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[music] >> Hello I'm Anthony Okolie in for Greg Bonnell and welcome to MoneyTalk Live brought to you by TD Direct Investing. Every day will be joined by guests from across TD and elsewhere many of whom you will only see here.
We we'll take you through it's moving the markets and answer your questions but investing.
Coming up on today's show will discuss how market valuations look and the big take away from earning season so far with MorningStar research is David Sekera. And in today's education segment, Jason Hnatyk will show us how to use conditional orders on the WebBroker platform. For any questions, just email MoneyTalkLive@td.com or Philip the you fewer response box under the video player and WebBroker.
Before we get to our guest today let's get you an update on the markets. Starting here in Canada where the market was trading by lower pressure by technology stocks after a downbeat outlook from Shopify. The Ottawa based e-commerce company forecasted its lowest quarterly revenue growth in two years against the backdrop of an uncertain economy and tepid consumer spending. In addition we are also seeing bond yields and commodity prices, that is also weighing on investor sentiment so far, the TSX Composite Index right now trading down about hundred 38 points or 0.6%. Taking a look at some of the big movers, shares of Aritzia are trading low today of course early this week the Canadian fashion retailer reported a solid performance in its fourth quarter along with an optimistic outlook for 2025.
The stock to close higher after those results on Tuesday and perhaps we are seeing a little bit of pullback today into the stock.
Down to the tune of about just over 4%. Some other big movies today, shares of Kinross Gold are getting some bids as well, Canadian gold producer of course reporting first-quarter earnings that topped estimates and the stock is up just over 5%. We will turn south of the border were Wall Street also open lower, being dragged down by MegaCap stocks including top Tesla also treasury yields, seeing eight rebound in yields with investors seeking more clarity on the feds plans for interest-rate cuts. The S&P 500 right now is down just over five points or 0.1% of course this comes out after the S&P 500 pulls higher for forced rate sessions yesterday's best winning run since March. Taking a look at the tech heavy NASDAQ comes index, also trading lower amid some weakness in some of the larger Tech stocks, I mentioned Tesla, currently the index is down a little lower than 48 points or 3%.
I mentioned Tesla one of the stocks that is pulling down markets.
It is falling in early training trading amid reports that US prosecutors were investigating Tesla to see if statements by the company and CEO Elon musk about the company's driver assistance technology qualify as fraud and that is really weighing on the stock. Today down about 1/2%. Some other big movers, shares of a firm holdings are trading lower as well after the by now pay later operator reported a 51% jump year-over-year in its third-quarter revenue but posted in our that they expected that loss for the quarter, right now that stock is down to the tune of over 9% to $31.
71. That is your market update.
Well markets have had a better start to the month after facing some downward pressure in April.
Joining us now to discuss how valuations are looking in some of the big takeaways from earning season so far is David Sekera, chief US market strategist with MorningStar research. David thank you very much for joining us today.
>> Of course good afternoon.
>> So after a rough April 1 stocks our valuations looking now generally?
>> It's interesting, at the end of March our second-quarter outlook, we published a note that the market was actually trading at a premium to a composite of our fair values. The fact that we noted less than 14% of the time since 2010 that the market traded at that much of a premium or more but now following the April pullback and then adjusting as some of the fair values in a couple of our different stocks following earnings, we do think the market is trading pretty close to fair value right now. So what that means for long-term investors, we do think that going forward over the next couple of years, if you were to put money to work today we would expect to get kind of a historical average cost of equity over time.
>> You also highlight two areas of the market that are looking interesting on a valuation basis. Tell us what you're seeing with value stocks and small caps.
> By style we still see the value category is the most undervalued category. It trades at about a 10% discount of fair value where is both the growth in the core categories for the pullbacks are now pretty much on top of our fair value estimates. And by capitalization, we still think small-cap stocks are significantly undervalued. As a composite they traded at about 20% discount our fair value. Mid-cap stocks, still somewhat attractive in our view. A few percent below, you know, fair value. But then large caps or just maybe even slightly above fair value of this point in time.
So I think, one of the questions I probably get most often is, regarding value and small caps, when can we expect these to start to perform? And of course nobody can really predict when that market sentiment is going to shift.
But I just note that I would expect value stocks should outperform as the US economy slows. We look for earnings from growth stocks to slows that could shift in people out of growth and into value.
And that also just notes the historical small-cap stocks usually tend to outperform once the Fed begins to start cutting federal funds rate which our economics team currently rejects to be projects rather to be this September.
>> I want to pivot now to some of the sectors.
Particularly I want to look at valuations. Which sectors right now are looking undervalued or overvalued right now for you?
>> Right now I mean, still the most hated us in class on Wall Street is gotta be real estate. But I think that's also what is providing investors some opportunities today.
So as a composite, the real estate sector is trading at about 17% discount to our fair values. So we see a lot of areas there with the bright margin safety. Some good places to put money to work.
We also like the communication sector.
The trade that about an 8% discount to fair value and then basic materials would be the other one to have highlight trading at 6% discount to fair value. And lastly, energy. Now, energy is only trading at 3% discounts are not that much of a margin of safety. But I still think that that provides a good natural hedge in your portfolio to, you know the ongoing and potentially more heightened geopolitical risk as well as if inflation does stay higher for longer.
> One risk you highlight is a potential for a weaker economy but also stick inflation, what is the potential headwind here according to your view?
>> There are really two headwinds here right now.
Unfortunately in the first quarter I do think we've seen is kind of the worst of both worlds.
So you know, inflation has been running higher than our US economic team had originally projected into the year in the US real GDP, it was only 1.6% on an annualized basis in the first quarter. And that was even slower than what our economics team at projected and I think we're even on the lower side of the low consensus coming into the year. So looking forward, our base case is that real annualized GDP in the US is probably going on a run between one and one of the quarter percent through the first quarter of 2025. Now, having said that, they do still expect inflation will moderate.
Our US economics team is looking at a number of real-time indicators like rent costs.
Some of those things that have kept inflation higher for longer.
They do know that as those are slowing in real time it should be reflected in the economic metrics over the next couple of months. Now, originally we were looking for the Fed to actually get started cutting federal funds right by now.
But with inflation lasting longer than what we originally had thought, we did push that forecast back to September. But you know, once the Fed does begin to cut, we can probably cut the Fed funds even faster and with the consensus is expecting because of our view for that slow economy. So I think there's really two risks here. In the short term over the next couple of months, I do think that slow economic growth will weigh on earnings. That could maybe drive some negative sentiment and may be a pullback in the market the Summer. And then over the medium term, if inflation remains too high, and the Fed's stock and can't begin to cut the Fed funds later this year, that could be something that may be, with that tight monetary policy maybe we could slip into a recession late this year or maybe even into the beginning of next year.
>> That's a great overview.
I want to get back to earnings. We are well into earnings season right now.
Looking at that, one of the big take away so far? How have the banks and financials performed?
>> The banks in the financials, in my view, earnings were just fine. There is really no major difference is there.
I would note in the US regional banks we do still see some opportunities for investors there but a lot of those stocks have recovered well off the bottoms that they had after the bankruptcy last year.
But I would say really, the biggest take away for the banks would be that we didn't see a meaningful uptick in loan-loss reserves. So that tells me is the banks are relatively comfortable with her outlook for the economy for the next couple of quarters and there were some increases in loan-loss reserves for commercial real estate but again, not to the degree that started to concern our Bank analyst team.
>> Okay and how about big tech?
Any trends are seeing there?
>> A couple of different trends.
The big type is leveraged artificial intelligence.
Obvious names like Microsoft, Alphabet, Amazon, still doing very well.
Actually interesting this quarter, they did eat by quite a bit and I thought they gave pretty good solid guidance that stock actually sold off pretty dramatically. We just thought it was overvalued in and of itself.
But I think the big thing that the market didn't like us just how much they are spending on X and how much of their increasing that on artificial intelligence.
If you remember, you know when they change their name to Meta and they spent a lot of money on the Metaverse.
A lot of spending really came to not at the end of the day so I think there's a lot of negative incentive there and then I just note the technology that is not tied to artificial intelligence, a lot of people are starting to consider these names to be legacy technology.
Names like IBM, Intel, definitely struggling here in the short term.
Really starting to lose relevance in the technology space and in their specific subsectors.
>> Finally. Talk to us about some of those economy stocks.
You think they're feeling the pinch of slower consumer demand due to inflation?
> I mean the industrial sector is overvalued in our view. We do think the slowing economy will put some pressure there. But really it's the US consumer.
The question were getting there is is the US consumer really finally starting to get tapped out?
And when I take a look at results at Starbucks, McDonald's and even Tyson Foods, in my opinion I think these results might be the canary in the call mine.
Not just the recent inflation but really that impact of inflation over the past two years now. To really start to pinch you want a consumer, really originally it started off with a low income consumer feeling at the most. Definitely moving now into the minimum income consumer as well.
Originally consumers were able to offset higher prices with excess savings from early on in the pandemic. We think that's, you know been used up for a while now.
Consumer started to eat into their savings rate, we see saving rates decline as well.
And you know, at this point that appears to be nearing the end of that trend as well. So we are definitely seeing a decrease, in volume for example, Starbucks had 7% decrease in stored traffic and that's really a meaningful decrease for a company like Starbucks.
So we are releasing consumers pullback but especially in those areas that I think consumer is considered to be a little more indulgent.
>> A great way to kick off the discussions and we will get to your questions with US equities with David Sekera just a moment. A reminder you can get in touch with us anytime just email moneytalklive@td.com or Philip of your response box under the video player on WebBroker.
Now here's an update on some of the top stories in the business world today and look at how the markets are trading.
AstraZeneca's rude withdrawing its highly successful corner coronavirus vaccine globally amid low demand.
The development of multiple varying COVID-19 vaccines is resulted in a surplus of available updated vaccines.
The vaccine which was developed in partnership with the University of Oxford has supplied more than 3 billion doses worldwide since it was first administered in the UK back in January 2021.
The company said the vaccine is not generated revenue for AstraZeneca since April 2023. Pandemic fatigue, muddled messaging and complex vaccination timelines or other factors that may be dissuading people from getting updated vaccinations according to some experts.
Right now AstraZeneca stock is up just about 0.7%.
Meanwhile, shares of Shopify are under pressure today after a downbeat forecast for the current quarter overshadowed its first quarter beat on the top and bottom line.
The Canadian e-commerce company said it expects second-quarter revenue to grow at a high teens percentage rate year-over-year.
A slow down from the previous period.
Shopify which makes tools for companies to sell products online, so the total volume of merchandise sold on the platform rose 23% to just over $60 billion, beating consensus expectations.
Right now shares of Shopify are down nearly 19% of course the most downbeat forecast.
In more earnings news, Uber Technology posted an unexpected loss of more than $650 million in the first quarter. While gross bookings came in short of analyst expectations.
The ride hailing giant attributed the loss of to write downs of stakes and other groups such as self driving car company or roar, as well as legal costs incurred from decades of battles with global regulators. Wilber and its rivals have been grappling with increasing global regulatory headwinds, particularly over driver and delivery worker pay.
Huber down… And here's the main benchmark index is trading in Canada.
Still down about hundred 34 points driven down by technology stocks, that's about 0.
6%.
We'll take a look at the US where we are also seeing some weakness, the S&P 500 index, down a modest one half points, we will call that 0.1%.
All right.
We are back with David Sekera taking your questions about US equities.
We'll start with the first question and this question is on Nvidia.
What is the future look like for Nvidia?
>> Nvidia, I have to admit it is a growth story like I don't think I've ever seen.
Over the course of my career for a company that was already this… Let me just weren't run you through what our projections are. We look at revenue when we look at sales to double this year. And that is on top of sales, already doubling in the prior year. And when you look at this company, their fiscal year, 2023 revenue was $27 billion. So by our estimates we expect that to grow at 212 billion by fiscal 2029. We are looking in earnings this year about 2611 per share growing to 34, 34 next year so really that puts it in a multiple, 34 1/2 times this year which seems a little bit on the high side but it comes down to 26 times, you know, 2025 estimated earnings which is a little bit more reasonable for growth story like this.
But I've got a note to, assign a very high uncertainty rating to this company.
That is the second-highest uncertainty of different levels that we assign. So what that means is we think this has an especially wide range of potential outcomes so I do think that in the short term, the stock is going to remain pretty volatile so when earnings come out, if they beat expectations and provide higher-than-expected guidance, there are certain room for the stock to trade up but in my opinion, if they only just meet expectations or worse case scenario, Miss expectations are in fact if even just provide what I consider to be mediocre guidance, I could just as easily see that stock take a swift downward move as well. So that just cautions us who are investing Nvidia, just make sure that whatever your position size is, it sized correctly based on your portfolio and your risk tolerances.
In fact I think this is really a stock for investors probably to have higher than average risk tolerance and also have that financial wherewithal to be able to ride out these types of, you know, short bouts of volatility.
>> There's been a lot of optimism around AI. Do you think Nvidia's price to perfection at this point?
What you think?
There is so much optimism about AI and focus on AI chips. What are your thoughts on that?
>> I don't know if it's necessarily price to perfection at this point in time.
But I do think there is a very large range of potential outcomes here. So when we look at the AI sector, Nvidia definitely has that first mover advantage. There GP use, their graphic processing units at their outselling, whatever they make they can sell it at whatever price they want at this point in time.
But having said all that, there are a lot of competitors that are trying to move into this space very quickly.
In fact not just their competitors but some of the users as well.
So Microsoft, Alphabet, Amazon, all working to design our own chips for AI, for other specific uses.
So again, very difficult situation right now really do have a huge amount of confidence not only in being able to estimate this year's earnings but really thinking about the long-term earnings path for this company.
Okay were going to stay with technology.
Next question: is Apple worth a look at these levels?
Of course we've seen some concern over Apple particularly iPhone sales in Sinai, one in China one of its biggest markets seems in competition from other names there like (…) >> (This is…) We do think Apple is a good company and we associated with a wide economic mode which means they have a long-term competitive advantage. We assigned a medium uncertainty so we do think there is a pretty good path to be able to model this company over the long term having said that, I know there was some concern last weekend, Warren Buffett announcing they had sold some of their possessions as well. But I think that was reportedly chose due to some tax selling really as opposed to concerns about fundamentals. So looking forward, whether we expect some margin improvement, we look at services becoming an increasingly large percentage of the revenue over time.
The iPhone is running into more competition especially from (…) This is in China. So potential catalyst I think here is that we do expect Apple will announce plans for regenerative AI at their conference in June.
So depending on what they announce, that could be a potential catalyst for the stock but at the same point in time, they really haven't given the market what it wants to hear so if they don't have a good announcement for what they're doing there, I think the market could be disappointed.
>> Okay.
We'll go to the next question. This is on EV maker Tesla. What are your thoughts on Tesla? Tesla has been in the news today. It had disappointing deliveries.
It's China factor as well, what are your thoughts?
>> The thing is, when you think of Tesla you always have to remember the value with Tesla.
It's not necessarily just the number of cars that they make this year or even the number of cars they make next year.
But really, what are your expectations for how much this company is going to grow over the course of the next 5 to 10 years? That's why I think the stock is so volatile because it is really based on very large and potential outcome. Now we do a bottoms up forecast. We actually forecasted 40% of all global auto production by 2030 will be electric vehicles. We do expect Tesla's going to have a very significant percentage of that market share. But with Tesla, it's not just the EV's that there is selling but it's also a lot of ads on businesses that they have. So when you think about Tesla, they have a full self driving subscriptions, we are seeing that growing pretty well, the insurance business is there building out of their power storage units. So again, you really have to take all of that into consideration over time. So yes Tesla's earnings were relatively weak this past quarter as EV sales slowed but the market really focused on, and the reason the stock sold up is that they did announce the model to which is going to be their low price electric vehicle. They pulled that forward so they now expect that to be ready to sell in early 2025, maybe even 2024.
So that's gonna drive a lot more auto sales but on top of those auto sales are going to be all of those businesses that go with it. So in our view, we do think Tesla, right now, still remains on the right track. I think for investors you do have to expect, it's going to be a lot of potholes and straightaways really before it gets to kind of that more stable path a couple of years out.
>> There could be more volatilities as you mentioned.
As always make sure you do your own research before making any investment decisions and will get back to your questions for David Sekera on US equities in just a moment but a reminder you can get in touch with us anytime by emailing moneytalklive@td.com. Now let's get to today's educational segment.
There are different order types available on WebBroker and Jason Hnatyk, Senior Client Education Instructor at TD investing has this look at how to use conditional orders.
>> It's great to be here. Always excited to talk about orders on WebBroker. We will be talking about conditional orders here on WebBroker and more specifically one triggers another or OTA. Conditional orders can be very useful. Two things really jump out to show how versatile they can be for investors. Number one is they allow you to automate the process just a little bit. You don't need to be at your computer. The market will always continue to move and you can set a sequence of events to take place so you're always kind of at the wheel even if you might not be at your computer. Second of all, they really can help an investor implement their trading plan which is whether that is to capture games or limit your losses and by doing that, that what I found is that can really help investors take emotion out of the trade. Which can be important to make sure you are making clear decisions.
So let's jump into WebBroker so we can take a look at how we can implement OTA orders into our trading process. Okay so I'm on the trading strategies page and we will come back to this summary of a process in order just a second.
We will focus on the one… Another which is all the way over here in the left-hand side.
This little diagram and description available on this page really does a great job of telling us all about this really useful order type. The order in itself is effectively, it's too orders.
You have a first-order that only, when that first order executes will it trigger a secondary order to become active in the markets. All right.
Two common use cases for OTA's, number one would be to enter an order to a long position and then your secondary order could be something you would use to maybe take profits or to limit your losses.
So you're implementing that trading plan as I mentioned. You are secondarily, some people can use OTA orders to rebalance their portfolios. So your first order could be selling out of a particular position you owning your secondary order might be shifting and moving over and buying into another long position. So we will talk examples in just a second but I also want to highlight at the bottom of the screen, we've put in a link to one of our videos all about conditional orders so you'll be able to fact check and go back and see all of the nice need to know bits of information about other orders as well.
So I've got a chart just appear on the screen for everybody. This green line that I want to highlight, that would be order number one for us.
So this would be our proposed limit order to buy a particular security.
If and when this order fills, a secondary order would then be put into place. I'm just going to highlight above this line to kind of visualize this.
Maybe we will say this is at 524 argument sake. If we can imagine a secondary depth on this chart around 530, that can be our second order to take our profit if we have guessed at this particular investment is going to go up. We can be prepared to capture those even if we are not at our desk. So let's place this order let me show you how easy that can be executed as well. Were gonna go up to the top of the screen and click on the "buy and sell" button. With these two downward arrows.
Once I select that I need to go to the strategies tab at the top of the screen.
From here we are back to that open graph we showed and we will go ahead and choose one triggers another. We've got to order entry tickets and we need to fill out all of the same process. Nothing different from your single traits we are just empty entering both traits. Let's go ahead and choose that symbol we had earlier on our chart just to keep things consistent.
We will keep our order as a long by order and we want to keep that price just as we had in our example. We gotta keep it at $520. So if the stock comes down to our price will be in place to buy where we may see value.
I know when change are good sale, I will make that "good till cancelled" I'll explain why after winter a second order here.
We are going to now click on the bottom portion of the screen and this is going to bring up the secondary order okay.
You can see where it says OTA, our first order is our primary and this is our secondary order that will take place once the first order if it actually feels so let's keep that symbol the same and let's go ahead and flip our action over to sell quantity from the first orders can remain the same and in this case were to keep the price tag the same at the limit, you have other choices available and this is going to be our profit-taking order back to that section just a highlight for everybody, when you're using any conditional order, the "good till" time selections need to be identical for both orders and just so we know we are in business there. Canadian orders are going to be good, we chose US orders are going to be good for 180 days… It's just a simple as that.
That's our OTA orders.
It allows us to be flexible and implement our trading plan and be prepared for whatever the market will throw at us.
>> Our thanks to Jason Hnatyk, Senior Client Education Instructor a TD Direct Investing. And for more educational resources you can check out the learning centre on WebBroker or use this QR code to navigate to TD Direct Investing's YouTube page where there are more informative videos.
Before we get back to your questions about US equities for David Sekera, a reminder of how you can get in touch of us.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live!
Okay. We are back with David Sekera taking your questions about US equities. The next question, this is on gold.
David, what is your outlook for gold and gold stocks?
>> Actually I find gold and gold stocks right now to be really an interesting area to look at. We actually have a negative long-term outlook on the price of gold. So when our team looks at the supply and demand characteristics of a cause for getting gold out of the ground, their long-term projection for gold has actually come down to 1780 per ounce in US dollars.
However, when I look at the minors, they have just been underperforming for year after year at this point so I think there is a lot of negative sentiment there and it's kept the prices down on gold.
So when I look at our financial models, we currently assume that gold will be 2023 (this is…) For the next two years and then decreases to that long-term price forecast by the year 2028.
But even in that scenario of gold prices coming down, many of the minors really appear very undervalued in our mind. So I would say the downside here is if gold prices fall faster or further than what we expect, that could be some downside.
Or getting out of the ground and that is faster what we assume could be some downside as well. But like I said I think it's interesting that we see a lot of value in the minors even though we look for gold prices itself to come down.
>> Okay. That was a good look at gold stocks and gold price of gold.
Will turn to another industry, the defence industry.
What's your take on the defence industry in 2024?
>> This is one of those cases right thing unfortunately we do have a positive outlook and defence with geopolitical conflict heightened at this point in time, it's really led to really what were seeing record backlogs of orders among a lot of the defence contractors and they are large enough that I will take several years to fulfil just the current battle Claude.
One of the defence companies are been looking at pretty closely is TX. It's interesting that half the business is civilian of the other half of the businesses defence. On the civilian side, I do think the companies, still in pretty early stages of selling engines they've developed.
But on the defence side they will sell missiles and missile defence systems both of which are proving effectiveness in the global conflicts that we are seeing today.
Some of the risk we would consider here on the civilian side, they did have some really problems they might've to reevaluate some of those engines verities sold and the US elections (…) Into budget season so it's a the outlook for spending is probably more cloudy than usual in the defence stocks but overall we do see some opportunities for investors there.
>> We will pivot from the defence industry and turned to real estate. How is real estate looking and should we be concerned about vacant office properties?
>> Real estate again, the most hated us a class in the street today. Very few people want to touch it and I think that is providing a lot of opportunities. The most undervalued sector as compared to art today, I still remain concerned that there could be downward valuation pressure in the early office space. That is an area I would recommend extreme caution to invest in if you are going to invest in that space, make sure you have plenty of margin of safety to the downside there.
But I do like real estate that has defensive characteristics, I do think that area is attractive, many of those names up and brought down with the overall commercial real estate market, a couple of areas in which people look at will be the healthcare area, the triple lease providers, self storage areas, those are all areas that we consider to be defensive.
So really I think the biggest downside risk, specifically among those defensive real estate plays would be if interest rates really were to climb much higher because of course real estate in the short term is negatively correlated with interest rates.
>> We will get back to your questions with David Sekera on US equities in just a moment. 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 any time.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live!
[Music] >> We are having a look at TDs a day advanced dashboard a platform designed for active traders available through TD Direct Investing. We are looking at the heat map function here which gives you look at the market movers of the TS 60 would boast faith in both price and volume it will look at the top left corner in energy.
Some bids for some of the energy companies like Enbridge, just at the bottom of that, Kinross Gold taking up a lot of green on the screen of course Kinross Gold reporting better-than-expected first-quarter earnings and revenue, seeing some other gold names like PTO getting some bids as well. Let's take a look at the S&P 100 to see what's living the markets there. We will start with of course we are hearing some technology has been in the news quite a bit lately. Sorry, we will start with Microsoft.
Slight positive bids there, Intel of the bottom there, feeling some pressure of course this company issued a revenue warning after the US revoked its huawai exporting crisis. When you take a look at the top right corner, goods and services of course Tesla continues to be in the news. Tesla is seeing some read on screen, reports at the US prosecutors were investing the companies, and CEO Elon musk about the company's technology qualifying as fraud. Starbucks is another name that is in the news. Of course it was down quite a few days ago after posting lacklustre second-quarter earnings. The stock seems to have found some bidders today, a little over 2%.
And we are back now with David Sekera from MorningStar research with more of your questions, we will get to the next question. What is your guest take on the Telcos?
>> Actually, we see a lot of value of the US wireless providers and I think that's because, I think we haven't differentiated a long term outlook here. So following several years of consolidation within the space there's really three main providers in the US.
AT&T, Verizon and T-Mobile. We expect that over time those three are in a start operate more like an… Which means we think they're going to compete less on prize and that's going to allow the margins to expand over time in fact, I think were starting to see some signs of that on the recent earnings results at AT&T and Verizon. As well.
Now of course, if the price do heat back up, that would throw a wrench into our expectations. What's interesting is in Canada we are seeing is really the exact opposite. We are seeing increased competition.
However we look at stocks like Rogers Communications and we think they are priced into the stock there. I think that stock is probably trading near its lowest price over the past five years so I think the risk there for Rogers would be if the competition had become irrational and they really tried to gain market share, even at the risk of profitability, I do think that would impair valuations really for all the Canadian wireless businesses.
>> Okay that's all the time we have for your questions.
But before we go, let's circle back to our opening chat. How are valuations looking right now and where do you see the markets going from here?
>> Right now the market is trading pretty much right on top of our fair value estimate and as a reminder, we do fair value a bit different than what you would hear from other shops. We take that bottoms of view.
We have over 60 analysts here in the United States.
Over hundred 20 analysts globally.
What we do is we take the intrinsic value determined by each of our equity analysts on each of the stocks that they cover and that we compare that to where they are actually trading in the marketplace today. I think a lot of other strategists are more of a top-down approach. Some sort of algorithm and they come up with their one-year earnings estimates. They apply some sort of multiple to it it always seems like it's 8 to 10% higher than where the market is trading today. So again, we use that bottoms of view and we break it down, MorningStar style box I just note the value category is the most undervalued in place by style as compared to growth stocks and that small-cap stocks of the 20% discount also trading at a very large margin safety for Mark estimates.
>> David, great information as always and thanks for joining us.
> Thank you.
>> Our thanks to David Sekera, chief US market strategist at MorningStar research.
As always make sure to do your own research before making any investment decisions.
If we did not time to get your questions today, will aim to get it into future shows. Stay tuned on Thursday show for Bart Melek, global Head of Commodities Strategy with TD Securities will be our guest take your questions about commodities.
In a reminder you can get in touch with us by emailing your questions to moneytalklive@td.com. That's all the time for our show. Take care.
[Music]
We we'll take you through it's moving the markets and answer your questions but investing.
Coming up on today's show will discuss how market valuations look and the big take away from earning season so far with MorningStar research is David Sekera. And in today's education segment, Jason Hnatyk will show us how to use conditional orders on the WebBroker platform. For any questions, just email MoneyTalkLive@td.com or Philip the you fewer response box under the video player and WebBroker.
Before we get to our guest today let's get you an update on the markets. Starting here in Canada where the market was trading by lower pressure by technology stocks after a downbeat outlook from Shopify. The Ottawa based e-commerce company forecasted its lowest quarterly revenue growth in two years against the backdrop of an uncertain economy and tepid consumer spending. In addition we are also seeing bond yields and commodity prices, that is also weighing on investor sentiment so far, the TSX Composite Index right now trading down about hundred 38 points or 0.6%. Taking a look at some of the big movers, shares of Aritzia are trading low today of course early this week the Canadian fashion retailer reported a solid performance in its fourth quarter along with an optimistic outlook for 2025.
The stock to close higher after those results on Tuesday and perhaps we are seeing a little bit of pullback today into the stock.
Down to the tune of about just over 4%. Some other big movies today, shares of Kinross Gold are getting some bids as well, Canadian gold producer of course reporting first-quarter earnings that topped estimates and the stock is up just over 5%. We will turn south of the border were Wall Street also open lower, being dragged down by MegaCap stocks including top Tesla also treasury yields, seeing eight rebound in yields with investors seeking more clarity on the feds plans for interest-rate cuts. The S&P 500 right now is down just over five points or 0.1% of course this comes out after the S&P 500 pulls higher for forced rate sessions yesterday's best winning run since March. Taking a look at the tech heavy NASDAQ comes index, also trading lower amid some weakness in some of the larger Tech stocks, I mentioned Tesla, currently the index is down a little lower than 48 points or 3%.
I mentioned Tesla one of the stocks that is pulling down markets.
It is falling in early training trading amid reports that US prosecutors were investigating Tesla to see if statements by the company and CEO Elon musk about the company's driver assistance technology qualify as fraud and that is really weighing on the stock. Today down about 1/2%. Some other big movers, shares of a firm holdings are trading lower as well after the by now pay later operator reported a 51% jump year-over-year in its third-quarter revenue but posted in our that they expected that loss for the quarter, right now that stock is down to the tune of over 9% to $31.
71. That is your market update.
Well markets have had a better start to the month after facing some downward pressure in April.
Joining us now to discuss how valuations are looking in some of the big takeaways from earning season so far is David Sekera, chief US market strategist with MorningStar research. David thank you very much for joining us today.
>> Of course good afternoon.
>> So after a rough April 1 stocks our valuations looking now generally?
>> It's interesting, at the end of March our second-quarter outlook, we published a note that the market was actually trading at a premium to a composite of our fair values. The fact that we noted less than 14% of the time since 2010 that the market traded at that much of a premium or more but now following the April pullback and then adjusting as some of the fair values in a couple of our different stocks following earnings, we do think the market is trading pretty close to fair value right now. So what that means for long-term investors, we do think that going forward over the next couple of years, if you were to put money to work today we would expect to get kind of a historical average cost of equity over time.
>> You also highlight two areas of the market that are looking interesting on a valuation basis. Tell us what you're seeing with value stocks and small caps.
> By style we still see the value category is the most undervalued category. It trades at about a 10% discount of fair value where is both the growth in the core categories for the pullbacks are now pretty much on top of our fair value estimates. And by capitalization, we still think small-cap stocks are significantly undervalued. As a composite they traded at about 20% discount our fair value. Mid-cap stocks, still somewhat attractive in our view. A few percent below, you know, fair value. But then large caps or just maybe even slightly above fair value of this point in time.
So I think, one of the questions I probably get most often is, regarding value and small caps, when can we expect these to start to perform? And of course nobody can really predict when that market sentiment is going to shift.
But I just note that I would expect value stocks should outperform as the US economy slows. We look for earnings from growth stocks to slows that could shift in people out of growth and into value.
And that also just notes the historical small-cap stocks usually tend to outperform once the Fed begins to start cutting federal funds rate which our economics team currently rejects to be projects rather to be this September.
>> I want to pivot now to some of the sectors.
Particularly I want to look at valuations. Which sectors right now are looking undervalued or overvalued right now for you?
>> Right now I mean, still the most hated us in class on Wall Street is gotta be real estate. But I think that's also what is providing investors some opportunities today.
So as a composite, the real estate sector is trading at about 17% discount to our fair values. So we see a lot of areas there with the bright margin safety. Some good places to put money to work.
We also like the communication sector.
The trade that about an 8% discount to fair value and then basic materials would be the other one to have highlight trading at 6% discount to fair value. And lastly, energy. Now, energy is only trading at 3% discounts are not that much of a margin of safety. But I still think that that provides a good natural hedge in your portfolio to, you know the ongoing and potentially more heightened geopolitical risk as well as if inflation does stay higher for longer.
> One risk you highlight is a potential for a weaker economy but also stick inflation, what is the potential headwind here according to your view?
>> There are really two headwinds here right now.
Unfortunately in the first quarter I do think we've seen is kind of the worst of both worlds.
So you know, inflation has been running higher than our US economic team had originally projected into the year in the US real GDP, it was only 1.6% on an annualized basis in the first quarter. And that was even slower than what our economics team at projected and I think we're even on the lower side of the low consensus coming into the year. So looking forward, our base case is that real annualized GDP in the US is probably going on a run between one and one of the quarter percent through the first quarter of 2025. Now, having said that, they do still expect inflation will moderate.
Our US economics team is looking at a number of real-time indicators like rent costs.
Some of those things that have kept inflation higher for longer.
They do know that as those are slowing in real time it should be reflected in the economic metrics over the next couple of months. Now, originally we were looking for the Fed to actually get started cutting federal funds right by now.
But with inflation lasting longer than what we originally had thought, we did push that forecast back to September. But you know, once the Fed does begin to cut, we can probably cut the Fed funds even faster and with the consensus is expecting because of our view for that slow economy. So I think there's really two risks here. In the short term over the next couple of months, I do think that slow economic growth will weigh on earnings. That could maybe drive some negative sentiment and may be a pullback in the market the Summer. And then over the medium term, if inflation remains too high, and the Fed's stock and can't begin to cut the Fed funds later this year, that could be something that may be, with that tight monetary policy maybe we could slip into a recession late this year or maybe even into the beginning of next year.
>> That's a great overview.
I want to get back to earnings. We are well into earnings season right now.
Looking at that, one of the big take away so far? How have the banks and financials performed?
>> The banks in the financials, in my view, earnings were just fine. There is really no major difference is there.
I would note in the US regional banks we do still see some opportunities for investors there but a lot of those stocks have recovered well off the bottoms that they had after the bankruptcy last year.
But I would say really, the biggest take away for the banks would be that we didn't see a meaningful uptick in loan-loss reserves. So that tells me is the banks are relatively comfortable with her outlook for the economy for the next couple of quarters and there were some increases in loan-loss reserves for commercial real estate but again, not to the degree that started to concern our Bank analyst team.
>> Okay and how about big tech?
Any trends are seeing there?
>> A couple of different trends.
The big type is leveraged artificial intelligence.
Obvious names like Microsoft, Alphabet, Amazon, still doing very well.
Actually interesting this quarter, they did eat by quite a bit and I thought they gave pretty good solid guidance that stock actually sold off pretty dramatically. We just thought it was overvalued in and of itself.
But I think the big thing that the market didn't like us just how much they are spending on X and how much of their increasing that on artificial intelligence.
If you remember, you know when they change their name to Meta and they spent a lot of money on the Metaverse.
A lot of spending really came to not at the end of the day so I think there's a lot of negative incentive there and then I just note the technology that is not tied to artificial intelligence, a lot of people are starting to consider these names to be legacy technology.
Names like IBM, Intel, definitely struggling here in the short term.
Really starting to lose relevance in the technology space and in their specific subsectors.
>> Finally. Talk to us about some of those economy stocks.
You think they're feeling the pinch of slower consumer demand due to inflation?
> I mean the industrial sector is overvalued in our view. We do think the slowing economy will put some pressure there. But really it's the US consumer.
The question were getting there is is the US consumer really finally starting to get tapped out?
And when I take a look at results at Starbucks, McDonald's and even Tyson Foods, in my opinion I think these results might be the canary in the call mine.
Not just the recent inflation but really that impact of inflation over the past two years now. To really start to pinch you want a consumer, really originally it started off with a low income consumer feeling at the most. Definitely moving now into the minimum income consumer as well.
Originally consumers were able to offset higher prices with excess savings from early on in the pandemic. We think that's, you know been used up for a while now.
Consumer started to eat into their savings rate, we see saving rates decline as well.
And you know, at this point that appears to be nearing the end of that trend as well. So we are definitely seeing a decrease, in volume for example, Starbucks had 7% decrease in stored traffic and that's really a meaningful decrease for a company like Starbucks.
So we are releasing consumers pullback but especially in those areas that I think consumer is considered to be a little more indulgent.
>> A great way to kick off the discussions and we will get to your questions with US equities with David Sekera just a moment. A reminder you can get in touch with us anytime just email moneytalklive@td.com or Philip of your response box under the video player on WebBroker.
Now here's an update on some of the top stories in the business world today and look at how the markets are trading.
AstraZeneca's rude withdrawing its highly successful corner coronavirus vaccine globally amid low demand.
The development of multiple varying COVID-19 vaccines is resulted in a surplus of available updated vaccines.
The vaccine which was developed in partnership with the University of Oxford has supplied more than 3 billion doses worldwide since it was first administered in the UK back in January 2021.
The company said the vaccine is not generated revenue for AstraZeneca since April 2023. Pandemic fatigue, muddled messaging and complex vaccination timelines or other factors that may be dissuading people from getting updated vaccinations according to some experts.
Right now AstraZeneca stock is up just about 0.7%.
Meanwhile, shares of Shopify are under pressure today after a downbeat forecast for the current quarter overshadowed its first quarter beat on the top and bottom line.
The Canadian e-commerce company said it expects second-quarter revenue to grow at a high teens percentage rate year-over-year.
A slow down from the previous period.
Shopify which makes tools for companies to sell products online, so the total volume of merchandise sold on the platform rose 23% to just over $60 billion, beating consensus expectations.
Right now shares of Shopify are down nearly 19% of course the most downbeat forecast.
In more earnings news, Uber Technology posted an unexpected loss of more than $650 million in the first quarter. While gross bookings came in short of analyst expectations.
The ride hailing giant attributed the loss of to write downs of stakes and other groups such as self driving car company or roar, as well as legal costs incurred from decades of battles with global regulators. Wilber and its rivals have been grappling with increasing global regulatory headwinds, particularly over driver and delivery worker pay.
Huber down… And here's the main benchmark index is trading in Canada.
Still down about hundred 34 points driven down by technology stocks, that's about 0.
6%.
We'll take a look at the US where we are also seeing some weakness, the S&P 500 index, down a modest one half points, we will call that 0.1%.
All right.
We are back with David Sekera taking your questions about US equities.
We'll start with the first question and this question is on Nvidia.
What is the future look like for Nvidia?
>> Nvidia, I have to admit it is a growth story like I don't think I've ever seen.
Over the course of my career for a company that was already this… Let me just weren't run you through what our projections are. We look at revenue when we look at sales to double this year. And that is on top of sales, already doubling in the prior year. And when you look at this company, their fiscal year, 2023 revenue was $27 billion. So by our estimates we expect that to grow at 212 billion by fiscal 2029. We are looking in earnings this year about 2611 per share growing to 34, 34 next year so really that puts it in a multiple, 34 1/2 times this year which seems a little bit on the high side but it comes down to 26 times, you know, 2025 estimated earnings which is a little bit more reasonable for growth story like this.
But I've got a note to, assign a very high uncertainty rating to this company.
That is the second-highest uncertainty of different levels that we assign. So what that means is we think this has an especially wide range of potential outcomes so I do think that in the short term, the stock is going to remain pretty volatile so when earnings come out, if they beat expectations and provide higher-than-expected guidance, there are certain room for the stock to trade up but in my opinion, if they only just meet expectations or worse case scenario, Miss expectations are in fact if even just provide what I consider to be mediocre guidance, I could just as easily see that stock take a swift downward move as well. So that just cautions us who are investing Nvidia, just make sure that whatever your position size is, it sized correctly based on your portfolio and your risk tolerances.
In fact I think this is really a stock for investors probably to have higher than average risk tolerance and also have that financial wherewithal to be able to ride out these types of, you know, short bouts of volatility.
>> There's been a lot of optimism around AI. Do you think Nvidia's price to perfection at this point?
What you think?
There is so much optimism about AI and focus on AI chips. What are your thoughts on that?
>> I don't know if it's necessarily price to perfection at this point in time.
But I do think there is a very large range of potential outcomes here. So when we look at the AI sector, Nvidia definitely has that first mover advantage. There GP use, their graphic processing units at their outselling, whatever they make they can sell it at whatever price they want at this point in time.
But having said all that, there are a lot of competitors that are trying to move into this space very quickly.
In fact not just their competitors but some of the users as well.
So Microsoft, Alphabet, Amazon, all working to design our own chips for AI, for other specific uses.
So again, very difficult situation right now really do have a huge amount of confidence not only in being able to estimate this year's earnings but really thinking about the long-term earnings path for this company.
Okay were going to stay with technology.
Next question: is Apple worth a look at these levels?
Of course we've seen some concern over Apple particularly iPhone sales in Sinai, one in China one of its biggest markets seems in competition from other names there like (…) >> (This is…) We do think Apple is a good company and we associated with a wide economic mode which means they have a long-term competitive advantage. We assigned a medium uncertainty so we do think there is a pretty good path to be able to model this company over the long term having said that, I know there was some concern last weekend, Warren Buffett announcing they had sold some of their possessions as well. But I think that was reportedly chose due to some tax selling really as opposed to concerns about fundamentals. So looking forward, whether we expect some margin improvement, we look at services becoming an increasingly large percentage of the revenue over time.
The iPhone is running into more competition especially from (…) This is in China. So potential catalyst I think here is that we do expect Apple will announce plans for regenerative AI at their conference in June.
So depending on what they announce, that could be a potential catalyst for the stock but at the same point in time, they really haven't given the market what it wants to hear so if they don't have a good announcement for what they're doing there, I think the market could be disappointed.
>> Okay.
We'll go to the next question. This is on EV maker Tesla. What are your thoughts on Tesla? Tesla has been in the news today. It had disappointing deliveries.
It's China factor as well, what are your thoughts?
>> The thing is, when you think of Tesla you always have to remember the value with Tesla.
It's not necessarily just the number of cars that they make this year or even the number of cars they make next year.
But really, what are your expectations for how much this company is going to grow over the course of the next 5 to 10 years? That's why I think the stock is so volatile because it is really based on very large and potential outcome. Now we do a bottoms up forecast. We actually forecasted 40% of all global auto production by 2030 will be electric vehicles. We do expect Tesla's going to have a very significant percentage of that market share. But with Tesla, it's not just the EV's that there is selling but it's also a lot of ads on businesses that they have. So when you think about Tesla, they have a full self driving subscriptions, we are seeing that growing pretty well, the insurance business is there building out of their power storage units. So again, you really have to take all of that into consideration over time. So yes Tesla's earnings were relatively weak this past quarter as EV sales slowed but the market really focused on, and the reason the stock sold up is that they did announce the model to which is going to be their low price electric vehicle. They pulled that forward so they now expect that to be ready to sell in early 2025, maybe even 2024.
So that's gonna drive a lot more auto sales but on top of those auto sales are going to be all of those businesses that go with it. So in our view, we do think Tesla, right now, still remains on the right track. I think for investors you do have to expect, it's going to be a lot of potholes and straightaways really before it gets to kind of that more stable path a couple of years out.
>> There could be more volatilities as you mentioned.
As always make sure you do your own research before making any investment decisions and will get back to your questions for David Sekera on US equities in just a moment but a reminder you can get in touch with us anytime by emailing moneytalklive@td.com. Now let's get to today's educational segment.
There are different order types available on WebBroker and Jason Hnatyk, Senior Client Education Instructor at TD investing has this look at how to use conditional orders.
>> It's great to be here. Always excited to talk about orders on WebBroker. We will be talking about conditional orders here on WebBroker and more specifically one triggers another or OTA. Conditional orders can be very useful. Two things really jump out to show how versatile they can be for investors. Number one is they allow you to automate the process just a little bit. You don't need to be at your computer. The market will always continue to move and you can set a sequence of events to take place so you're always kind of at the wheel even if you might not be at your computer. Second of all, they really can help an investor implement their trading plan which is whether that is to capture games or limit your losses and by doing that, that what I found is that can really help investors take emotion out of the trade. Which can be important to make sure you are making clear decisions.
So let's jump into WebBroker so we can take a look at how we can implement OTA orders into our trading process. Okay so I'm on the trading strategies page and we will come back to this summary of a process in order just a second.
We will focus on the one… Another which is all the way over here in the left-hand side.
This little diagram and description available on this page really does a great job of telling us all about this really useful order type. The order in itself is effectively, it's too orders.
You have a first-order that only, when that first order executes will it trigger a secondary order to become active in the markets. All right.
Two common use cases for OTA's, number one would be to enter an order to a long position and then your secondary order could be something you would use to maybe take profits or to limit your losses.
So you're implementing that trading plan as I mentioned. You are secondarily, some people can use OTA orders to rebalance their portfolios. So your first order could be selling out of a particular position you owning your secondary order might be shifting and moving over and buying into another long position. So we will talk examples in just a second but I also want to highlight at the bottom of the screen, we've put in a link to one of our videos all about conditional orders so you'll be able to fact check and go back and see all of the nice need to know bits of information about other orders as well.
So I've got a chart just appear on the screen for everybody. This green line that I want to highlight, that would be order number one for us.
So this would be our proposed limit order to buy a particular security.
If and when this order fills, a secondary order would then be put into place. I'm just going to highlight above this line to kind of visualize this.
Maybe we will say this is at 524 argument sake. If we can imagine a secondary depth on this chart around 530, that can be our second order to take our profit if we have guessed at this particular investment is going to go up. We can be prepared to capture those even if we are not at our desk. So let's place this order let me show you how easy that can be executed as well. Were gonna go up to the top of the screen and click on the "buy and sell" button. With these two downward arrows.
Once I select that I need to go to the strategies tab at the top of the screen.
From here we are back to that open graph we showed and we will go ahead and choose one triggers another. We've got to order entry tickets and we need to fill out all of the same process. Nothing different from your single traits we are just empty entering both traits. Let's go ahead and choose that symbol we had earlier on our chart just to keep things consistent.
We will keep our order as a long by order and we want to keep that price just as we had in our example. We gotta keep it at $520. So if the stock comes down to our price will be in place to buy where we may see value.
I know when change are good sale, I will make that "good till cancelled" I'll explain why after winter a second order here.
We are going to now click on the bottom portion of the screen and this is going to bring up the secondary order okay.
You can see where it says OTA, our first order is our primary and this is our secondary order that will take place once the first order if it actually feels so let's keep that symbol the same and let's go ahead and flip our action over to sell quantity from the first orders can remain the same and in this case were to keep the price tag the same at the limit, you have other choices available and this is going to be our profit-taking order back to that section just a highlight for everybody, when you're using any conditional order, the "good till" time selections need to be identical for both orders and just so we know we are in business there. Canadian orders are going to be good, we chose US orders are going to be good for 180 days… It's just a simple as that.
That's our OTA orders.
It allows us to be flexible and implement our trading plan and be prepared for whatever the market will throw at us.
>> Our thanks to Jason Hnatyk, Senior Client Education Instructor a TD Direct Investing. And for more educational resources you can check out the learning centre on WebBroker or use this QR code to navigate to TD Direct Investing's YouTube page where there are more informative videos.
Before we get back to your questions about US equities for David Sekera, a reminder of how you can get in touch of us.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live!
Okay. We are back with David Sekera taking your questions about US equities. The next question, this is on gold.
David, what is your outlook for gold and gold stocks?
>> Actually I find gold and gold stocks right now to be really an interesting area to look at. We actually have a negative long-term outlook on the price of gold. So when our team looks at the supply and demand characteristics of a cause for getting gold out of the ground, their long-term projection for gold has actually come down to 1780 per ounce in US dollars.
However, when I look at the minors, they have just been underperforming for year after year at this point so I think there is a lot of negative sentiment there and it's kept the prices down on gold.
So when I look at our financial models, we currently assume that gold will be 2023 (this is…) For the next two years and then decreases to that long-term price forecast by the year 2028.
But even in that scenario of gold prices coming down, many of the minors really appear very undervalued in our mind. So I would say the downside here is if gold prices fall faster or further than what we expect, that could be some downside.
Or getting out of the ground and that is faster what we assume could be some downside as well. But like I said I think it's interesting that we see a lot of value in the minors even though we look for gold prices itself to come down.
>> Okay. That was a good look at gold stocks and gold price of gold.
Will turn to another industry, the defence industry.
What's your take on the defence industry in 2024?
>> This is one of those cases right thing unfortunately we do have a positive outlook and defence with geopolitical conflict heightened at this point in time, it's really led to really what were seeing record backlogs of orders among a lot of the defence contractors and they are large enough that I will take several years to fulfil just the current battle Claude.
One of the defence companies are been looking at pretty closely is TX. It's interesting that half the business is civilian of the other half of the businesses defence. On the civilian side, I do think the companies, still in pretty early stages of selling engines they've developed.
But on the defence side they will sell missiles and missile defence systems both of which are proving effectiveness in the global conflicts that we are seeing today.
Some of the risk we would consider here on the civilian side, they did have some really problems they might've to reevaluate some of those engines verities sold and the US elections (…) Into budget season so it's a the outlook for spending is probably more cloudy than usual in the defence stocks but overall we do see some opportunities for investors there.
>> We will pivot from the defence industry and turned to real estate. How is real estate looking and should we be concerned about vacant office properties?
>> Real estate again, the most hated us a class in the street today. Very few people want to touch it and I think that is providing a lot of opportunities. The most undervalued sector as compared to art today, I still remain concerned that there could be downward valuation pressure in the early office space. That is an area I would recommend extreme caution to invest in if you are going to invest in that space, make sure you have plenty of margin of safety to the downside there.
But I do like real estate that has defensive characteristics, I do think that area is attractive, many of those names up and brought down with the overall commercial real estate market, a couple of areas in which people look at will be the healthcare area, the triple lease providers, self storage areas, those are all areas that we consider to be defensive.
So really I think the biggest downside risk, specifically among those defensive real estate plays would be if interest rates really were to climb much higher because of course real estate in the short term is negatively correlated with interest rates.
>> We will get back to your questions with David Sekera on US equities in just a moment. 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 any time.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live!
[Music] >> We are having a look at TDs a day advanced dashboard a platform designed for active traders available through TD Direct Investing. We are looking at the heat map function here which gives you look at the market movers of the TS 60 would boast faith in both price and volume it will look at the top left corner in energy.
Some bids for some of the energy companies like Enbridge, just at the bottom of that, Kinross Gold taking up a lot of green on the screen of course Kinross Gold reporting better-than-expected first-quarter earnings and revenue, seeing some other gold names like PTO getting some bids as well. Let's take a look at the S&P 100 to see what's living the markets there. We will start with of course we are hearing some technology has been in the news quite a bit lately. Sorry, we will start with Microsoft.
Slight positive bids there, Intel of the bottom there, feeling some pressure of course this company issued a revenue warning after the US revoked its huawai exporting crisis. When you take a look at the top right corner, goods and services of course Tesla continues to be in the news. Tesla is seeing some read on screen, reports at the US prosecutors were investing the companies, and CEO Elon musk about the company's technology qualifying as fraud. Starbucks is another name that is in the news. Of course it was down quite a few days ago after posting lacklustre second-quarter earnings. The stock seems to have found some bidders today, a little over 2%.
And we are back now with David Sekera from MorningStar research with more of your questions, we will get to the next question. What is your guest take on the Telcos?
>> Actually, we see a lot of value of the US wireless providers and I think that's because, I think we haven't differentiated a long term outlook here. So following several years of consolidation within the space there's really three main providers in the US.
AT&T, Verizon and T-Mobile. We expect that over time those three are in a start operate more like an… Which means we think they're going to compete less on prize and that's going to allow the margins to expand over time in fact, I think were starting to see some signs of that on the recent earnings results at AT&T and Verizon. As well.
Now of course, if the price do heat back up, that would throw a wrench into our expectations. What's interesting is in Canada we are seeing is really the exact opposite. We are seeing increased competition.
However we look at stocks like Rogers Communications and we think they are priced into the stock there. I think that stock is probably trading near its lowest price over the past five years so I think the risk there for Rogers would be if the competition had become irrational and they really tried to gain market share, even at the risk of profitability, I do think that would impair valuations really for all the Canadian wireless businesses.
>> Okay that's all the time we have for your questions.
But before we go, let's circle back to our opening chat. How are valuations looking right now and where do you see the markets going from here?
>> Right now the market is trading pretty much right on top of our fair value estimate and as a reminder, we do fair value a bit different than what you would hear from other shops. We take that bottoms of view.
We have over 60 analysts here in the United States.
Over hundred 20 analysts globally.
What we do is we take the intrinsic value determined by each of our equity analysts on each of the stocks that they cover and that we compare that to where they are actually trading in the marketplace today. I think a lot of other strategists are more of a top-down approach. Some sort of algorithm and they come up with their one-year earnings estimates. They apply some sort of multiple to it it always seems like it's 8 to 10% higher than where the market is trading today. So again, we use that bottoms of view and we break it down, MorningStar style box I just note the value category is the most undervalued in place by style as compared to growth stocks and that small-cap stocks of the 20% discount also trading at a very large margin safety for Mark estimates.
>> David, great information as always and thanks for joining us.
> Thank you.
>> Our thanks to David Sekera, chief US market strategist at MorningStar research.
As always make sure to do your own research before making any investment decisions.
If we did not time to get your questions today, will aim to get it into future shows. Stay tuned on Thursday show for Bart Melek, global Head of Commodities Strategy with TD Securities will be our guest take your questions about commodities.
In a reminder you can get in touch with us by emailing your questions to moneytalklive@td.com. That's all the time for our show. Take care.
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