think the alternative forms of cash, whether we can talk about digitization in either the traditional formats, Visa and MasterCard, or some of the newer formats like crypto, I think were recently you've seen that those tollbooths, those toll roads, are still the winners. And I think you have secular growth taking place, particularly in a lot of… We think about in Canada and the US and North America where credit cards are you the good us. But in a lot of the world, there is still massive opportunity for digitization or people are still using cash, still transacting in cash, parts of Europe, and so as all of these jurisdictions move towards digital formats, Visa and MasterCard, the platforms are your de facto solution. And I think, yes, we might spend less or we've pulled forward spending right now, but the multiyear platform, developed markets to emerging markets, move towards a cashless society, still provides tremendous growth opportunity. As of right now, there is always risk, when someone says that you're charging too much of the tools, but we don't see that right now. >> Great conversation. Appreciate you dropping by. >> Thanks. >> Thanks to Damian Fernandes, portly manager at TD Asset Management. As always, make your own research before making investment decision. Stay tuned. Greg Barnes, managing director of TD Securities will be our guest tomorrow, taking questions on the mining sector. You don't have to wait for the show to start to send in those questions. You can send them in at any time. That's all the time we have today. Thanks for watching MoneyTalk Live. We'll see you tomorrow. [theme music] [theme music] [theme music]