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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, 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, travel demand has returned to pre-pandemic levels, but is that strength being reflected in the airline stocks?
we are going to have a look with David Mau, Portfolio manager with TD Asset Management.
MoneyTalk's Anthony Okolie is going to have a look at a TD Economics report on the health of the Canadian tourism industry.
And in today's WebBroker education segment, Caitlin Cormier will show us how you get access to international markets using WebBroker.
So 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.
before we get our guest today, let's get you an update on the market. It will start here at home coming off of our long weekend.
The TSX down to the tune of about 116 points, a little more than half a percent.
One of the most actively traded names on the TSX at this hour include the Baytex energy.
Crude oil under some pressure, disappointing export numbers out of China and their consumption of energy products.
Baytex down about 1.8%. Shopify, another down day today.
Nothing too dramatic but it has been on a multi-day slide after reporting its latest quarterly earnings, down another 3% today, to 7523.
South of the border, we have a few things going on. Let's check in on the S&P 500, that broader read of the American market.
A bit of giveback. It was in a bad day yesterday. The Americans did trade and make some gains, but the S&P 500 is giving back about 50 of those points, a little bit more than a full percent. So eyes on the small and midsized regional banks in the states.
There's been a downgrade from one of the ratings agencies, Moody's concerned about some of the same issues that plagued the banking sector says of the border in the spring, mainly a higher interest rate environment hits their fixed income assets and leads to some deposits leaving and going to other products. A bit of concern being raised by Moody's weighing on the market.
Check on the tech heavy NASDAQ. Right now, you are down 215 point, a little more than 1 1/2%. Even though this Moody's downgrade was a handful of small and midsized regional based in the states, a bit of a weight being felt by some of the bigger names.
Bank of America at this hour, at $30.86, your dad a little more than 3%. And that's a market update.
A busy summer travel season has seen demand for flights return to pre-pandemic levels, but is that strength being reflected in the airline stocks?
Here to discuss his view on the sector, David Mau, portfolio manager with TD Asset Management. Great to have you back on the show.
>> Great to be here.
>> You don't have to go far if you're on the net, pick up a newspaper, travel demand is robust, people want to get out there and travel.
We are at these levels now that we haven't seen since before the pandemic in terms of that demand. What's happening with the stocks though?
>> You are absolutely right to point out the travel demand has returned to 2019, pre-pandemic levels. What's interesting is that revenue growth or the level of revenues projected for 2023 is actually going to be above 2019 levels. But, as you said, the actual stocks, the share prices of these airlines, are well below where they were in 2019. In fact, I would say airline share prices are probably 30 to 50%, broadly speaking, 30 to 50% lower than they were in 2019.
There's a couple of reasons for this but the biggest reason is expenses have gone up very significantly. What that means is profit ability of these airlineshave gone down. So even the revenues are higher, profits are lower.
We know that fuel costs have gone up.
Sorry. The cost of labour has gone up.
And just in this inflationary environment, general operating expenses are much higher than they were four years ago in 2019. And that's being reflected in the stocks.
The other thing I think the market is taking into account is this pending recession that's been on the horizon for the last two years and hasn't really shown up yet is also weighing, is an overhang on the share prices, so that's weighing down on the stocks as well.
>> I imagine that recessionary concern, as you point out, we've been talking about it for a long time, waiting for it to arrive, hoping it doesn't arrive.
it could be another reason for people not to travel.
>> 2020 and 2021 and 2022 was difficult times airlines. They lost billions and billions of dollars.
They haven't recovered those losses yet.
that's another thing as being effective in the share price right now.
>> In terms of where people are travelling, I understand it's interesting, there is a difference between domestic travel demand and international travel demand. They are not keeping pace. Which is doing better?
>> The outlook for international travel is much, much stronger. If you look back to2022, last year, which was the first full year that people were really starting to travel, most of the travel was happening within their respective countries, so domestic travel was very strong. The international travel was still being held back a lot by various COVID restrictions that were implemented across various countries.
We had things like you had to wear a mask on, at the airport and on the plane and there were quarantine restrictions and there were vaccination requirements, so all of those things really held back a lot of international travel, but we saw most of those restrictions being lifted I would say kind of midway through last year.
So what we are seeing now is that a lot of people brought that trip to visit grandma across the country out of the way and now they are really looking for that European vacation that they'd been missing out on or that trip to Asia that they haven't had a chance to go on.
So it's being reflected in the travel numbers is domestic demand is really starting to fall off.
In fact, when you look at the Q2 results for most of the major US airlines, the domestic carriers, guys like Southwest or JetBlue or Alaska Airlines, they had a good quarter, a very nice Q2 ahead of expectations generally, but the outlook that they gave for the third quarter and beyond is a lot softer than what people were expecting, and so soft, in fact, that most of the domestic carriers will have to start cutting ticket prices starting in the third quarter, after the summer travel season ends, not very different from what the international carriers are saying. So guys like United, Delta, American Airlines, they also had a great Q2 but their outlook for Q3 is very, very strong.
They are seeing very good bookings for the third quarter and through the remainder of the year on theirinternational routes.
They upped their guidance for the rest of the wild and domestic carriers lowered their guidance.
>> People had vacations within their borders for a while, now they want to get overseas. What about business travel?
It would be pretty lucrative for the airlines due to the cost they charge business travels. Has come back in anyway?
>> That has come back. But when we compared to 2019 levels, we call it 15 to 25% below 2019 levels. Companies are trying to be cautious. That they are not trying to blow the travel budget for the year.
even though there has been a meaningful recovery and business travel, it's not back to where it was a few years ago. As you talk about rising costs for the airlines. One of their biggest cost, at least what I always understood, was the cost of fuel, right?
We do have lower fuel prices than we did this time last year.
It's an honour enough to offset those other pressures?
>> Fuel prices this year are definitely tailwind.
if you look back to 2022, the price of oil hit about $120, versus with the price of oil is today, at about $80, that's a pretty good tailwind, the price is a lot lower. When you compared to 2019, the price of oil was about $60.
So it $80 today, your cost of fuel is still 33% higher, let's call it. So it's been, the fuel over the last 12 months has been a tailwind, but other expenses are still going up and the biggest one is labour.
The cost of labour.
In fact, when you look at what an airlines operating costs are, fuel is 25 to 30% and labour is and other 30 if not more percent, so when you have both of these things higher than they were just a few years ago, it has a pretty meaningful impact on profitability.
> So those are the issues in the here and now and in the short term. What about the medium to longer term? How are the airlines set up?
>> I think they have a pretty good set up.
What they have to do is get these costs under control.
As I just mentioned, the cost of labour is very significant and it's been on an increasing trend. And it doesn't seem like there's an end to it yet.
Just a couple of weeks ago, we had I believe it was United Airlines had come to an agreement with their pilots, their pilot union, to raise their wages by 40% over the next four years.
American Airlines shortly after he met with the same agreement.
This is because if they don't do this, the pilots will go on strike and shut the whole thing down.
So these costs are not going away.
It's just a question of how much the airlines can offset it with higher ticket prices and how powerful the unions are going to be. There's a pilot union, but there is also a union for cabin crew and mechanics and air-traffic controllers, so all of these costs, when you put them all together, are going to have a significant impact.
>> Interesting stuff.coming up on the show we will get to your questions for David Mau about industrial stocks, we will think about the airlines, the rails in automotive place. And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
strongest sales at Tim Hortonshealth power and earnings be for parent company Restaurant Brands International. A key metric of sales activity was at more than 12% in the quarter at times, with its offerings of coffee and practice damages in demand. Restaurant Brands also counts Burger King among its other banners and sales they were up with an 8% in the US market.
Shares of global shipping giant UPS in the spotlight today. The company is slashing its full-year forecast on softening demand and higher expected costs. The industry has been dealing with a slow down and parcel volumes coming out of the pandemic, and UPS is anticipating higher costs stemming from a new contract that's been negotiated with its workers.
Right now, the stock is premed flat coming off of the lows of earlier in the session.
We'll take a look at Eli Lilly.
It's boosting its earnings forecast. It is seeing strong sales of its new diabetes drug.
The company beat analyst estimates in its most recent quarter on growing demand for that drug, which has also proven effective in helping people with type II diabetes lose weight.
That stock jumping a pretty significant 16%.
quick check in on the markets, we will start your own Bay Street with the TSX Composite Index.
We are coming off of a long weekend here.
The Americans traded yesterday, we did not. We are done hundred and 22 points, little more than half a percent.
It was a moneymaking day yesterday on Wall Street, if I remember correctly. I did check in on the afternoon even though we were on holiday, giving some of that back today.
The S&P 500 down about 45 points or a percent, we will call that.
We are back with David Mau, taking your questions about industrial stocks.
Plenty coming in, so let's get to them.
Interesting when here. Can you explain how sustainable fuels work and what it means for the aviation industry?
>> the aviation industry is looking at his carbon footprint and looking at ways to reduce its impact on the environment.
Overall, the numbers I saw was that aviation accounts for about 2 1/2% of global carbon emissions, so not a huge number would it still meaningful and they want to reduce it.
What sustainable aviation fuel is is a sustainable and renewable source of fuel for the airline industry that helps them lower their carbon footprint, their CO2 for plan. You know, a few years ago, as the environment.
Environmental, you know, concerns became bigger and bigger, people were thinking, maybe we could put batteries and planes just like cars and have them fly off of battery power. I think you will quickly realize that that wasn't feasible for large commercial jetliners. The battery would simply be too big and too heavy for it to really make sense.
So that the industry started looking at other sources, sources of carbon reduction, and sustainable aviationfuel came up.
What sustainable aviation fuel is is basically fuel made up of things like use cooking oil.
>> Waste products?
>> Food waste or plant products or other kind of nonfood crops, and basically it gets processed into a fuel the airlines can use or the airplanes can use.
And there's a couple of really great points going for sustainable aviation fuel and that is the existing airplanes that we have right now, you don't need to make any adjustments to the engineor to the plane itself for them to start using this fuel.
And all of the infrastructure that currently in place, so think things like storage tanks and transportation methods of existing jet fuel, is also, works fine for sustainable aviation fuel.
There are a lot of positives for it.
A couple of negatives right now is the price, firstly.
So sustainable aviation fuel cost about 2 to 5 times more than jet fuel currently costs, so it's kind of difficult for an airline to go and say, we are going to switch to sustainable aviation fuel but our price of fuels which were up five times, that's going to be a difficult argument.
In the second issue is that sustainable aviation fuel is supplied. There is only two suppliers of sustainable aviation fuel in the world right now, so supplies very limited.
There's a lot of positives, a couple of really big negatives, but I think this is going to be an area that will grow over time. time. time. time.
Biden's inflation reduction act is going to incentivize companies to explore sustainable aviation fuels more and lead to war production and development over time.
>> An interesting space to keep an eye on.
Another interesting question here from a viewer. Days say I see that a group of major automakers are teaming up to build a charging network.
Is this a threat to Tesla?
I thought the mages were signing on with Tesla. We got some competition?
>> There is definitely competition. Some majors have signed on to the Tesla charging network but I think it was just last week or two weeks ago, there were seven major automakers, including General Motors, BMW, Mercedes, Honda and a few others that came together and announced that they are going to build out a charging network across North America consisting of around 30,000 chart points, so that's pretty big. And right now, Tesla has I would say, I want to say something like 45,000 chart points around the world, so globally, but I think close to half of that is in North America, so will call that twentysomething 1000 Chart Points in North America. And so now this Group of Seven automakers are coming with a target of 30,000.
So is going to rival Tesla in terms of the charging network and what these automakers are hoping that's going to do is help them sell cars and help them basically catch up to Tesla.
We are going to have to wait and see because of these chargers won't be in place for another probably 2 to 3 years, but in terms of the threat to Tesla, I think this announcement and these charges are definitely going to heat up the competition between Tesla and the rest of the field.
>> Something about that made me think about the transition from leaded gasoline to unleaded.
Rolling into a gas station and saying is that a diesel pump, allotted palm, on non-leadedgas?
>> Tesla dominates but it's not compatible with most major automakers. To this Group of Seven that just made this announcement last week, their network is going to be compatible with electric vehicles from all seven of these automakers.
It doesn't sound like they are going to include Tesla in the network.
But that's what we know for now.
>> Interesting stuff. We've got another one here.
This might be an easy question as well.
The recent bankruptcy of Lordstown and mine, what is the environment look like for the smaller EV players like Rivian and Lucid? Tesla gets all the headlines but there are other players in the space.
>> Lordstown, for anyone who doesn't know, Lordstown is an electric vehicle maker.
It was a start up company, an American company, and I think they started around 2018 and just recently, I think around the end of June, they filed for bankruptcy.
And the reason they filed for bankruptcy is it seems like they had overestimated their ability to manufacture cars.
>> To actually make the vehicles.
>> To make the vehicles and to actually generate the sales that they need to sustain a business. They simply ran out of cash.
So they had to file for bankruptcy and shut down.
But two other companies that you mention, Rivian and Lucid, are also EV startups, also American companies, and neither one of these, so both of these companies, Rivian and Lucid, our manufacturing and delivering cars. They are not delivering a lot. And they are massively unprofitable at the moment.
In fact, I saw some numbers not too long ago suggesting that Lucid, for every car that Lucid sells, they are losing about $250,000 per car that they sell.
>> 1/4 of $1 million?
>> Yes.
So on an annual basis, both of these guys are losing billions of dollars.
I think that illustrates the challenge for startups, especially in the EV space where it takes a lot of capital, you have to raise a lot of money and secure a lot of funding to kind of see through this first initial research and development phase to the actual building the plants and then manufacturing the cars and then delivering to customers. It takes a lot of money and that's the challenge, the challenges for these companies is to get that much cash to get the company going and to eventually ramp up production and get to scale and get the efficiencies that you need to run a viable car business. But right now, both of these guys look like they might get there. I think they have some pretty deep pockets in terms of financial backers, but, you know, it's also quite risky if sales decline or they can produce the cars that they have promised to produce and deliver, they just won't have the cash flow to keep going.
>> Definitely a space to watch.
As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for David Mau on industrial stocks and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get to our educational segment of the day.
if you are looking to get access to the global markets, WebBroker can help.
Joining us now to discuss is Caitlin Cormier, client education instructor with TD Direct Investing. Great to see you as always. Let's talk about the global market, investors here are on the plot from, what can I do for them to mark >> When it comes to investing in international markets, there is an option to do that but not in WebBroker. You can call our international trading desk and be able to invest in up to 20 different markets by calling. However, if you want to look at something on WebBroker to be able to have some exposure and maybe a little bit of diversification as well with a smaller amount of money, we can do that through ETFs.
Let's take a peek at WebBroker.
Let's go into our screeners tool. So we are going to start by clicking on research and then we are going to go all the way over to the right hand side under tools and click on screeners. Now, once we get here, again, we are going to go over to let's choose ETFs today for this example and what we are going to do is we're going to go ahead and create a custom screen on the right hand side.
We are going to click the button.
And then once we get here, we are going to choose some different criteria that we are looking for.
As we said, the first thing we're looking at is maybe some different global options here.
So let's click on fund category.
And we are going to click to add criteria.
And then when we scroll down, we are going to actually go ahead and select something global. I'm going to scroll quickly here because we are going to get to the deeds, we are alphabetical here. Then we come into a bunch of different options here for global, in both Canadian and US ETFs. I'm going to go ahead for today and choose Canadian global equity.
But again, there are a lot of different options there. You can choose whatever it is you are looking for specifically. I'm going to add the management expense ratio there. It is something I want to see on the front page so I have that there.
And I'm also going to actually go ahead and choose standard funds.
So what standard fund is it's essentially not an index fund, it's a fund that is not based on an underlying index. Instead, it's kind of a more actively managed type of portfolio. For today, I'm going to go ahead and choose that.
I'm also going to deselect include mutual funds because I just want to see ETFs in today's results on which click view 67 matches. So I'm going to see all the funds that match the criteria I input.
So Canadian global equity management funds that are standards.
We can see the MAR listed here on this page as well.
This gives us a little bit of information about each fund.
We can click through and get some additional information on the fund, like what the distribution yield is, if they pay any sort of distribution, prices and those sorts of things.
I see information about the portfolio managers, how long they have been there, fund inception, Portfolio turnover, lots of different information that I get within these pages. So the screeners tool is really a great option to be able to choose a category and then be able to filter down a little bit more and find some different investment options that might work for you.
>> We did a little bit of work to get to that stage. Then we do something else in WebBroker. What about coming back to our work, saving it, editing it, how do we do that?
>> Yeah, exactly. Of course, we've put this working, we take these different criteria, it's important for us to be able to come back and use this in the future because this will continually update.
If there are funds that drop in or out of the criteria, that information will automatically update for you. The top back in and take a peek at the screen. We can edit the screen right here, this button here under our total matches where it says edit screen. If I decided that I wanted to add something else in theiror if I did want to choose, for example, below average MER, maybe we will choose a couple more because we only have six funds there, there we go. We will choose a couple. Then we click view matches, again, he keeps all of my previous criteria and then just adds to the new.
And then if I want to save it to come back at a future date, the thing I need to remember is just to enter a name here. So I could say global equity. And then I'm going to click the save screen button over here right beside edit screen. So I'll notice that the name gets into bold here, so that I can go back home and next time that I come into research, under tools, click on screeners… And under ETFs, I will see on the right hand side my global equity screen and I can go ahead and view my matches and get all that information again and you kind of whatever additional research I might want to do.
After great stuff as always, Caitlin.
Thanks of that.
>> Thanks, Greg.
>> Caitlin Cormier, client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before I get back your questions about industrial stocks for David Mau, 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.
We are back with David Mau from TD Asset Management, we are taking your questions about industrial stocks. Lots coming in in the last couple of moments, so let's get to them. If you are wants to know, what do you think of the real way stocks?
>> Yeah, look, the Canadian rails, CN and CP, they both reported their second-quarter results last week or maybe the week before.
The results weren't great.
It was a little bit disappointing. Numbers came in a bit below estimates.
And what they are seeing is freight volume start to decline, pricing is not a strong.
Some of this is due to external factors, things like the port strike in British Columbia is slowing things down.
There were pretty severe wildfires in Western Canada and Eastern Canada, so let's had an impact on volumes.
So the outlook of the real companies gave for the rest of the year isn't so strong.
The question is, they are seeing softness now, I think the question is, how long does the softness last? Of course, we don't know that yet.
But I think for investors who are looking at the rails, history has shown us that the right move is to buy and own these companies over time as opposed to trying to time the market.
We have seen the returns from real companies beat the market over a long period of time.
>> Are showing the audience right now Canadian National Railway and before that Canadian Pacific Kansas City, which is a mouthful I need to get used to.
Jeff who was a regular view of the show, always ends in question, he was asking about perhaps any differences between CPE and CN and maybe some of the effects of onshoring following the inflation reduction act? What could that mean for the rails?
>> Generally, it should be positive because if more manufacturing production comes back in North America, that means there is more volume of cargo to move. We haven't really seen strong evidence of that happening yet. I mean, it's been talked about for a number of years, but we have yet to see whether or not the inflation reduction act is really going to cause companies to bring back a meaningful amount of production to North America.
>> When you do a job like this long enough, you have phrases stuck in your head. Anytime I used to talk about CN Rail's, I would say, the CP Kansas City sort of changed things. With the competitive environment like now between CN and CP which managed to increase its reach across the country?
>> CP is still I think the stronger rail right now.
Like you said, they have more reach.
They've been more aggressive and going for new customers and they've been winning a lot of new business.
I would say more so than CN has. CN has the cross Canada network, the more comprehensive cross Canada network stretching from the West Coast of Canada all the way to a Halifax out east. So they have more comprehensive and complete network but CP has a bigger footprint now when you look at Canada, US and Mexico combined.
>> It's terrible. I might have to change all my stock banter about companies.
That's my problem.
Jeff, thanks the questions. Glad I got that one in there about the conversation on the rails.
The next one is about airplanes.
What's your view on Boeing and Airbus? Has Boeing turned a corner on the past problem?
Who's winning the race to dominate the global airline industry?
>> I think the aircraft producers really, there is only two in the world, Boeing and Airbus, are in pretty good shape.
Each one of these guys have backlogs that are multiyear, hundreds of billions of dollars, so it gives them a good degree of revenue visibility.
In terms of who's actually winning the race, Airbus has been, I would say, the stronger competitor up until now.
As we know, Boeing has had some problems, especially with the 787.
They are also, more recently, having some other quality issues that,. So right now, it seems like Airbus is still in the lead.
Now, to be fair, one of Airbus's major suppliers, Brendan Whitley, announced last week that they need to recall some engines due to some quality issues. So that could have an impact on Airbus's production schedule.
Her right now, for this year, they said everything's going to be fine, but we won't know how big an impact this recall is going to have, at least at the moment, but it's something that investors are watching very carefully.
>> Let's answer another question from the audience, this one about his face we haven't talked about you. What is your taste… What is your taste of the waste sector? No what is your take on the way sector?
>> Waste is a really interesting area.
it's an area that we really like. Waste companies in general have pretty steady profits, even in a downturn, and that's because they have contracts.
Their contracts are generally 1 to 3 years.
So even if we head into a recession, companies or businesses generally don't tend to cut there waste collection because first of all, waste collection is not a big part of their total expenses. It's a very small part.
Usually it's a percent or two of the total operating expenses, so it's not something they would look to cut away. And secondly, for business to continue running, they need to have the garbage picked up every week or every other week, so waste company revenues are generally pretty resilient.
The other positive thing for waste companies right now, I would say, has been a pretty good tailwind for the past couple of years, is that contracts are negotiated, the contracts that they signed with companies are negotiated and priced based on CPI or inflation. So in an environment like we have today and that we've had for the last call it 18 months were inflation has been high, every time the waste company renegotiated to renew the contract, the enterprise said a little bit higher or the other price it at the same pace of inflation, so in that case, there was one point where they were bracing it a lot higher when inflation was eight or 9%.
So that all falls basically to the bottom line, as long as these companies can keep their expenses in check, that's almost, it's mostly profit. Every price increase that they take goes to net profit.
And I think, when you look at the ways companies in general, for buy-and-hold investors, they've been great investments.
They tend to be the market over time. So for anyone who has the patience to look at five, 10, maybe even longer years, waste companies are a buy-and-hold and can be a core part of a portfolio.
>> What's the biggest risk here? They could pass on inflationary pressures?
>> Yeah, that's the biggest risk.
like anybody else, with companies, one of their biggest cost, I think the biggest cost, is labour.
Especially in the US, the unemployment rate is at historic lows, same with Canada.
So companies are just having to pay more to keep their employees or to attract new employees, to keep the business running.
So labour is definitely one of the biggest risks.
And for waste companies, the other thing is they do pay a lot for fuel because you see all the trucks going around the streets.
Most of those are not EV use or are not running on hydrogen but regular fuel.
So the waste companies are subject to commodity fluctuations.
>> We will get back to your questions for David Mau on industrial stocks in just a moment time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can 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.
Canada's tourism industry has rebounded strongly since the initial COVID 19 lockdowns. However, the pace of that recovery is slowing.
Our Anthony Okolie has been digging into a recent TD Economics report on the state of the tourism industry here at home. What are you finding there?
>> Thanks very much, Greg.
Two years after the pandemic first hit, TD Economics says that activity in Canada's tourism industry is still running well below normal levels. Now the pace of recovery is slowing amid headwinds for higher interest rates, slowing job market and broader cyclical global slowdown.
Now, tourism can be broadly characterized into two groups. One for international and the other domestic travellers.
Staff Canada uses the nonresident travellers entering Canada to measurethis.
The recovery of domestic tourism activity at the national level appears to have been slowing after a fairly quick rebound from mid-22 levels.
The number of nonresidentstravelling to Canada was up to nearly 2.3 million travellers, still down by nearly 20% versus its pre-pandemic peak. Now one key source of weakness it instructional travel has been tourism from China.
TD Economics still set in the first five months of the year, the number of Chinese tourists visiting Canada was 80% below the level during the same period in 2019.
On the plus side, the two mentioned that the tourist activity stateside is picking up steam. In addition to that, visitors from India have nearly doubled versus the pre-pandemic levels.
Now for domestic tourism, there is some optimism there. Data from the Canadian transport Authority.
. . surpass pre-pandemic levels of July this year. Spending data shows that domestic tourism, domestic tourist activity actually fell by less than international during the initial lockdowns and subsequently recovered faster. And as of the first quarter of this year, inflation-adjusted domestic tourism spending has pulled to nearly 19% of its pre-pandemic levels versus 80% of international visitors as this chart shows.
So there is some optimism that we are seeing some domestic spending coming back quite strongly. Now TD Economics does note that tourism recovery patterns do differ by Providence.
On one side of the spectrum, Saskatchewan is less, nearly 40% below the 2019 average.
On the opposite spectrum, Québec tourism is actually recovering, their recovery, rather, is moving at a much faster pace than the rest of Canada and they've been benefiting from millions of dollars it's in terms of funding from the Canadian economic development fund. So with some ongoing pent-up demand from international visitors, Canada's tourism recovery is likely to continue to make gradual headwinds in the quarters ahead, according to TD Economics, even as the Canadian and US job market slough more broadly.
>> If you are on the gradual trot, it slowing, but TD Economics seems to think it will continue to grow at a slower clip.
At some point, I guess we will get to pre-pandemic levels. When do they think that's going to happen?
>> TD Economics says it's unlikely that they surpass pre-pandemic levels before 2025, as the chart shows. They don't get that happen in the next few years and the reason is because there are several headwinds that they feel are holding back travel. One is the expected Canadian job market is going to continue to lose a considerable amount of steam starting in the second half of this year. Also higher interest rates mean households must devote more of their income towards debt repayment. These two factors alone will hurt domestic tourism spending.
Finally, several quarters of sub- trade US economic growth will weigh on… On the bright side, they note that the Canadian dollar should remain relatively low for the next year, making it cheaper, less expensive to spend in our country. Now that could provide a small offset to some other headwinds going forward. Great?
>> I think we need to do our part and go on a road trip.
>> I'm all in.
>> We'll have to go on hiatus again.
Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now let's get an update on the markets.
we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This of course is the heat map function.
here's a view of the market movers. We are taking a look at the TSX 60, screening by price and volume.
You take up more real estate on the screen, and there is your volume.
This was in standing up for me earlier in the day but Kinross Gold, as you can see, it's taking up a large part of real estate there, up to the tune of a little more than 2%. You got some of the energy names immodestly in positive territory but we are seeing some red on the screen, including from the likes of First Quantum.
You can see FM down there beside Kinross, a little more than 2%.
And Shopify, still under a bit of pressure. QSR right down in the quarter, little patch of green, that would be Restaurant Brands International, parent company of Tim Hortons.
Tims and Burger King is seeing some strongest sales numbers in the recent quarter.
Of course you don't have to just look at the TSX 60. There are a lot of ways you can screen. Let's take a look at the S&P 100. What are we seeing on the screen?
Weakness in the chipmakers, including AMD, down to the tune of about 3.6%.
We were talking about some of these smaller and midsized banks and in the states getting hit by a downgrade from Moody's.
higher rate environment, lower value on the books from fixed income assets, maybe a bit of deposit flight.
We'll be seeing some reverberations through the wider US banking stocks, including the Bank of America, down 2.7%.
There is the green on the screen with LLY, that would be Eli Lilly, of 15% of this hour, big demand that diabetes drug that we told you about earlier.
You can find more information known TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back with David Mau from TD Asset Management, we are talking industrials.
Viewer wants to know why defence stocks have been lagging the market?
>> Look, it's true the defence stocks have been underperforming more recently, but if we take a longer view and we go back to last February, when this whole Russian invasion of Ukraine happen, most defence stocksin the US and Europe saw a pretty significant rereading on that event. The stocks really ramped up on that.
From that point until today, if you are measuring from that point until today, the defence stocks have actually outperformed the broader market.
But in the last few quarters, two or three quarters, probably since the beginning of this year or the end of last year, defence stocks have actually quite significantly underperform the market.
I think the reason for that is, the first reason is when this Russian invasion happened in February, the market probably overreacted a little bit in terms of the share prices, they probably push the share prices up too high. The stocks have been trending down since then.
I think what people have come to realize is that just how long the cycle this defence business is because when you think about from the time a government commits to spending on a defence project to the time that that spending gets approved to the time that proposals come in for that project from various companies to the time of that actual contract is awarded to say a single company or couple of companies, this takes years and sometimes more than several years, so it's a really long cycle.
So commitment today to spending on a project might not show up on a company's financial statements for another five, six years, so it's quite a long cycle business and to be honest, the reaction in February last year was a bit of an overreaction in those defence companies share prices.
But I think looking forward Comboni kind of take into account all of the geo-political instability going on in the world, Russia and Ukraine haven't been resolved,China and Taiwan is also another big political issue, and obviously the Middle East and some parts of some regions within Africa, there is a lot of instability and uncertainty going on, so when a releasee governments cutting defence budgets anytime soon so I think defence companies are still generally very well-placed.
>> Interesting stuff. Always great insight from you, David. I appreciate you joining us. Look forward to next time.
>> Thank you.
>> Our thanks to David Mau from TD Asset Management.
Always make sure to do your own research before you make any investment decisions.
Stay tuned for tomorrow show.
Andres Rincon, head of ETF sales and strategy at TD Securities will be our guest, taking your questions about exchange traded funds. A reminder that you get a head start with your questions. Just email moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
[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, travel demand has returned to pre-pandemic levels, but is that strength being reflected in the airline stocks?
we are going to have a look with David Mau, Portfolio manager with TD Asset Management.
MoneyTalk's Anthony Okolie is going to have a look at a TD Economics report on the health of the Canadian tourism industry.
And in today's WebBroker education segment, Caitlin Cormier will show us how you get access to international markets using WebBroker.
So 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.
before we get our guest today, let's get you an update on the market. It will start here at home coming off of our long weekend.
The TSX down to the tune of about 116 points, a little more than half a percent.
One of the most actively traded names on the TSX at this hour include the Baytex energy.
Crude oil under some pressure, disappointing export numbers out of China and their consumption of energy products.
Baytex down about 1.8%. Shopify, another down day today.
Nothing too dramatic but it has been on a multi-day slide after reporting its latest quarterly earnings, down another 3% today, to 7523.
South of the border, we have a few things going on. Let's check in on the S&P 500, that broader read of the American market.
A bit of giveback. It was in a bad day yesterday. The Americans did trade and make some gains, but the S&P 500 is giving back about 50 of those points, a little bit more than a full percent. So eyes on the small and midsized regional banks in the states.
There's been a downgrade from one of the ratings agencies, Moody's concerned about some of the same issues that plagued the banking sector says of the border in the spring, mainly a higher interest rate environment hits their fixed income assets and leads to some deposits leaving and going to other products. A bit of concern being raised by Moody's weighing on the market.
Check on the tech heavy NASDAQ. Right now, you are down 215 point, a little more than 1 1/2%. Even though this Moody's downgrade was a handful of small and midsized regional based in the states, a bit of a weight being felt by some of the bigger names.
Bank of America at this hour, at $30.86, your dad a little more than 3%. And that's a market update.
A busy summer travel season has seen demand for flights return to pre-pandemic levels, but is that strength being reflected in the airline stocks?
Here to discuss his view on the sector, David Mau, portfolio manager with TD Asset Management. Great to have you back on the show.
>> Great to be here.
>> You don't have to go far if you're on the net, pick up a newspaper, travel demand is robust, people want to get out there and travel.
We are at these levels now that we haven't seen since before the pandemic in terms of that demand. What's happening with the stocks though?
>> You are absolutely right to point out the travel demand has returned to 2019, pre-pandemic levels. What's interesting is that revenue growth or the level of revenues projected for 2023 is actually going to be above 2019 levels. But, as you said, the actual stocks, the share prices of these airlines, are well below where they were in 2019. In fact, I would say airline share prices are probably 30 to 50%, broadly speaking, 30 to 50% lower than they were in 2019.
There's a couple of reasons for this but the biggest reason is expenses have gone up very significantly. What that means is profit ability of these airlineshave gone down. So even the revenues are higher, profits are lower.
We know that fuel costs have gone up.
Sorry. The cost of labour has gone up.
And just in this inflationary environment, general operating expenses are much higher than they were four years ago in 2019. And that's being reflected in the stocks.
The other thing I think the market is taking into account is this pending recession that's been on the horizon for the last two years and hasn't really shown up yet is also weighing, is an overhang on the share prices, so that's weighing down on the stocks as well.
>> I imagine that recessionary concern, as you point out, we've been talking about it for a long time, waiting for it to arrive, hoping it doesn't arrive.
it could be another reason for people not to travel.
>> 2020 and 2021 and 2022 was difficult times airlines. They lost billions and billions of dollars.
They haven't recovered those losses yet.
that's another thing as being effective in the share price right now.
>> In terms of where people are travelling, I understand it's interesting, there is a difference between domestic travel demand and international travel demand. They are not keeping pace. Which is doing better?
>> The outlook for international travel is much, much stronger. If you look back to2022, last year, which was the first full year that people were really starting to travel, most of the travel was happening within their respective countries, so domestic travel was very strong. The international travel was still being held back a lot by various COVID restrictions that were implemented across various countries.
We had things like you had to wear a mask on, at the airport and on the plane and there were quarantine restrictions and there were vaccination requirements, so all of those things really held back a lot of international travel, but we saw most of those restrictions being lifted I would say kind of midway through last year.
So what we are seeing now is that a lot of people brought that trip to visit grandma across the country out of the way and now they are really looking for that European vacation that they'd been missing out on or that trip to Asia that they haven't had a chance to go on.
So it's being reflected in the travel numbers is domestic demand is really starting to fall off.
In fact, when you look at the Q2 results for most of the major US airlines, the domestic carriers, guys like Southwest or JetBlue or Alaska Airlines, they had a good quarter, a very nice Q2 ahead of expectations generally, but the outlook that they gave for the third quarter and beyond is a lot softer than what people were expecting, and so soft, in fact, that most of the domestic carriers will have to start cutting ticket prices starting in the third quarter, after the summer travel season ends, not very different from what the international carriers are saying. So guys like United, Delta, American Airlines, they also had a great Q2 but their outlook for Q3 is very, very strong.
They are seeing very good bookings for the third quarter and through the remainder of the year on theirinternational routes.
They upped their guidance for the rest of the wild and domestic carriers lowered their guidance.
>> People had vacations within their borders for a while, now they want to get overseas. What about business travel?
It would be pretty lucrative for the airlines due to the cost they charge business travels. Has come back in anyway?
>> That has come back. But when we compared to 2019 levels, we call it 15 to 25% below 2019 levels. Companies are trying to be cautious. That they are not trying to blow the travel budget for the year.
even though there has been a meaningful recovery and business travel, it's not back to where it was a few years ago. As you talk about rising costs for the airlines. One of their biggest cost, at least what I always understood, was the cost of fuel, right?
We do have lower fuel prices than we did this time last year.
It's an honour enough to offset those other pressures?
>> Fuel prices this year are definitely tailwind.
if you look back to 2022, the price of oil hit about $120, versus with the price of oil is today, at about $80, that's a pretty good tailwind, the price is a lot lower. When you compared to 2019, the price of oil was about $60.
So it $80 today, your cost of fuel is still 33% higher, let's call it. So it's been, the fuel over the last 12 months has been a tailwind, but other expenses are still going up and the biggest one is labour.
The cost of labour.
In fact, when you look at what an airlines operating costs are, fuel is 25 to 30% and labour is and other 30 if not more percent, so when you have both of these things higher than they were just a few years ago, it has a pretty meaningful impact on profitability.
> So those are the issues in the here and now and in the short term. What about the medium to longer term? How are the airlines set up?
>> I think they have a pretty good set up.
What they have to do is get these costs under control.
As I just mentioned, the cost of labour is very significant and it's been on an increasing trend. And it doesn't seem like there's an end to it yet.
Just a couple of weeks ago, we had I believe it was United Airlines had come to an agreement with their pilots, their pilot union, to raise their wages by 40% over the next four years.
American Airlines shortly after he met with the same agreement.
This is because if they don't do this, the pilots will go on strike and shut the whole thing down.
So these costs are not going away.
It's just a question of how much the airlines can offset it with higher ticket prices and how powerful the unions are going to be. There's a pilot union, but there is also a union for cabin crew and mechanics and air-traffic controllers, so all of these costs, when you put them all together, are going to have a significant impact.
>> Interesting stuff.coming up on the show we will get to your questions for David Mau about industrial stocks, we will think about the airlines, the rails in automotive place. And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
strongest sales at Tim Hortonshealth power and earnings be for parent company Restaurant Brands International. A key metric of sales activity was at more than 12% in the quarter at times, with its offerings of coffee and practice damages in demand. Restaurant Brands also counts Burger King among its other banners and sales they were up with an 8% in the US market.
Shares of global shipping giant UPS in the spotlight today. The company is slashing its full-year forecast on softening demand and higher expected costs. The industry has been dealing with a slow down and parcel volumes coming out of the pandemic, and UPS is anticipating higher costs stemming from a new contract that's been negotiated with its workers.
Right now, the stock is premed flat coming off of the lows of earlier in the session.
We'll take a look at Eli Lilly.
It's boosting its earnings forecast. It is seeing strong sales of its new diabetes drug.
The company beat analyst estimates in its most recent quarter on growing demand for that drug, which has also proven effective in helping people with type II diabetes lose weight.
That stock jumping a pretty significant 16%.
quick check in on the markets, we will start your own Bay Street with the TSX Composite Index.
We are coming off of a long weekend here.
The Americans traded yesterday, we did not. We are done hundred and 22 points, little more than half a percent.
It was a moneymaking day yesterday on Wall Street, if I remember correctly. I did check in on the afternoon even though we were on holiday, giving some of that back today.
The S&P 500 down about 45 points or a percent, we will call that.
We are back with David Mau, taking your questions about industrial stocks.
Plenty coming in, so let's get to them.
Interesting when here. Can you explain how sustainable fuels work and what it means for the aviation industry?
>> the aviation industry is looking at his carbon footprint and looking at ways to reduce its impact on the environment.
Overall, the numbers I saw was that aviation accounts for about 2 1/2% of global carbon emissions, so not a huge number would it still meaningful and they want to reduce it.
What sustainable aviation fuel is is a sustainable and renewable source of fuel for the airline industry that helps them lower their carbon footprint, their CO2 for plan. You know, a few years ago, as the environment.
Environmental, you know, concerns became bigger and bigger, people were thinking, maybe we could put batteries and planes just like cars and have them fly off of battery power. I think you will quickly realize that that wasn't feasible for large commercial jetliners. The battery would simply be too big and too heavy for it to really make sense.
So that the industry started looking at other sources, sources of carbon reduction, and sustainable aviationfuel came up.
What sustainable aviation fuel is is basically fuel made up of things like use cooking oil.
>> Waste products?
>> Food waste or plant products or other kind of nonfood crops, and basically it gets processed into a fuel the airlines can use or the airplanes can use.
And there's a couple of really great points going for sustainable aviation fuel and that is the existing airplanes that we have right now, you don't need to make any adjustments to the engineor to the plane itself for them to start using this fuel.
And all of the infrastructure that currently in place, so think things like storage tanks and transportation methods of existing jet fuel, is also, works fine for sustainable aviation fuel.
There are a lot of positives for it.
A couple of negatives right now is the price, firstly.
So sustainable aviation fuel cost about 2 to 5 times more than jet fuel currently costs, so it's kind of difficult for an airline to go and say, we are going to switch to sustainable aviation fuel but our price of fuels which were up five times, that's going to be a difficult argument.
In the second issue is that sustainable aviation fuel is supplied. There is only two suppliers of sustainable aviation fuel in the world right now, so supplies very limited.
There's a lot of positives, a couple of really big negatives, but I think this is going to be an area that will grow over time. time. time. time.
Biden's inflation reduction act is going to incentivize companies to explore sustainable aviation fuels more and lead to war production and development over time.
>> An interesting space to keep an eye on.
Another interesting question here from a viewer. Days say I see that a group of major automakers are teaming up to build a charging network.
Is this a threat to Tesla?
I thought the mages were signing on with Tesla. We got some competition?
>> There is definitely competition. Some majors have signed on to the Tesla charging network but I think it was just last week or two weeks ago, there were seven major automakers, including General Motors, BMW, Mercedes, Honda and a few others that came together and announced that they are going to build out a charging network across North America consisting of around 30,000 chart points, so that's pretty big. And right now, Tesla has I would say, I want to say something like 45,000 chart points around the world, so globally, but I think close to half of that is in North America, so will call that twentysomething 1000 Chart Points in North America. And so now this Group of Seven automakers are coming with a target of 30,000.
So is going to rival Tesla in terms of the charging network and what these automakers are hoping that's going to do is help them sell cars and help them basically catch up to Tesla.
We are going to have to wait and see because of these chargers won't be in place for another probably 2 to 3 years, but in terms of the threat to Tesla, I think this announcement and these charges are definitely going to heat up the competition between Tesla and the rest of the field.
>> Something about that made me think about the transition from leaded gasoline to unleaded.
Rolling into a gas station and saying is that a diesel pump, allotted palm, on non-leadedgas?
>> Tesla dominates but it's not compatible with most major automakers. To this Group of Seven that just made this announcement last week, their network is going to be compatible with electric vehicles from all seven of these automakers.
It doesn't sound like they are going to include Tesla in the network.
But that's what we know for now.
>> Interesting stuff. We've got another one here.
This might be an easy question as well.
The recent bankruptcy of Lordstown and mine, what is the environment look like for the smaller EV players like Rivian and Lucid? Tesla gets all the headlines but there are other players in the space.
>> Lordstown, for anyone who doesn't know, Lordstown is an electric vehicle maker.
It was a start up company, an American company, and I think they started around 2018 and just recently, I think around the end of June, they filed for bankruptcy.
And the reason they filed for bankruptcy is it seems like they had overestimated their ability to manufacture cars.
>> To actually make the vehicles.
>> To make the vehicles and to actually generate the sales that they need to sustain a business. They simply ran out of cash.
So they had to file for bankruptcy and shut down.
But two other companies that you mention, Rivian and Lucid, are also EV startups, also American companies, and neither one of these, so both of these companies, Rivian and Lucid, our manufacturing and delivering cars. They are not delivering a lot. And they are massively unprofitable at the moment.
In fact, I saw some numbers not too long ago suggesting that Lucid, for every car that Lucid sells, they are losing about $250,000 per car that they sell.
>> 1/4 of $1 million?
>> Yes.
So on an annual basis, both of these guys are losing billions of dollars.
I think that illustrates the challenge for startups, especially in the EV space where it takes a lot of capital, you have to raise a lot of money and secure a lot of funding to kind of see through this first initial research and development phase to the actual building the plants and then manufacturing the cars and then delivering to customers. It takes a lot of money and that's the challenge, the challenges for these companies is to get that much cash to get the company going and to eventually ramp up production and get to scale and get the efficiencies that you need to run a viable car business. But right now, both of these guys look like they might get there. I think they have some pretty deep pockets in terms of financial backers, but, you know, it's also quite risky if sales decline or they can produce the cars that they have promised to produce and deliver, they just won't have the cash flow to keep going.
>> Definitely a space to watch.
As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for David Mau on industrial stocks and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get to our educational segment of the day.
if you are looking to get access to the global markets, WebBroker can help.
Joining us now to discuss is Caitlin Cormier, client education instructor with TD Direct Investing. Great to see you as always. Let's talk about the global market, investors here are on the plot from, what can I do for them to mark >> When it comes to investing in international markets, there is an option to do that but not in WebBroker. You can call our international trading desk and be able to invest in up to 20 different markets by calling. However, if you want to look at something on WebBroker to be able to have some exposure and maybe a little bit of diversification as well with a smaller amount of money, we can do that through ETFs.
Let's take a peek at WebBroker.
Let's go into our screeners tool. So we are going to start by clicking on research and then we are going to go all the way over to the right hand side under tools and click on screeners. Now, once we get here, again, we are going to go over to let's choose ETFs today for this example and what we are going to do is we're going to go ahead and create a custom screen on the right hand side.
We are going to click the button.
And then once we get here, we are going to choose some different criteria that we are looking for.
As we said, the first thing we're looking at is maybe some different global options here.
So let's click on fund category.
And we are going to click to add criteria.
And then when we scroll down, we are going to actually go ahead and select something global. I'm going to scroll quickly here because we are going to get to the deeds, we are alphabetical here. Then we come into a bunch of different options here for global, in both Canadian and US ETFs. I'm going to go ahead for today and choose Canadian global equity.
But again, there are a lot of different options there. You can choose whatever it is you are looking for specifically. I'm going to add the management expense ratio there. It is something I want to see on the front page so I have that there.
And I'm also going to actually go ahead and choose standard funds.
So what standard fund is it's essentially not an index fund, it's a fund that is not based on an underlying index. Instead, it's kind of a more actively managed type of portfolio. For today, I'm going to go ahead and choose that.
I'm also going to deselect include mutual funds because I just want to see ETFs in today's results on which click view 67 matches. So I'm going to see all the funds that match the criteria I input.
So Canadian global equity management funds that are standards.
We can see the MAR listed here on this page as well.
This gives us a little bit of information about each fund.
We can click through and get some additional information on the fund, like what the distribution yield is, if they pay any sort of distribution, prices and those sorts of things.
I see information about the portfolio managers, how long they have been there, fund inception, Portfolio turnover, lots of different information that I get within these pages. So the screeners tool is really a great option to be able to choose a category and then be able to filter down a little bit more and find some different investment options that might work for you.
>> We did a little bit of work to get to that stage. Then we do something else in WebBroker. What about coming back to our work, saving it, editing it, how do we do that?
>> Yeah, exactly. Of course, we've put this working, we take these different criteria, it's important for us to be able to come back and use this in the future because this will continually update.
If there are funds that drop in or out of the criteria, that information will automatically update for you. The top back in and take a peek at the screen. We can edit the screen right here, this button here under our total matches where it says edit screen. If I decided that I wanted to add something else in theiror if I did want to choose, for example, below average MER, maybe we will choose a couple more because we only have six funds there, there we go. We will choose a couple. Then we click view matches, again, he keeps all of my previous criteria and then just adds to the new.
And then if I want to save it to come back at a future date, the thing I need to remember is just to enter a name here. So I could say global equity. And then I'm going to click the save screen button over here right beside edit screen. So I'll notice that the name gets into bold here, so that I can go back home and next time that I come into research, under tools, click on screeners… And under ETFs, I will see on the right hand side my global equity screen and I can go ahead and view my matches and get all that information again and you kind of whatever additional research I might want to do.
After great stuff as always, Caitlin.
Thanks of that.
>> Thanks, Greg.
>> Caitlin Cormier, client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before I get back your questions about industrial stocks for David Mau, 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.
We are back with David Mau from TD Asset Management, we are taking your questions about industrial stocks. Lots coming in in the last couple of moments, so let's get to them. If you are wants to know, what do you think of the real way stocks?
>> Yeah, look, the Canadian rails, CN and CP, they both reported their second-quarter results last week or maybe the week before.
The results weren't great.
It was a little bit disappointing. Numbers came in a bit below estimates.
And what they are seeing is freight volume start to decline, pricing is not a strong.
Some of this is due to external factors, things like the port strike in British Columbia is slowing things down.
There were pretty severe wildfires in Western Canada and Eastern Canada, so let's had an impact on volumes.
So the outlook of the real companies gave for the rest of the year isn't so strong.
The question is, they are seeing softness now, I think the question is, how long does the softness last? Of course, we don't know that yet.
But I think for investors who are looking at the rails, history has shown us that the right move is to buy and own these companies over time as opposed to trying to time the market.
We have seen the returns from real companies beat the market over a long period of time.
>> Are showing the audience right now Canadian National Railway and before that Canadian Pacific Kansas City, which is a mouthful I need to get used to.
Jeff who was a regular view of the show, always ends in question, he was asking about perhaps any differences between CPE and CN and maybe some of the effects of onshoring following the inflation reduction act? What could that mean for the rails?
>> Generally, it should be positive because if more manufacturing production comes back in North America, that means there is more volume of cargo to move. We haven't really seen strong evidence of that happening yet. I mean, it's been talked about for a number of years, but we have yet to see whether or not the inflation reduction act is really going to cause companies to bring back a meaningful amount of production to North America.
>> When you do a job like this long enough, you have phrases stuck in your head. Anytime I used to talk about CN Rail's, I would say, the CP Kansas City sort of changed things. With the competitive environment like now between CN and CP which managed to increase its reach across the country?
>> CP is still I think the stronger rail right now.
Like you said, they have more reach.
They've been more aggressive and going for new customers and they've been winning a lot of new business.
I would say more so than CN has. CN has the cross Canada network, the more comprehensive cross Canada network stretching from the West Coast of Canada all the way to a Halifax out east. So they have more comprehensive and complete network but CP has a bigger footprint now when you look at Canada, US and Mexico combined.
>> It's terrible. I might have to change all my stock banter about companies.
That's my problem.
Jeff, thanks the questions. Glad I got that one in there about the conversation on the rails.
The next one is about airplanes.
What's your view on Boeing and Airbus? Has Boeing turned a corner on the past problem?
Who's winning the race to dominate the global airline industry?
>> I think the aircraft producers really, there is only two in the world, Boeing and Airbus, are in pretty good shape.
Each one of these guys have backlogs that are multiyear, hundreds of billions of dollars, so it gives them a good degree of revenue visibility.
In terms of who's actually winning the race, Airbus has been, I would say, the stronger competitor up until now.
As we know, Boeing has had some problems, especially with the 787.
They are also, more recently, having some other quality issues that,. So right now, it seems like Airbus is still in the lead.
Now, to be fair, one of Airbus's major suppliers, Brendan Whitley, announced last week that they need to recall some engines due to some quality issues. So that could have an impact on Airbus's production schedule.
Her right now, for this year, they said everything's going to be fine, but we won't know how big an impact this recall is going to have, at least at the moment, but it's something that investors are watching very carefully.
>> Let's answer another question from the audience, this one about his face we haven't talked about you. What is your taste… What is your taste of the waste sector? No what is your take on the way sector?
>> Waste is a really interesting area.
it's an area that we really like. Waste companies in general have pretty steady profits, even in a downturn, and that's because they have contracts.
Their contracts are generally 1 to 3 years.
So even if we head into a recession, companies or businesses generally don't tend to cut there waste collection because first of all, waste collection is not a big part of their total expenses. It's a very small part.
Usually it's a percent or two of the total operating expenses, so it's not something they would look to cut away. And secondly, for business to continue running, they need to have the garbage picked up every week or every other week, so waste company revenues are generally pretty resilient.
The other positive thing for waste companies right now, I would say, has been a pretty good tailwind for the past couple of years, is that contracts are negotiated, the contracts that they signed with companies are negotiated and priced based on CPI or inflation. So in an environment like we have today and that we've had for the last call it 18 months were inflation has been high, every time the waste company renegotiated to renew the contract, the enterprise said a little bit higher or the other price it at the same pace of inflation, so in that case, there was one point where they were bracing it a lot higher when inflation was eight or 9%.
So that all falls basically to the bottom line, as long as these companies can keep their expenses in check, that's almost, it's mostly profit. Every price increase that they take goes to net profit.
And I think, when you look at the ways companies in general, for buy-and-hold investors, they've been great investments.
They tend to be the market over time. So for anyone who has the patience to look at five, 10, maybe even longer years, waste companies are a buy-and-hold and can be a core part of a portfolio.
>> What's the biggest risk here? They could pass on inflationary pressures?
>> Yeah, that's the biggest risk.
like anybody else, with companies, one of their biggest cost, I think the biggest cost, is labour.
Especially in the US, the unemployment rate is at historic lows, same with Canada.
So companies are just having to pay more to keep their employees or to attract new employees, to keep the business running.
So labour is definitely one of the biggest risks.
And for waste companies, the other thing is they do pay a lot for fuel because you see all the trucks going around the streets.
Most of those are not EV use or are not running on hydrogen but regular fuel.
So the waste companies are subject to commodity fluctuations.
>> We will get back to your questions for David Mau on industrial stocks in just a moment time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can 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.
Canada's tourism industry has rebounded strongly since the initial COVID 19 lockdowns. However, the pace of that recovery is slowing.
Our Anthony Okolie has been digging into a recent TD Economics report on the state of the tourism industry here at home. What are you finding there?
>> Thanks very much, Greg.
Two years after the pandemic first hit, TD Economics says that activity in Canada's tourism industry is still running well below normal levels. Now the pace of recovery is slowing amid headwinds for higher interest rates, slowing job market and broader cyclical global slowdown.
Now, tourism can be broadly characterized into two groups. One for international and the other domestic travellers.
Staff Canada uses the nonresident travellers entering Canada to measurethis.
The recovery of domestic tourism activity at the national level appears to have been slowing after a fairly quick rebound from mid-22 levels.
The number of nonresidentstravelling to Canada was up to nearly 2.3 million travellers, still down by nearly 20% versus its pre-pandemic peak. Now one key source of weakness it instructional travel has been tourism from China.
TD Economics still set in the first five months of the year, the number of Chinese tourists visiting Canada was 80% below the level during the same period in 2019.
On the plus side, the two mentioned that the tourist activity stateside is picking up steam. In addition to that, visitors from India have nearly doubled versus the pre-pandemic levels.
Now for domestic tourism, there is some optimism there. Data from the Canadian transport Authority.
. . surpass pre-pandemic levels of July this year. Spending data shows that domestic tourism, domestic tourist activity actually fell by less than international during the initial lockdowns and subsequently recovered faster. And as of the first quarter of this year, inflation-adjusted domestic tourism spending has pulled to nearly 19% of its pre-pandemic levels versus 80% of international visitors as this chart shows.
So there is some optimism that we are seeing some domestic spending coming back quite strongly. Now TD Economics does note that tourism recovery patterns do differ by Providence.
On one side of the spectrum, Saskatchewan is less, nearly 40% below the 2019 average.
On the opposite spectrum, Québec tourism is actually recovering, their recovery, rather, is moving at a much faster pace than the rest of Canada and they've been benefiting from millions of dollars it's in terms of funding from the Canadian economic development fund. So with some ongoing pent-up demand from international visitors, Canada's tourism recovery is likely to continue to make gradual headwinds in the quarters ahead, according to TD Economics, even as the Canadian and US job market slough more broadly.
>> If you are on the gradual trot, it slowing, but TD Economics seems to think it will continue to grow at a slower clip.
At some point, I guess we will get to pre-pandemic levels. When do they think that's going to happen?
>> TD Economics says it's unlikely that they surpass pre-pandemic levels before 2025, as the chart shows. They don't get that happen in the next few years and the reason is because there are several headwinds that they feel are holding back travel. One is the expected Canadian job market is going to continue to lose a considerable amount of steam starting in the second half of this year. Also higher interest rates mean households must devote more of their income towards debt repayment. These two factors alone will hurt domestic tourism spending.
Finally, several quarters of sub- trade US economic growth will weigh on… On the bright side, they note that the Canadian dollar should remain relatively low for the next year, making it cheaper, less expensive to spend in our country. Now that could provide a small offset to some other headwinds going forward. Great?
>> I think we need to do our part and go on a road trip.
>> I'm all in.
>> We'll have to go on hiatus again.
Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now let's get an update on the markets.
we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This of course is the heat map function.
here's a view of the market movers. We are taking a look at the TSX 60, screening by price and volume.
You take up more real estate on the screen, and there is your volume.
This was in standing up for me earlier in the day but Kinross Gold, as you can see, it's taking up a large part of real estate there, up to the tune of a little more than 2%. You got some of the energy names immodestly in positive territory but we are seeing some red on the screen, including from the likes of First Quantum.
You can see FM down there beside Kinross, a little more than 2%.
And Shopify, still under a bit of pressure. QSR right down in the quarter, little patch of green, that would be Restaurant Brands International, parent company of Tim Hortons.
Tims and Burger King is seeing some strongest sales numbers in the recent quarter.
Of course you don't have to just look at the TSX 60. There are a lot of ways you can screen. Let's take a look at the S&P 100. What are we seeing on the screen?
Weakness in the chipmakers, including AMD, down to the tune of about 3.6%.
We were talking about some of these smaller and midsized banks and in the states getting hit by a downgrade from Moody's.
higher rate environment, lower value on the books from fixed income assets, maybe a bit of deposit flight.
We'll be seeing some reverberations through the wider US banking stocks, including the Bank of America, down 2.7%.
There is the green on the screen with LLY, that would be Eli Lilly, of 15% of this hour, big demand that diabetes drug that we told you about earlier.
You can find more information known TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back with David Mau from TD Asset Management, we are talking industrials.
Viewer wants to know why defence stocks have been lagging the market?
>> Look, it's true the defence stocks have been underperforming more recently, but if we take a longer view and we go back to last February, when this whole Russian invasion of Ukraine happen, most defence stocksin the US and Europe saw a pretty significant rereading on that event. The stocks really ramped up on that.
From that point until today, if you are measuring from that point until today, the defence stocks have actually outperformed the broader market.
But in the last few quarters, two or three quarters, probably since the beginning of this year or the end of last year, defence stocks have actually quite significantly underperform the market.
I think the reason for that is, the first reason is when this Russian invasion happened in February, the market probably overreacted a little bit in terms of the share prices, they probably push the share prices up too high. The stocks have been trending down since then.
I think what people have come to realize is that just how long the cycle this defence business is because when you think about from the time a government commits to spending on a defence project to the time that that spending gets approved to the time that proposals come in for that project from various companies to the time of that actual contract is awarded to say a single company or couple of companies, this takes years and sometimes more than several years, so it's a really long cycle.
So commitment today to spending on a project might not show up on a company's financial statements for another five, six years, so it's quite a long cycle business and to be honest, the reaction in February last year was a bit of an overreaction in those defence companies share prices.
But I think looking forward Comboni kind of take into account all of the geo-political instability going on in the world, Russia and Ukraine haven't been resolved,China and Taiwan is also another big political issue, and obviously the Middle East and some parts of some regions within Africa, there is a lot of instability and uncertainty going on, so when a releasee governments cutting defence budgets anytime soon so I think defence companies are still generally very well-placed.
>> Interesting stuff. Always great insight from you, David. I appreciate you joining us. Look forward to next time.
>> Thank you.
>> Our thanks to David Mau from TD Asset Management.
Always make sure to do your own research before you make any investment decisions.
Stay tuned for tomorrow show.
Andres Rincon, head of ETF sales and strategy at TD Securities will be our guest, taking your questions about exchange traded funds. A reminder that you get a head start with your questions. Just email moneytalklive@td.com. That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
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