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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 show, we'll discuss the outlook for the retail sector and whether consumer spending has held up despite all the worries out there with Jacky He, global consumer discretionary analyst with TD Asset Management. Moneytalk's Anthony Okolie is going to have a look at any report from TD Securities on the outlook for the Canadian telcos. And in today's WebBroker education segment, Caitlin Cormier is going to show us where you can find market commentary on the platform.
Here's how you can get in touch with us, just email moneytalklive@td.
com more you can follow the viewer response box under the video player here on WebBroker.
Before you get to our guest of the day, let's get you an update on the markets. It seems like a pretty calm and nontraumatic trading day. Sometimes, you want a little drama but I think after what we've been through over the last couple of weeks, we will take a sense of calm and ease. It seems like the banking crisis further recedes into the rearview mirror.
19,906 on the TSX Composite Index, that's good for a modest gain of 69 point, about 1/3 of a percent.
We are seeing a studying in the price of crude after quite a ride on crude prices over the last week.
Cenovusat 2341, in positive territory by $0.19 per share. Same thing on the gold side. We had quite a run in all the turmoil in the recent days and the price of gold itself. Some minors got a bit off of that.
That spaces come down. It got Barrick Gold at 2519, five pennies per share.
South of the border, let's check in on the S&P 500.
Again 17 points. Not a lot of drama at there but we do have Green on the screen, a little shy of 1/2 a percent gain.
It let's see how the tech heavy NASDAQ is fair against the broader market.
It's a little bit stronger, perhaps some risk appetite for some bows take place.
91 points to the upside, up three quarters of a percent.
Noticing the chipmakers getting a bit of a bit today as well. Got Advanced Micro Devices at 9851, that's good for a gain of 2 1/2%. That's a market update.
US consumer confidence to tire in March after two months of declines amid rising costs and fears of an economic slowdown, but despite all those issues, spending levels haven't been heavily impacted yet.
Joining us now to discuss his Jacky He, global consumer discretionary analyst with TD Asset Management. Welcome to the show.
>> Glad to be here. Thank you.
>> These are very interesting times when talking about retail stocks and consumer discretionary, all the concerns that we have, the fact that we seem to have had borrowing increases over the year, but the consumer part is held in. What's going on?
>> It is interesting. I still recall last year how many times I got surprised by my grocery bills and at the gas station. Higher borrowing costs, just as you said, just makes everything worse. But if you look at the data, that's your income minus inflation, that went up 6% but the real conception, the real PCE, went up 3%.
it was really a saving success story. During the pandemic, consumers accumulated a lot of government checks and income from investments so they accumulated a lot of savings.
talk about consumer sentiment, I think that is also interesting because people tend to use that as a leading indicatorof what's going to happen to spending.
At an aggregate level, it can sometimes be misleading because the slope of the change was really driven by higher income consumers which is a little bit counterintuitive because if you look at a spread between high and low income consumers, that reached all-time lows.
Higher income consumers felt terrible.
They had more real estate, they had more stocks and bonds, and that, they feel the most… They felt the most direct impact from higher interest rates and the financial market weakness.
But how they feel didn't really transfer to how they spend.
They just got enough spending to smooth out there spending behaviour through difficult times.
I think one interesting thing is that we spend a lot of time talking about how the bottom 20% trading down, but they overall only represent 10% of consumption.
But the top 20% who are still quite resilient represent 40% of consumption.
We should just be more mindful of that.
>> Would we think that as we push further into this year, and it is I guess accepted wisdom although a lot of things have been turned on their heads in the last couple of years that when you talk about interest rate hikes, they take their time to work their way through the economy and be felt.
Do we think that by the later innings of this year, the consumer will have reason to sort of calm down a little bit?
>> Yeah, that's interesting. So you can look at what consumers are telling us. The overall son is pretty resilient and topline growth outpaced market expectations. Part of that was because consumers are financially healthy. Part of that is because we just have more stuff on the shelf the last year and companies are promoting more.
Underneath that, a lot of that was driven by pricing.
So consumers might buy less items but they end up paying more so it's still benefiting companies. But if you look at what happens to the company's profitability perspective, they didn't really work well.
Most companies saw Martin contractions.
They end up paying more commodity costs, they ended up paying their employees more.
we are seeing some signs of inflection and if you look at the inventory, it's really coming down.
That means less pressure for retailers to promote more and you see the cost for the supply chain coming down quite significantly. If you'd shipped from China to the US it used to cost $10,000 per container and I got below 2000.
so at the end of the day, by the end of the year, we you could see the top line to be more moderate but margins to be better.
>>the cost are coming down so that makes a lot of sense in terms of what we are getting from earnings season on the corporate side.
During the pandemic and lockdowns, we stocked up on goods. Everything got lifted and we went out there and grabbed onto those services and spent big.
How is that interplay playing out now?
>> Yeah, that's interesting. I like visuals.
I can put up the chart I brought in.
It really compares the consumer's real income versus their real consumption.
I look at this in different phases.
Pre-pandemic, we see their real income and real spending were pretty much overlapping each other.
That means consumers spent how much they made.
During pandemic, the first half, you saw consumers accumulate lots of stimulus checks and income from investments but they had limited opportunities to spend.
So that difference, the cumulation of excess savings, that was used to fund spending for the second half of the pandemic.
And now for the first time in three years, we see those two lines converge again.
So what that means to me is normalization.
Consumers this year will become more selective when it comes to discretionary spending.
That means companies should start to diverge again.
So in this environment, I think the companies with lasting pricing power and margin upside are better positioned.
When coming to your point, I think a few industries fuelling that framework, like services that continue.
We only have a way through that and that should continue to benefit travel related industries as a whole.
And then if you look at thoseoff-price retailing industry, that's interesting. Consumers have less access to savings and less government benefits, so they will care more about the value for every dollar they spend.
So those companies are better position.
And then last but not least, luxury.
Those customers are better isolated and their products are also more differentiated.
So I will say putting that together, that means pricing power and better margin protection.
>> Let's dig intellectually. I found it interesting we talked about how consumer confidence reading could be deceptive because those people's assets and wealth feel bad because they are seeing the value of their assets come down but they still have disposable income.
Luxury, let's go far in luxury. Look at Ferrari, for example.
>> That's interesting, Ferrari.
All luxury did very well this year.
We talk about the high income resilience but on top of that, you see China reopening.
That's a really meaningful tailwind for the whole industry.
Chinese consumption represents 1/3 of what the globe actually spends.
If you go to tier 1 cities today and look at those shopping malls and those average brands, using mediocre traffic because consumers are still recovering. But if you go to those top brands, you see long lineups. So the amount is pretty solid. High-end consumers are holding up really well.
But it's not only about domestic recovery.
Two thirds of Chinese luxury spending is actually outside of China.
Because if you're buying a Birken bag in Paris, that's much cheaper than buying one in Beijing. People realize that.
there are also a lot of idiosyncratic drivers.
they are finally launching their first SUV called… And they're going to charge a higher price on the product.
That's interesting because if you look around, 10 years ago, you can find one SUV for every five cars.
Now pretty much more than half of the vehicles on the road or SUVs.
It has been a huge driver for the automobile industry.
For Ari, if they succeed, then this product can bring them into a faster growing and bigger market.
Remember, that is just one of the 15 new models they intend to launch the next few years.
>> Interesting stuff. Gotta save over the furry SUV.
It's gonna take me a while.
You'll get your questions about retail and consumer discretionary stocks for Jacky He and just a moment's time.
a reminder of course that you can touch any time.
Email moneytalklive@td.com or filled the viewer response box of the video player on my broker.
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.
Consolation software grew its revenue by 30% last year's sales were boosted by a number of acquisition.
The Toronto-based tech companies reporting 2022 full cells year of $6.6 billion. Apart from acquisitions, organic sales growth came in at -1% before adjusting for currency effects.
It appears Canadian small business owners are feeling more optimistic about the economy. A gauge of the confidence in the Canadian Federation of Independent Business rose for the fourth straight month in a row in March.
TD Economics as well the uptick in confidence is welcome, it's still relatively blunted compared to historical levels.
The latest read on US jobless claims came in a higher-than-expected, moving up to 198,000 last week.
The labour market has proven resilient in the face of aggressive rate hikes from the US Federal Reserve and while jobless games have ticked higher, the four-week average has been trending below 200,000 since the start of the year.
Let's check in on the main benchmark indices, we will start here at home with the TSX Composite Index, up 76 points, good for a gain of a little shy of half a percent.
South of the border, the S&P 500, the broader read of the American market is 18 points to the upside, good for about half a percent.
We are back now in Jacky He, taking your questions about retail and consumer discretionary stocks. Lots of question coming in for you, Jacky, on your first show, let's get to them. We will start with this one. Do you think Amazon's fall from pandemic highs is the new normal for that company?
>> That's a great question. For Amazon, they have really underperformed for a while and started picking up this year.
for the stock to continue to outperform, I would say two things need to work out.
one, they need to be more cost disciplined. Number two, investors really need to see better visibility.
If you break it down, Amazon's DNA is really disrupting other business and gaining market share at the expense of their profitability.
That worked really well for a while until the capital becomes more expensive, market start worrying about micro and people really demand profit today.
Amazon spent a lot of money during the pandemic could to double their headcount, warehouse space, and that creates a lot of operational inefficiencies. The margins that were pressed, people were worried about that.
We see signs of management being more discipline.
You see the headlines, cutting more people, closing warehouses and unproductive stores.
In fact, their retail margin is improving if you adjust for these.
AWS is continuing to decelerate because the company has a tighter budget.
They want to cut down a lower expense on their cloud spending.
That continues. The good thing is that may be temporary.
If you look at the older backlog, that continued to growand they have about $110 billion backlog.
So eventually, that will turn to revenue.
All this AI wave, they will altogether benefit cloud and such Amazon.
>> Did Amazon sort of fall prey to what a lot of tech companies it? It's because we shifted our habit so dramatically during the pandemic, for good reason, we would never shift back.
I think of other names like Shopify, they made big bets that it's the way it's gonna be forever.
Once we get back into the real world, perhaps it shifts back again.
>> The thing is, things change.
the story has changed.
Retail prices, if you look at online e-commerce, the historic grows about 10% over retail sales and that continues.
Amazon keeps gaining shares within e-commerce and clouds, say 90% of companies still have their cloud service with them.
There is still a long way to go. If this AI thing really picked up and then Amazon have a lot of tools and products they are currently serving as a beneficiary, that should give them a lot of tailwind going forward.
>> Alright, let's get to another question. Plenty coming in.
Your view on Tesla?
>> Yeah, that's a difficult question, right?
Tesla, you see them going up and down.
It's a very unique company.
I would not categorize Tesla as a normal automaker.
They stand out in two ways in my perspective.
one is the cost leader. Everyone is talking about wanting the EV, producing more EV, but everyone's losing money.
>> Ford came out recently saying to billion dollars per share, prospecting another $3 billion in losses for that division this year.
>> It's hard to be profitable. The reason Tesla is leading and cost is because they have really high vertical integration.
They are the only one with scale and they are the ones with a lot of advanced manufacturing.
When you hear news that Tesla cut prices, everyone follows but not everyone has the same breakeven room, I would say. But the other thing is the software.
It's hard to develop software and if you drive it has the car, you see many senses around the car, many cameras. That accumulates a lot of data and Tesla uses their machine learning capability to analyse that data, to make their software smarter so they can further themselves down the road from competition. But there are problems for Tesla and for auto overall. You see the autopay been since the pandemic increase about 30%.
Overall, there is an affordability issue and there's also competition issues.
Look at China, for example. The Tesla market share is already flattening and we have to see how that competition and dynamic goes forward.
And also if you look at the production capacity, that's another issue to worry about. Elon Musk committed to 50% long-term growth. What that means is if you do the math, like five years out, they will produce more cars and Toyota.
> That's ambitious.
> That's ambitious. Toyota took decades to build the capacity they have today.
They probably need 15 more like Shanghai giga factory to build the capacity.
It's not only about the money.
It's also about the right permit, the right location, the right people to run the factories.
So there can be a lot of unknowns down the road.
>> Let's get to another question now. This one is timely.
I believe this company just reported its earnings this week.
What about lululemon?
>> What about lululemon?
I think as Canadians we should be proud about this brand.
They did pretty well.
Share price went up 13%.
There is no issues for topline. That brand momentum just keeps going. What impresses people is how well manage that is.
You sell the strong growth across regions, across customers, different customer profiles and product categories. Those are amazing. They continue to do it.
What worried people was their margin side. Right? They got the really high inventory.
They have to promote more, discount more. But at the end of the day, they didn't.
They stuck pretty well with their pricing discipline and they gained market share without outsized promotions like everyone else did.
So that did well.
So what I would watch more for with lululemon is there longer-term growth. It will depend a lot on China's expansion.
They are executing but there is a risk for that.
If they can continue to execute as they planned, there's a lot of upside down the road.
>> Is that the biggest risk for lululemon?
With the whole athletic leisure where took off, we figured there were going to be a lot of competitors and there were but the brand has been able to hold its ground against the competitors.
Is it the execution risk of trying to grow globally?
>> It's funny.
I'm impressed how much that brand power can add to a company's stock.
In many people's mind, lululemon is equal to yoga pants.
Yoga pants equal lululemon.
That alone is impressive.
They created their own product category.
Yes there are competition rising, but it's just not enough to compete with lululemon you.
But also remember, lululemon represents only a single digit market share North America so there is still a long runway for this brand to be more recognized by new people.
If you look at their traffic, it's driven by new customers more than existing commoners.
If you already have yoga pants, you might not need new ones. But there are always new customers coming in to buy yoga pants.
So there is still a good story if they can execute.
>> Is always a home, make sure you do your own research before you make any investment decisions.
We are going to get back to your questions for Jackie háka on retail and consumer discretionary stocks in a moment.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Delegate our educational segment of the day.
If you are looking to do more research, investing research, WebBroker has several sources for market commentary. Joining us now is more skill in Cormier, client education instructor at TD Direct Investing.
Let's talk about the different resources available on WebBroker that can help investors better understand the market.
>> Absolutely. Investors might choose… They want different information on investments,they might be looking all over to get this information and I just want to let investors know that there's quite a bit available within WebBroker if you are looking to do that research.
Let's go ahead and hop into WebBroker.
What we are going to do first as we are going to click on research and we are going to go to news and commentary.
So maybe you've never come to this part of WebBroker before but it's actually going to host quite a bit of information.
It got quite a bit of news and that sort of thing but what I think could be really beneficial to investors is the side on the right where we have some video commentary. So this is going to basically take some different things that are happening in the market, put it into a video, bring in some experts in these different areas where ever this information is most relevant, weathered somebody from healthcare, within TD Asset Management or somewhere like that, they are going to bring them in and kind of help put some perspective into things that have happened in the market. We can see here stocks to buy, we are seeing here things about the federal budget.
How can that impact an investor, what sort of thing so they have to keep in mind?
So quick videos that you can watch and that have some impact. I want to quickly note to that there is a Canadian and US flight.
If you are looking for US information, you just have to simply click the US side and it will update anything that would have US information. Down below, there is also some Globe and Mail articles as well.
If you prefer reading and want to be able to pull up articles that way, you are more than welcome to look into these Globe and Mail articles as well and they are free with WebBroker. You don't have to have a subscription with Globe and Mail to read these particular articles.
Again, there is a link here to more MoneyTalk videos if you want to be able to see a bit more information on those different events and how they might impact you and your investment.
>> Alright, we know where to start looking. What if they are looking for even more reports to view on these topics? Where do you go for that?
>> Report specifically, so we are looking for more of a deep dive, an analytical thing, maybe you don't want to look at something that's as much of commentary or videos, we can click on research and we can go to the reports menu here. So there's a ton of reports that you can find within here, the market in general, different sectors. But what I want to focus on today and kind of more in the vein of what we are talking about is TD Economics.
So we are scrolling down midway through the page and avoid click on TD Economics and let me just make sure that you can see my screen.
Bear with me for just a second here.
There we go.
Should update for you there.
All right.
So now we are on the TD Economics page and we are just going to go there now.
So this is a host of a whole bunch of different commentaries again on all different areas in the market.
So we can see this information on Canada, US and global. As we scroll down, we can see again talking about latest research, talking about spending, federal budget, Canadian retail sales. Visually quite a bit of information here and all you have to do is simply click on the articles to get a bit of information on these topics. So you really do have a ton of resources within WebBroker to help you still told of what's going on in the market and make sense of them and how they might impact you in your portfolio. After tough as always.
Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, client education sector 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.
Before we get back to your questions about retail and consumer stocks for Jacky He, 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 Jacky He, taking your questions about retail and consumer discretionary stocks.
Let's get back to them. Your views on Home Depot?
>> Yeah. Home Depot saw some challenges this year really because we talk about the consumer's shift from goods to services because they really benefited when everyone was locked at home during the pandemic. But if you take a step back, Home Depot, I really view it as a conservative play for the US housing market.
People talk about the housing sales slowed but what really drives home improvement sales was housing price.
When your house feels like more higher, then you tend to invest more in your home.
>> You feel wealthier, home prices making gains… >> Yeah, exactly.
If you look at the housing market, there is still a structural supply and demand mismatch.
That really started from the global financial crisis.
I did a calculation, we have about hundreds of billions of underinvestment in the US housing market. That's on the supply side.
That will take years at least to close that gap.
And then you look at the demand.
The millennial generation is entering the primary age to buy a home and form a household.
So there could be a real demand on that side that keep delayed by global financial crisis and got delayed again during the pandemic. The supply demand story for the long term is attractive. For the near term, this depends on how fast this goods to services will grow.
What we can say is that the valuation for these high quality companies has priced in a lot of bearish view in it.
Over the medium term, we can see Home Depot invest billions of dollars in their supply chain and their customers are not only about individuals like you and me, half of their businesses to professional contractors in the business can really benefit from the investment they did from the past few years and they probably are just at the starting time to bear fruit for that investment.
>> There was a headline lately that perhaps the home renovation and fever that has come over a lot of American the Canadians was coming off and understandably because you want to put a new kitchen in the house and maybe tap the equity in the home, then suddenly the HELOC is a lot more expensive at this time, in March 2023 then it was last year.
>> Definitely. From an affordability perspective, it's really low. You can see the sales for housing getting into a lot of trouble. People decide to stay with low interest rates they locked in before.
Another interesting thing is when you talk about interest rate impact, over 40% of US households own their home.
For the remaining, like 90% of them have locks in their interest rate already.
So the real impact is only on that mid-single-digit household.
So the impact may be less than what we think.
As home improvements spending still have likes to grow.
Management guided about flat growth this year.
I think that's a bit reasonable.
If the housing doesn't collapse, like we saw during the global financial crisis, and then we can see the company to gradually coming out of this on the other side stronger.
>> There may be a master bathroom renovation in the future of my home and any arguments I make about the cost of borrowing, don't go over all that well.
Let's take another question now.
Plenty coming in. What's your take on Magna, the auto parts maker?
>> Auto parts maker is interesting.
It generate cyclical. When the economy is bad, although suppliers would suffer.
This time it's a bit different because all told the industry has been trading at the reception volume for two years because we are short of chips.
The supply chain was disrupted. If you happen to buy a car, you find many empty spots in the dealerships.
And even though now affordability is really bad, people may stop buying new cars but all those automakers still need to fill up their channel inventory. So that eventually from a volume in perspective can benefit auto suppliers like Magna. But Magna has some idiosyncratic problems. Their operations had some inefficiency.
They have to pay their employees more and so that created a lot of margin compression that suppress the market. We talked with management recently and better understand those individual issues.
Most of them have been resolved. So a lot of the future margin like trend will depend on the overall industry recovery.
If their customer gives them less last-minute consultation, they probably need to last over time employees last-minute changes on their workforce so overall their efficiency will be improved and their margin should improve.
> We had questions previously on the show when it comes to Magna and other auto parts manufacturers about what their future looks like regarding electric vehicles.
What's your take?
>>people thought that Magna could be a victim of that easy transition.
But if you look at Magnus portfolio itself, only about 10% has a legacy like internal combustion engine type of exposure. That will gradually decline. But a lot of this, no matter what car you made, you still need doors.
They are investing in and expanding that portfolio that represent about 20%.
That is still growing.
So over time you see that 10% side of growth start declining but the other part is steadily growing.
I would say Magna is a beneficiary of this trend.
>> All right. Let's get to a question now but quick service restaurant. Can we get Jacky's thoughts on Tim Hortons owner Restaurant Brands International?
>> I'm not sure how many copies you drink now.
>> Three a day.
>> You do more than me. I do two per day. But obviously Tim is a beneficiary of reopening. We all drink more coffee, eat more burgers. That helped them. The market really got excited about their investment plan last year. They talk about investing 400 million to turnaround their Burger King US business.
That has been suffering for a while.
they got a new chairman from Domino's Pizza so people think, okay, finally, Burger King US can turn around.
If you look at their investment plan, that only includes about 800 stores for remodelling. That's about 10% of Burger King US store base.
Is that enough? We don't know.
It's still hard to say. The other risk we need to monitor is their balance sheet.
They are more stretched than other restaurant peers.
Within that, a lot of it is exposed to variable rates.
So we have to be cautious when the broader economy is slowing and what that would mean for the company.
>> You mentioned the Burger King thing. There is Tim Hortons under the banner, there is Popeye's as well.
There are a few things going on under the hood of Restaurant Brands International.
>> They have a lot of brands and they are all doing well.
They are doing well domestically. They are expanding internationally.
Burger King internationally is especially strong.
They are building new stores every year consistently.
Those are not the problem for Burger King.
The real problem is domestic.
Think of who you are competing with. You're competing with McDonald's, Wendy's, all those companies and those companies spend a lot of money before the pandemic. So you see them benefit from drive-through, from those digital panels you go to in the restaurant for McDonald's.
But Burger King do not have those. They are kind of liking and investment.
Now they are trying to pick up and the question is, is the amount they are investing enough? Management is telling us yes, they think so, but we have to wait and see the result.
>> We will get back your questions for Jacky He on retail and consumer discretionary stocks in just a moment's time.
As always, make sure you do your own research before you make any investment decisions and a reminder that you 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.
The first-quarter earnings season for the Canadian telecom sector getting underway next month. But it comes during a period of uncertainty as investors awaited decision on the Rogers-Shaw merger, the biggest in Canadian telecom history. Our Anthony Okolie joins us with a preview from TD Securities. What are they saying that?
>> Thanks. TD Securities believes that the big Canadian carriers will continue to benefit from a healthy market conditions and the wireless segment.
They note a couple of key reasons for that. Number one, Limited it force a carrier competition. If the competition Bureau approves the takeover of Shaw Communications,that could benefit the other carriers.
Of course, the decision is still pending. Another thing they point to is the rebound in travel and growing revenue.
Roaming fees is of course a key source of revenue for the Canadian telecoms and according to reports, on average, Canadians pay seven times more for a gigabyte of data versus Australians.
We pay 25 times more than people in Ireland and France and 1000 times more than people in Finland.
Of course, with the rebound and travel and the lifting of restrictions, covert or certain, carriers could benefit from increased roaming revenue going forward.
Carriers could also benefit from meaningful immigration into Canada as they look to attract new customers, users, for their products.
On the inflation front, we know that inflation has been a big story this year.
TD Securities says that cost pressures may be evident in some places in the first quarter or some of these telcos but they don't see any evidence so far of any recessionary impact on consumers or business-to-business telecom spending.
Now TD Securities also noted in their report some other key changes to their outlook.
Number one, they have raised their estimate on wireless revenue, including postpaid and Internet ads for the telecom companies.
They have also lowered their cable and media revenue outlook.
They pointed to declining advertising revenue as well as increasing programming costs for some of the telcos.
Finally, the TD Security sees higher capital expenditures as many of these carriers are expected to frontloaded their capital lending in the first quarter of 2023. Greg?
>> So that's the outlook.
What are the risks to that outlook, according to TD Securities?
> Some of the key risks include increased wireless competition not just from new entrants but the three incumbents.
They also point to a potential for a prolonged recession or economic downturn.
That could turn spending on discretionary wireless services for some of these telcos. Finally, changes in the regulatory environment could impact the telcos operations going forward. Greg?
> Interesting stuff there and some very widely held names and a lot of Canadian portfolio.
Thanks for that.
>> MoneyTalk's Anthony Okolie.
Let's check in on the markets. It not a lot of drama out there.
You're up about 50 points on the TSX Composite Index.
About 1/4 of a percent. Nothing too dramatic but it is to the upside. Noticing Denison Mines, the uranium play, getting a bit of a play today. Let's see if they are holding onto their gains.
It's up about 5% to about 50 per share. Teck Resources, last time I took a look was getting a bit of a bid as well. Nothing too dramatic. 4879, Europe about 1% or have a buck per share.
South of the border, we had US jobless claims coming in a bit higher-than-expected.
Of course, one of the aims of all of these aggressive rate hikes from the US Federal Reserve has been to bring down inflation by cooling the economy and part of that would be the labour market.
Labour has been pretty resilient south of the border.
Right now will 4037, the S&P 500 is up a very modest nine point, about 1/4 of a percent.
The tech heavy NASDAQ was faring a little bit better than the broader market. It's a bit off the highs of the session but up about 65 points or half a percent.
Noticed that Ford was getting a bid today, Ford Motor Company, that would be at 1225 per share right now, up about 1 1/2%.
We are back now with Jacky He from TD Asset Management, talking consumer stocks. This one is interesting to because it did report this week.
Outlook for Dollarama?
>> Dollarama is interesting. My daughters love it.
>> My kids, my wife would say, let's go to Dollarama.
By bunch of stuff. It's often a cost a lot.
That was a big treat.
>> The toys, no longer… >> They get older and lose interest.
>> Yeah, Dollarama did pretty well for the quarter.
Their sales went up almost 16% and that was largely driven by their traffic. We talk about how consumers are feeling more need to demand value for the dollar they spend.
Dollarama is a perfect space for them.
Another thing is it has been pretty disciplined about growing their sorbets and they've been growing about 60 or 70 stores every year consistently.
That's pretty good. Another thing that Dollarama has, if investors happen to compare Dollarama with US dollar stores, it's a different business model.
One idiosyncratic driver for Dollarama is they recently rolled out their five dollar items.
Previously you can only find one to four dollar items and now you can find more and more like 450, 475 and five dollar items.
Not just sound like a lot but to Dollarama's price point, that's a 25% increase.
That's quite meaningful.
The penetration for the new price point are still low.
It can take multiple years to grow. As that grows, the ticket price, the average basket price can also increase on top of that strong traffic.
>> What could trip up Dollarama?
Would it be a real acceleration of inflationary pressures like the shipping costs which obviously have come down dramatically, could some of those things work against the margins of things go the wrong way again?
>> Yeah.
Dollarama imports a lot of things from China.
If the supply chain got stopped again or ocean freight surges again, that would compress the margins for Dollarama and everything else.
And the other thing to note is that Dollarama is relatively stable company. They have a lot of consumer stuff.
They have a lot of essential products. All the other stores are closed, Dollarama benefits to open because they sell imported stuff for our daily lives.
So I would to the other risk is when there is a risk environment for the overall market, then obviously Dollarama will leg the broader market.
>> Great having you here. Great for show.
I hope you come back again on a regular basis.
>> Glad to be here.
Thank you very much.
> Are things to Jacky He, global consumer discretionary analyst with TD Asset Management. On a programming no, we will be having a show tomorrow but we will be back on Monday with James Dixon, director family office solutions with TD Securities. He will be our guest taking your questions about market trends.
Plenty to talk about there.
You don't have to wait till the show starts on Monday to get this questions in. You can get a head start.
Email moneytalklive@td.com.
That's all the time we have for the show today.
Thanks for watching. We will see you on Monday.
[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 show, we'll discuss the outlook for the retail sector and whether consumer spending has held up despite all the worries out there with Jacky He, global consumer discretionary analyst with TD Asset Management. Moneytalk's Anthony Okolie is going to have a look at any report from TD Securities on the outlook for the Canadian telcos. And in today's WebBroker education segment, Caitlin Cormier is going to show us where you can find market commentary on the platform.
Here's how you can get in touch with us, just email moneytalklive@td.
com more you can follow the viewer response box under the video player here on WebBroker.
Before you get to our guest of the day, let's get you an update on the markets. It seems like a pretty calm and nontraumatic trading day. Sometimes, you want a little drama but I think after what we've been through over the last couple of weeks, we will take a sense of calm and ease. It seems like the banking crisis further recedes into the rearview mirror.
19,906 on the TSX Composite Index, that's good for a modest gain of 69 point, about 1/3 of a percent.
We are seeing a studying in the price of crude after quite a ride on crude prices over the last week.
Cenovusat 2341, in positive territory by $0.19 per share. Same thing on the gold side. We had quite a run in all the turmoil in the recent days and the price of gold itself. Some minors got a bit off of that.
That spaces come down. It got Barrick Gold at 2519, five pennies per share.
South of the border, let's check in on the S&P 500.
Again 17 points. Not a lot of drama at there but we do have Green on the screen, a little shy of 1/2 a percent gain.
It let's see how the tech heavy NASDAQ is fair against the broader market.
It's a little bit stronger, perhaps some risk appetite for some bows take place.
91 points to the upside, up three quarters of a percent.
Noticing the chipmakers getting a bit of a bit today as well. Got Advanced Micro Devices at 9851, that's good for a gain of 2 1/2%. That's a market update.
US consumer confidence to tire in March after two months of declines amid rising costs and fears of an economic slowdown, but despite all those issues, spending levels haven't been heavily impacted yet.
Joining us now to discuss his Jacky He, global consumer discretionary analyst with TD Asset Management. Welcome to the show.
>> Glad to be here. Thank you.
>> These are very interesting times when talking about retail stocks and consumer discretionary, all the concerns that we have, the fact that we seem to have had borrowing increases over the year, but the consumer part is held in. What's going on?
>> It is interesting. I still recall last year how many times I got surprised by my grocery bills and at the gas station. Higher borrowing costs, just as you said, just makes everything worse. But if you look at the data, that's your income minus inflation, that went up 6% but the real conception, the real PCE, went up 3%.
it was really a saving success story. During the pandemic, consumers accumulated a lot of government checks and income from investments so they accumulated a lot of savings.
talk about consumer sentiment, I think that is also interesting because people tend to use that as a leading indicatorof what's going to happen to spending.
At an aggregate level, it can sometimes be misleading because the slope of the change was really driven by higher income consumers which is a little bit counterintuitive because if you look at a spread between high and low income consumers, that reached all-time lows.
Higher income consumers felt terrible.
They had more real estate, they had more stocks and bonds, and that, they feel the most… They felt the most direct impact from higher interest rates and the financial market weakness.
But how they feel didn't really transfer to how they spend.
They just got enough spending to smooth out there spending behaviour through difficult times.
I think one interesting thing is that we spend a lot of time talking about how the bottom 20% trading down, but they overall only represent 10% of consumption.
But the top 20% who are still quite resilient represent 40% of consumption.
We should just be more mindful of that.
>> Would we think that as we push further into this year, and it is I guess accepted wisdom although a lot of things have been turned on their heads in the last couple of years that when you talk about interest rate hikes, they take their time to work their way through the economy and be felt.
Do we think that by the later innings of this year, the consumer will have reason to sort of calm down a little bit?
>> Yeah, that's interesting. So you can look at what consumers are telling us. The overall son is pretty resilient and topline growth outpaced market expectations. Part of that was because consumers are financially healthy. Part of that is because we just have more stuff on the shelf the last year and companies are promoting more.
Underneath that, a lot of that was driven by pricing.
So consumers might buy less items but they end up paying more so it's still benefiting companies. But if you look at what happens to the company's profitability perspective, they didn't really work well.
Most companies saw Martin contractions.
They end up paying more commodity costs, they ended up paying their employees more.
we are seeing some signs of inflection and if you look at the inventory, it's really coming down.
That means less pressure for retailers to promote more and you see the cost for the supply chain coming down quite significantly. If you'd shipped from China to the US it used to cost $10,000 per container and I got below 2000.
so at the end of the day, by the end of the year, we you could see the top line to be more moderate but margins to be better.
>>the cost are coming down so that makes a lot of sense in terms of what we are getting from earnings season on the corporate side.
During the pandemic and lockdowns, we stocked up on goods. Everything got lifted and we went out there and grabbed onto those services and spent big.
How is that interplay playing out now?
>> Yeah, that's interesting. I like visuals.
I can put up the chart I brought in.
It really compares the consumer's real income versus their real consumption.
I look at this in different phases.
Pre-pandemic, we see their real income and real spending were pretty much overlapping each other.
That means consumers spent how much they made.
During pandemic, the first half, you saw consumers accumulate lots of stimulus checks and income from investments but they had limited opportunities to spend.
So that difference, the cumulation of excess savings, that was used to fund spending for the second half of the pandemic.
And now for the first time in three years, we see those two lines converge again.
So what that means to me is normalization.
Consumers this year will become more selective when it comes to discretionary spending.
That means companies should start to diverge again.
So in this environment, I think the companies with lasting pricing power and margin upside are better positioned.
When coming to your point, I think a few industries fuelling that framework, like services that continue.
We only have a way through that and that should continue to benefit travel related industries as a whole.
And then if you look at thoseoff-price retailing industry, that's interesting. Consumers have less access to savings and less government benefits, so they will care more about the value for every dollar they spend.
So those companies are better position.
And then last but not least, luxury.
Those customers are better isolated and their products are also more differentiated.
So I will say putting that together, that means pricing power and better margin protection.
>> Let's dig intellectually. I found it interesting we talked about how consumer confidence reading could be deceptive because those people's assets and wealth feel bad because they are seeing the value of their assets come down but they still have disposable income.
Luxury, let's go far in luxury. Look at Ferrari, for example.
>> That's interesting, Ferrari.
All luxury did very well this year.
We talk about the high income resilience but on top of that, you see China reopening.
That's a really meaningful tailwind for the whole industry.
Chinese consumption represents 1/3 of what the globe actually spends.
If you go to tier 1 cities today and look at those shopping malls and those average brands, using mediocre traffic because consumers are still recovering. But if you go to those top brands, you see long lineups. So the amount is pretty solid. High-end consumers are holding up really well.
But it's not only about domestic recovery.
Two thirds of Chinese luxury spending is actually outside of China.
Because if you're buying a Birken bag in Paris, that's much cheaper than buying one in Beijing. People realize that.
there are also a lot of idiosyncratic drivers.
they are finally launching their first SUV called… And they're going to charge a higher price on the product.
That's interesting because if you look around, 10 years ago, you can find one SUV for every five cars.
Now pretty much more than half of the vehicles on the road or SUVs.
It has been a huge driver for the automobile industry.
For Ari, if they succeed, then this product can bring them into a faster growing and bigger market.
Remember, that is just one of the 15 new models they intend to launch the next few years.
>> Interesting stuff. Gotta save over the furry SUV.
It's gonna take me a while.
You'll get your questions about retail and consumer discretionary stocks for Jacky He and just a moment's time.
a reminder of course that you can touch any time.
Email moneytalklive@td.com or filled the viewer response box of the video player on my broker.
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.
Consolation software grew its revenue by 30% last year's sales were boosted by a number of acquisition.
The Toronto-based tech companies reporting 2022 full cells year of $6.6 billion. Apart from acquisitions, organic sales growth came in at -1% before adjusting for currency effects.
It appears Canadian small business owners are feeling more optimistic about the economy. A gauge of the confidence in the Canadian Federation of Independent Business rose for the fourth straight month in a row in March.
TD Economics as well the uptick in confidence is welcome, it's still relatively blunted compared to historical levels.
The latest read on US jobless claims came in a higher-than-expected, moving up to 198,000 last week.
The labour market has proven resilient in the face of aggressive rate hikes from the US Federal Reserve and while jobless games have ticked higher, the four-week average has been trending below 200,000 since the start of the year.
Let's check in on the main benchmark indices, we will start here at home with the TSX Composite Index, up 76 points, good for a gain of a little shy of half a percent.
South of the border, the S&P 500, the broader read of the American market is 18 points to the upside, good for about half a percent.
We are back now in Jacky He, taking your questions about retail and consumer discretionary stocks. Lots of question coming in for you, Jacky, on your first show, let's get to them. We will start with this one. Do you think Amazon's fall from pandemic highs is the new normal for that company?
>> That's a great question. For Amazon, they have really underperformed for a while and started picking up this year.
for the stock to continue to outperform, I would say two things need to work out.
one, they need to be more cost disciplined. Number two, investors really need to see better visibility.
If you break it down, Amazon's DNA is really disrupting other business and gaining market share at the expense of their profitability.
That worked really well for a while until the capital becomes more expensive, market start worrying about micro and people really demand profit today.
Amazon spent a lot of money during the pandemic could to double their headcount, warehouse space, and that creates a lot of operational inefficiencies. The margins that were pressed, people were worried about that.
We see signs of management being more discipline.
You see the headlines, cutting more people, closing warehouses and unproductive stores.
In fact, their retail margin is improving if you adjust for these.
AWS is continuing to decelerate because the company has a tighter budget.
They want to cut down a lower expense on their cloud spending.
That continues. The good thing is that may be temporary.
If you look at the older backlog, that continued to growand they have about $110 billion backlog.
So eventually, that will turn to revenue.
All this AI wave, they will altogether benefit cloud and such Amazon.
>> Did Amazon sort of fall prey to what a lot of tech companies it? It's because we shifted our habit so dramatically during the pandemic, for good reason, we would never shift back.
I think of other names like Shopify, they made big bets that it's the way it's gonna be forever.
Once we get back into the real world, perhaps it shifts back again.
>> The thing is, things change.
the story has changed.
Retail prices, if you look at online e-commerce, the historic grows about 10% over retail sales and that continues.
Amazon keeps gaining shares within e-commerce and clouds, say 90% of companies still have their cloud service with them.
There is still a long way to go. If this AI thing really picked up and then Amazon have a lot of tools and products they are currently serving as a beneficiary, that should give them a lot of tailwind going forward.
>> Alright, let's get to another question. Plenty coming in.
Your view on Tesla?
>> Yeah, that's a difficult question, right?
Tesla, you see them going up and down.
It's a very unique company.
I would not categorize Tesla as a normal automaker.
They stand out in two ways in my perspective.
one is the cost leader. Everyone is talking about wanting the EV, producing more EV, but everyone's losing money.
>> Ford came out recently saying to billion dollars per share, prospecting another $3 billion in losses for that division this year.
>> It's hard to be profitable. The reason Tesla is leading and cost is because they have really high vertical integration.
They are the only one with scale and they are the ones with a lot of advanced manufacturing.
When you hear news that Tesla cut prices, everyone follows but not everyone has the same breakeven room, I would say. But the other thing is the software.
It's hard to develop software and if you drive it has the car, you see many senses around the car, many cameras. That accumulates a lot of data and Tesla uses their machine learning capability to analyse that data, to make their software smarter so they can further themselves down the road from competition. But there are problems for Tesla and for auto overall. You see the autopay been since the pandemic increase about 30%.
Overall, there is an affordability issue and there's also competition issues.
Look at China, for example. The Tesla market share is already flattening and we have to see how that competition and dynamic goes forward.
And also if you look at the production capacity, that's another issue to worry about. Elon Musk committed to 50% long-term growth. What that means is if you do the math, like five years out, they will produce more cars and Toyota.
> That's ambitious.
> That's ambitious. Toyota took decades to build the capacity they have today.
They probably need 15 more like Shanghai giga factory to build the capacity.
It's not only about the money.
It's also about the right permit, the right location, the right people to run the factories.
So there can be a lot of unknowns down the road.
>> Let's get to another question now. This one is timely.
I believe this company just reported its earnings this week.
What about lululemon?
>> What about lululemon?
I think as Canadians we should be proud about this brand.
They did pretty well.
Share price went up 13%.
There is no issues for topline. That brand momentum just keeps going. What impresses people is how well manage that is.
You sell the strong growth across regions, across customers, different customer profiles and product categories. Those are amazing. They continue to do it.
What worried people was their margin side. Right? They got the really high inventory.
They have to promote more, discount more. But at the end of the day, they didn't.
They stuck pretty well with their pricing discipline and they gained market share without outsized promotions like everyone else did.
So that did well.
So what I would watch more for with lululemon is there longer-term growth. It will depend a lot on China's expansion.
They are executing but there is a risk for that.
If they can continue to execute as they planned, there's a lot of upside down the road.
>> Is that the biggest risk for lululemon?
With the whole athletic leisure where took off, we figured there were going to be a lot of competitors and there were but the brand has been able to hold its ground against the competitors.
Is it the execution risk of trying to grow globally?
>> It's funny.
I'm impressed how much that brand power can add to a company's stock.
In many people's mind, lululemon is equal to yoga pants.
Yoga pants equal lululemon.
That alone is impressive.
They created their own product category.
Yes there are competition rising, but it's just not enough to compete with lululemon you.
But also remember, lululemon represents only a single digit market share North America so there is still a long runway for this brand to be more recognized by new people.
If you look at their traffic, it's driven by new customers more than existing commoners.
If you already have yoga pants, you might not need new ones. But there are always new customers coming in to buy yoga pants.
So there is still a good story if they can execute.
>> Is always a home, make sure you do your own research before you make any investment decisions.
We are going to get back to your questions for Jackie háka on retail and consumer discretionary stocks in a moment.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Delegate our educational segment of the day.
If you are looking to do more research, investing research, WebBroker has several sources for market commentary. Joining us now is more skill in Cormier, client education instructor at TD Direct Investing.
Let's talk about the different resources available on WebBroker that can help investors better understand the market.
>> Absolutely. Investors might choose… They want different information on investments,they might be looking all over to get this information and I just want to let investors know that there's quite a bit available within WebBroker if you are looking to do that research.
Let's go ahead and hop into WebBroker.
What we are going to do first as we are going to click on research and we are going to go to news and commentary.
So maybe you've never come to this part of WebBroker before but it's actually going to host quite a bit of information.
It got quite a bit of news and that sort of thing but what I think could be really beneficial to investors is the side on the right where we have some video commentary. So this is going to basically take some different things that are happening in the market, put it into a video, bring in some experts in these different areas where ever this information is most relevant, weathered somebody from healthcare, within TD Asset Management or somewhere like that, they are going to bring them in and kind of help put some perspective into things that have happened in the market. We can see here stocks to buy, we are seeing here things about the federal budget.
How can that impact an investor, what sort of thing so they have to keep in mind?
So quick videos that you can watch and that have some impact. I want to quickly note to that there is a Canadian and US flight.
If you are looking for US information, you just have to simply click the US side and it will update anything that would have US information. Down below, there is also some Globe and Mail articles as well.
If you prefer reading and want to be able to pull up articles that way, you are more than welcome to look into these Globe and Mail articles as well and they are free with WebBroker. You don't have to have a subscription with Globe and Mail to read these particular articles.
Again, there is a link here to more MoneyTalk videos if you want to be able to see a bit more information on those different events and how they might impact you and your investment.
>> Alright, we know where to start looking. What if they are looking for even more reports to view on these topics? Where do you go for that?
>> Report specifically, so we are looking for more of a deep dive, an analytical thing, maybe you don't want to look at something that's as much of commentary or videos, we can click on research and we can go to the reports menu here. So there's a ton of reports that you can find within here, the market in general, different sectors. But what I want to focus on today and kind of more in the vein of what we are talking about is TD Economics.
So we are scrolling down midway through the page and avoid click on TD Economics and let me just make sure that you can see my screen.
Bear with me for just a second here.
There we go.
Should update for you there.
All right.
So now we are on the TD Economics page and we are just going to go there now.
So this is a host of a whole bunch of different commentaries again on all different areas in the market.
So we can see this information on Canada, US and global. As we scroll down, we can see again talking about latest research, talking about spending, federal budget, Canadian retail sales. Visually quite a bit of information here and all you have to do is simply click on the articles to get a bit of information on these topics. So you really do have a ton of resources within WebBroker to help you still told of what's going on in the market and make sense of them and how they might impact you in your portfolio. After tough as always.
Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, client education sector 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.
Before we get back to your questions about retail and consumer stocks for Jacky He, 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 Jacky He, taking your questions about retail and consumer discretionary stocks.
Let's get back to them. Your views on Home Depot?
>> Yeah. Home Depot saw some challenges this year really because we talk about the consumer's shift from goods to services because they really benefited when everyone was locked at home during the pandemic. But if you take a step back, Home Depot, I really view it as a conservative play for the US housing market.
People talk about the housing sales slowed but what really drives home improvement sales was housing price.
When your house feels like more higher, then you tend to invest more in your home.
>> You feel wealthier, home prices making gains… >> Yeah, exactly.
If you look at the housing market, there is still a structural supply and demand mismatch.
That really started from the global financial crisis.
I did a calculation, we have about hundreds of billions of underinvestment in the US housing market. That's on the supply side.
That will take years at least to close that gap.
And then you look at the demand.
The millennial generation is entering the primary age to buy a home and form a household.
So there could be a real demand on that side that keep delayed by global financial crisis and got delayed again during the pandemic. The supply demand story for the long term is attractive. For the near term, this depends on how fast this goods to services will grow.
What we can say is that the valuation for these high quality companies has priced in a lot of bearish view in it.
Over the medium term, we can see Home Depot invest billions of dollars in their supply chain and their customers are not only about individuals like you and me, half of their businesses to professional contractors in the business can really benefit from the investment they did from the past few years and they probably are just at the starting time to bear fruit for that investment.
>> There was a headline lately that perhaps the home renovation and fever that has come over a lot of American the Canadians was coming off and understandably because you want to put a new kitchen in the house and maybe tap the equity in the home, then suddenly the HELOC is a lot more expensive at this time, in March 2023 then it was last year.
>> Definitely. From an affordability perspective, it's really low. You can see the sales for housing getting into a lot of trouble. People decide to stay with low interest rates they locked in before.
Another interesting thing is when you talk about interest rate impact, over 40% of US households own their home.
For the remaining, like 90% of them have locks in their interest rate already.
So the real impact is only on that mid-single-digit household.
So the impact may be less than what we think.
As home improvements spending still have likes to grow.
Management guided about flat growth this year.
I think that's a bit reasonable.
If the housing doesn't collapse, like we saw during the global financial crisis, and then we can see the company to gradually coming out of this on the other side stronger.
>> There may be a master bathroom renovation in the future of my home and any arguments I make about the cost of borrowing, don't go over all that well.
Let's take another question now.
Plenty coming in. What's your take on Magna, the auto parts maker?
>> Auto parts maker is interesting.
It generate cyclical. When the economy is bad, although suppliers would suffer.
This time it's a bit different because all told the industry has been trading at the reception volume for two years because we are short of chips.
The supply chain was disrupted. If you happen to buy a car, you find many empty spots in the dealerships.
And even though now affordability is really bad, people may stop buying new cars but all those automakers still need to fill up their channel inventory. So that eventually from a volume in perspective can benefit auto suppliers like Magna. But Magna has some idiosyncratic problems. Their operations had some inefficiency.
They have to pay their employees more and so that created a lot of margin compression that suppress the market. We talked with management recently and better understand those individual issues.
Most of them have been resolved. So a lot of the future margin like trend will depend on the overall industry recovery.
If their customer gives them less last-minute consultation, they probably need to last over time employees last-minute changes on their workforce so overall their efficiency will be improved and their margin should improve.
> We had questions previously on the show when it comes to Magna and other auto parts manufacturers about what their future looks like regarding electric vehicles.
What's your take?
>>people thought that Magna could be a victim of that easy transition.
But if you look at Magnus portfolio itself, only about 10% has a legacy like internal combustion engine type of exposure. That will gradually decline. But a lot of this, no matter what car you made, you still need doors.
They are investing in and expanding that portfolio that represent about 20%.
That is still growing.
So over time you see that 10% side of growth start declining but the other part is steadily growing.
I would say Magna is a beneficiary of this trend.
>> All right. Let's get to a question now but quick service restaurant. Can we get Jacky's thoughts on Tim Hortons owner Restaurant Brands International?
>> I'm not sure how many copies you drink now.
>> Three a day.
>> You do more than me. I do two per day. But obviously Tim is a beneficiary of reopening. We all drink more coffee, eat more burgers. That helped them. The market really got excited about their investment plan last year. They talk about investing 400 million to turnaround their Burger King US business.
That has been suffering for a while.
they got a new chairman from Domino's Pizza so people think, okay, finally, Burger King US can turn around.
If you look at their investment plan, that only includes about 800 stores for remodelling. That's about 10% of Burger King US store base.
Is that enough? We don't know.
It's still hard to say. The other risk we need to monitor is their balance sheet.
They are more stretched than other restaurant peers.
Within that, a lot of it is exposed to variable rates.
So we have to be cautious when the broader economy is slowing and what that would mean for the company.
>> You mentioned the Burger King thing. There is Tim Hortons under the banner, there is Popeye's as well.
There are a few things going on under the hood of Restaurant Brands International.
>> They have a lot of brands and they are all doing well.
They are doing well domestically. They are expanding internationally.
Burger King internationally is especially strong.
They are building new stores every year consistently.
Those are not the problem for Burger King.
The real problem is domestic.
Think of who you are competing with. You're competing with McDonald's, Wendy's, all those companies and those companies spend a lot of money before the pandemic. So you see them benefit from drive-through, from those digital panels you go to in the restaurant for McDonald's.
But Burger King do not have those. They are kind of liking and investment.
Now they are trying to pick up and the question is, is the amount they are investing enough? Management is telling us yes, they think so, but we have to wait and see the result.
>> We will get back your questions for Jacky He on retail and consumer discretionary stocks in just a moment's time.
As always, make sure you do your own research before you make any investment decisions and a reminder that you 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.
The first-quarter earnings season for the Canadian telecom sector getting underway next month. But it comes during a period of uncertainty as investors awaited decision on the Rogers-Shaw merger, the biggest in Canadian telecom history. Our Anthony Okolie joins us with a preview from TD Securities. What are they saying that?
>> Thanks. TD Securities believes that the big Canadian carriers will continue to benefit from a healthy market conditions and the wireless segment.
They note a couple of key reasons for that. Number one, Limited it force a carrier competition. If the competition Bureau approves the takeover of Shaw Communications,that could benefit the other carriers.
Of course, the decision is still pending. Another thing they point to is the rebound in travel and growing revenue.
Roaming fees is of course a key source of revenue for the Canadian telecoms and according to reports, on average, Canadians pay seven times more for a gigabyte of data versus Australians.
We pay 25 times more than people in Ireland and France and 1000 times more than people in Finland.
Of course, with the rebound and travel and the lifting of restrictions, covert or certain, carriers could benefit from increased roaming revenue going forward.
Carriers could also benefit from meaningful immigration into Canada as they look to attract new customers, users, for their products.
On the inflation front, we know that inflation has been a big story this year.
TD Securities says that cost pressures may be evident in some places in the first quarter or some of these telcos but they don't see any evidence so far of any recessionary impact on consumers or business-to-business telecom spending.
Now TD Securities also noted in their report some other key changes to their outlook.
Number one, they have raised their estimate on wireless revenue, including postpaid and Internet ads for the telecom companies.
They have also lowered their cable and media revenue outlook.
They pointed to declining advertising revenue as well as increasing programming costs for some of the telcos.
Finally, the TD Security sees higher capital expenditures as many of these carriers are expected to frontloaded their capital lending in the first quarter of 2023. Greg?
>> So that's the outlook.
What are the risks to that outlook, according to TD Securities?
> Some of the key risks include increased wireless competition not just from new entrants but the three incumbents.
They also point to a potential for a prolonged recession or economic downturn.
That could turn spending on discretionary wireless services for some of these telcos. Finally, changes in the regulatory environment could impact the telcos operations going forward. Greg?
> Interesting stuff there and some very widely held names and a lot of Canadian portfolio.
Thanks for that.
>> MoneyTalk's Anthony Okolie.
Let's check in on the markets. It not a lot of drama out there.
You're up about 50 points on the TSX Composite Index.
About 1/4 of a percent. Nothing too dramatic but it is to the upside. Noticing Denison Mines, the uranium play, getting a bit of a play today. Let's see if they are holding onto their gains.
It's up about 5% to about 50 per share. Teck Resources, last time I took a look was getting a bit of a bid as well. Nothing too dramatic. 4879, Europe about 1% or have a buck per share.
South of the border, we had US jobless claims coming in a bit higher-than-expected.
Of course, one of the aims of all of these aggressive rate hikes from the US Federal Reserve has been to bring down inflation by cooling the economy and part of that would be the labour market.
Labour has been pretty resilient south of the border.
Right now will 4037, the S&P 500 is up a very modest nine point, about 1/4 of a percent.
The tech heavy NASDAQ was faring a little bit better than the broader market. It's a bit off the highs of the session but up about 65 points or half a percent.
Noticed that Ford was getting a bid today, Ford Motor Company, that would be at 1225 per share right now, up about 1 1/2%.
We are back now with Jacky He from TD Asset Management, talking consumer stocks. This one is interesting to because it did report this week.
Outlook for Dollarama?
>> Dollarama is interesting. My daughters love it.
>> My kids, my wife would say, let's go to Dollarama.
By bunch of stuff. It's often a cost a lot.
That was a big treat.
>> The toys, no longer… >> They get older and lose interest.
>> Yeah, Dollarama did pretty well for the quarter.
Their sales went up almost 16% and that was largely driven by their traffic. We talk about how consumers are feeling more need to demand value for the dollar they spend.
Dollarama is a perfect space for them.
Another thing is it has been pretty disciplined about growing their sorbets and they've been growing about 60 or 70 stores every year consistently.
That's pretty good. Another thing that Dollarama has, if investors happen to compare Dollarama with US dollar stores, it's a different business model.
One idiosyncratic driver for Dollarama is they recently rolled out their five dollar items.
Previously you can only find one to four dollar items and now you can find more and more like 450, 475 and five dollar items.
Not just sound like a lot but to Dollarama's price point, that's a 25% increase.
That's quite meaningful.
The penetration for the new price point are still low.
It can take multiple years to grow. As that grows, the ticket price, the average basket price can also increase on top of that strong traffic.
>> What could trip up Dollarama?
Would it be a real acceleration of inflationary pressures like the shipping costs which obviously have come down dramatically, could some of those things work against the margins of things go the wrong way again?
>> Yeah.
Dollarama imports a lot of things from China.
If the supply chain got stopped again or ocean freight surges again, that would compress the margins for Dollarama and everything else.
And the other thing to note is that Dollarama is relatively stable company. They have a lot of consumer stuff.
They have a lot of essential products. All the other stores are closed, Dollarama benefits to open because they sell imported stuff for our daily lives.
So I would to the other risk is when there is a risk environment for the overall market, then obviously Dollarama will leg the broader market.
>> Great having you here. Great for show.
I hope you come back again on a regular basis.
>> Glad to be here.
Thank you very much.
> Are things to Jacky He, global consumer discretionary analyst with TD Asset Management. On a programming no, we will be having a show tomorrow but we will be back on Monday with James Dixon, director family office solutions with TD Securities. He will be our guest taking your questions about market trends.
Plenty to talk about there.
You don't have to wait till the show starts on Monday to get this questions in. You can get a head start.
Email moneytalklive@td.com.
That's all the time we have for the show today.
Thanks for watching. We will see you on Monday.
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