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[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss whether better days lie ahead for real estate and if her structure stocks with TD Asset Management to Jeff Evans.
MoneyTalk's Anthony Okolie will have a look at the big takeaways from the gold sector earnings season and to today's WebBroker education segment, Caitlin Cormier will show us how you can screen for different types of stocks using the platform.
You can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
The TSX Composite Index is up .16%.
At $12.61 per share, Kinross is down about 1.5%. A lot of movement in the stock last year, as well as in the commodity gold.
Suncor is a little bit flat, up about half a percent. South of the border, we have been so carefully watching all the economic data over the last two years to try to figure out when central banks could start lowering borrowing costs which, of course, they had retired to try to tame inflation, the resilience of the US economy was a big story.
The labour statistics Bureau in the states came out today and told us that there were fewer jobs than originally reported for the 12 month period through March 2024, that is nearly 30% less the growth that was reported. Still, 2 million jobs were created over the 12 month period.
And the markets seem to be trying to make sense of it. The S&P 500 came back on that news, what back higher, it's just above the breakeven line, up more than one point. We are getting fed minutes this afternoon as well, perhaps wait and see on that note. The tech heavy NASDAQ, how is it trying against the broader market? It's up about 1/5 of a percent. Target, a lot of retailers in the states today reporting. Target is up 12.5%, beat expectations. It had been suffering a run of sales declines and starting to see a turnaround in that area. Seems to have investors excited about the name today.
And that's your market update.
Well, of course, big technology stocks have been in favour among the investors for a while now but interest rates are trending lower. Could we begin to see more opportunity in some other sectors of the market like real estate, infrastructure?
Joining a centre discusses Jeff Evans, VP, Dir. and lead of empirical research and PM support at TD Asset Management.
Welcome to the program.
>> Great to be here.
Thanks for having me on.
>> Introduce yourself and discuss your coverage area.
>> I'll give you the high level summary. I spent about 20 years of in quantitative and empirical research at a number of brokers and dealers. Seven years ago, I had the opportunity to join TD and I focus on empirical research and equities. At a high level, what we do is we work closely with our equity portfolio managers and our fundamental research analysts to try to make sense of all the noise that's out there. There is an enormous amount of data these days on individual companies, whether it's the quarterly reports, income statements, balance sheets, all the different ratios. The media creates a lot of information as well so it's a lot for investors to process.
What our team focuses on, about five people focusing on this across the organization, we try to use statistical mathematical techniques to really narrow down what the most important metrics are, where showed our analysts focus their attention, were the most important metrics for companies that help drive outperformance and strong performance returns. It's about trying to figure out the best ways of allocating time to the best companies that have the best opportunities in the market to give our analysts the edge over time. Additionally, I am portfolio manager on some of our global real estate and if her structure products where we use a lot of the same techniques, empirical research and quantitative screening, to help identify securities that we think in a form and then later we use fundamental analysis to improve stock options in the portfolios.
>> Fascinating stuff. Let's start talking about some of those areas that you apply your research two. Real estate and infrastructure. We have interest rates trending lower. Sometimes the sectors are not logged in a high interest rate environment. Is there potential opportunity here?
>> It has been a challenging couple of years for the sectors. We have had over the last two years some of the largest and fastest increases in interest rates around the world that we've seen in probably 50 years. The reason why that's important for the sectors as you sent to be some of the highest leverage sectors in the equity market, they also tend to be is some of the higher dividend yield or income sectors.
When interest rates go from 0 to 5%, you can get a risk-free GIC from the bank at 5%, the incentive to own other things is less compelling. The business, many have continued to perform well over the last three years at the operating level but they are operating with a lot of leverage and as interest rates have come up, they refinanced that debt at higher rates and it has really made it harder for them to grow their bottom line faced with the interest-rate pressure. As we are starting to see interest-rate cuts come in, a couple from the BOC, hopefully going to get one in the US in September, we will get updates from Jackson Hole later this week, we are on the other side of that.
All of that leverage has gone upside down as those GIC slide lower over time, it will be a gradual process but as investors start to have to replace that cash flow, you will have to move into equities and real estate and infrastructure are sum of the standard to go to sectors when cash goes down.
Those talents for financing become headwinds become talents, much better operating environment.
>> Let's take the sectors one at a time.
Let's talk about the outlook for real estate. This is a big bucket.
>> A lot of different sectors. At a high level, if you are thinking about real estate, you have to think about how full are the buildings, what rent can you charge and decide grow over time?
Also what is the financing. I think financing is improving.
It comes back to occupancy and rent. If you go across the major sectors, whether it's apartments, single-family rental, industrial, data centres, cell phone towers, those of the big buckets in real estate, their pre-much full. Occupancy is tight. There might've been a little slippage here and there but broadly speaking operating very close to peak occupancy.
And then what's more important is that because of the inflation that we have seen in construction costs over the last couple of years, the increase in financing costs, nobody's building new buildings right now.
The math does not work aside from a few special cases. There is a little bit still coming into the market. We are seeing a lot of deliveries and 24. That will slow down and 25 and almost disappear and 26 and we will have an environment of strong occupancy today that should just get tighter, absent a recession. The operating fundamentals are very strong into 26.
That's important for landlords because of occupancy is full, you can usually charge pretty good runs and push rent increases through your tenants at healthy rates.
Across apartment REITs in Canada, we are seeing strong immigration and demand for housing, there is help you rent growth across the country. A little weaker in the US because they built a lot of supply in the Sun Belt so it's a little more regional but generally healthy rent growth in apartments. Industrial, there some dynamics going on there too but a very good path for industrial REITs to raise the rents over the next couple of years and bring it up to market. This whole dynamic of being able to price particularly in retail where there has been no supply for 10 years, lots of opportunity to raise rents across the board. It comes down to interest rates masking a lot of the strong fundamentals and we think as you get into 26, the set up remain favourable.
>> What about office? This is what I hear is the standard. Rachel has returned strongly, industrials, warehouses, but are people going back to the office?
>> That is the one standout where there still is in occupancy decline.
Historically, offices were great assets.
You have 5 to 10 year leases, people generally held onto them, occupancy was high in the mid-90s. It slipped down to the mid-80s but it's regional. When we look at Asia, a lot of the Asian office markets tend to be healthy. Particularly the new buildings. Culturally, people want to be in the office. It's all upon those markets. Same thing and large parts of Europe. Spain is a great example, one of the fastest-growing and best economies in Europe.
Office has held up well, 92, 93% vacancy where it was 95 at the peak so lots of strong demand in certain submarkets. It's really the West Coast US, tech. The tech sector has been the area where things have struggled.
In some cases we are seeing occupancy well below 80% and landlord struggling to fill up their buildings.
We are seeing a few little re-shoots here and there. The AI startups in San Francisco starting to take some space us in helping to chip away at vacancy and get rid of some of the sublet space in the San Francisco market. You are also seeing within the apartment REITs, last year when there were tech layoffs, it was difficult to rent off apartments. We are seeing that come back. It's much stronger than it was a year ago. It tells us that at the margin something is starting to improve the tech space.
Where we are really trying to see it is the traditional office markets, like New York and Boston, this for you have financial, insurance, real estate tenants.
Leasing activity is picking up in those markets. We are seeing some tenants take more space as these leases come up for renewal, one of the big landlords in the states was talking about one of the tenants, a big consulting firm, they took 20% more space than they did before. Not everybody is doing that but there are anecdotal signs that people are starting to figure out their space needs. This may be another three or four years of leases that need to roll over still before we get completely comfortable that the COVID environment is sorted out but we are seeing some green shoots. We are not at the bottom. There still bit of occupancy slippage. But this acceleration in leasing probably won't help this year but as we get into 25 and 26, you should start to see some of this leasing activity happening now show up in the occupancy statistics so I think it's all probably too soon for office but certainly more optimistic than it has been for the last couple of years.
>> Interesting breakdown on real estate.
We have not touched on the infrastructure side. What are we thinking about the opportunities here?
>> Lots of different subsectors within every structure. Let start with transport, the rails, trucking companies, which are little bit more economically sensitive.
There were some green shoots earlier this year. We saw the ISM picking up, leading indicators were showing better signals.
Unfortunately that has rolled over in the last month or two. It has created a little bit of uncertainty on whether the economy is recovering. The payroll numbers being revised down does not help that dynamic.
Then we look at inventories, the other key thing. There was a lot of inventory destocking over the last couple of years.
Just anecdotally as one example, if you talk to the cold storage REITs that handle food and food processing, they are operating at some of the lowest inventory levels in occupancy that they have seen on record but it's reflective of the challenges to the consumer. We are not eating out as much, people are not using restaurants, they are eating from home.
It's change the amount of demand for a lot of these cold storage companies and that leads into the transports, we are not seeing that restocking cycle be accelerating as quickly as people thought.
It seems like it's coming, the inventory levels are relatively low prayer the ISM has hopefully bottomed out and should benefit for interest-rate cuts. We need to see a little more strength for the sectors will come back.
On the pipeline side, I think what's interesting here is there's a lot of concern as to whether they needed to exist five years ago.
I think what we have seen with all of the geopolitical noise in the last few years is that there really is a need for oil and gas. It's gonna be around for a long time.
We can't build renewables as fast as governments want to stay. Particularly, were relatively clean and secure energy as we produce in Canada, it's kind of silly to say that the energy is green by the energy companies have put a lot of effort into making their products as environmentally friendly as they can and taking as much carbon out of their production process as possible. We are seeing a long-term demand profile. Then things like LNG exporting to Asia and Europe to meet some of their energy and security needs. All of that has come together to create a much more attractive profile. It later in this AI datacentre team in the last year, we cannot meet that with nuclear renewables. It comes down to natural gas which created another incremental demand driver to support the demand on these pipelines. Generally is a strong sector with a healthy backdrop.
The other component would be utilities. A couple of years ago, this was kind of the backwater of the equity market that did not do too much.
Electricity demand was not growing. Maybe half a percent per year for the last two decades.
We are now at the low and seeing 1% per year per growth which is… I see estimates as 4% per year growth over the next decade.
A lot of that is datacentre is but a lot of it is bringing battery plants back into the US, it's bringing chip plants back into the US. Even just manufacturing facilities, airplanes and those sorts of things, this facilities use a lot of energy and we are now seeing a much more constructive outlook for utilities. It's a sector that has gone from a relatively low growth and boring sector to a few years ago to one that is now supporting a lot of the Nvidia and Microsoft side. You cannot have that and build out if you don't have the power. It's become a much more compelling sector. The earnings growth rates are still about the same. We have not seen companies upgrade guidance dramatically but it's the certainty and that guidance over a much longer period of time that makes it much more compelling sector today than it was even a few years ago.
>> Fascinating stuff and a great start the program. We are going to get your questions about real estate and into structure stocks for Jeff Evans in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
It's another sign of slowing demand in the electric vehicle market. Ford is delaying a new EV plant in Tennessee and its cancelling plans to produce an electric three row SUV, it says it will put more resources towards hybrid vehicles.
Automakers including Tesla have seen slowing demand for electric vehicles amid shifting consumer demand. Cash-strapped consumers searching for deals are boosting sales for the parent company winners and marshals, that would be TJX companies.
They beat expectations on the top and bottom line for its most recent quarter and is raising its full year sales forecast. TJX stores have been successfully luring shoppers away from competitors amid the high cost of living.
TJX is up about 6%. It Macy's, the stock last time I checked, moving in the other direction. Decidedly down more than 12%.
What's going on here? Department store chain cutting its full-year sales forecast struggling to bring those customers into its department stores. Macy's says even affluent shoppers are not spending as freely as they used to. Click check in on the markets. We will start on Bay Street with the TSX Composite Index.
We are up a modest 17 points, just seven ticks to the upside but it's green on the screen. South of the border, I want to check in on the S&P 500, the market trying to digest this news that they over counter jobs in the US to the tune of about 800,000 in a 12 month period up to March 2024.
There's been some movement in the market.
We are also waiting for the Fed minutes at 2 PM Eastern time as well so we will see what comes out of those.
We are back now with Jeff Evans from TD asset management.
Here's the first question. How disruptive could a strike or lockout be for Canadian Pacific Kansas City and CN?
>> It'll be an interesting couple of weeks.
It's a very unique dynamic from what we have seen in the past where it's normally CN negotiating a labour agreement when you're, CP the next, it makes it difficult to have a national shutdown in that scenario. This year, both of those contracts are renegotiated at the same time. It creates a stronger negotiating position for the union and the government is much more open to helping labour. In previous cases of labour strikes, there was back to work legislation. But now there is a willingness to tolerate a bit more disruption in the economy to support this political group. That said, there is probably an elevated risk of disruption, a lot of these companies have been talking about it for months. CN cut guidance back in June slightly in part in anticipation of this.
CP has generally said that they can maintain their guidance as long as this is a short disruption of one to two weeks. In our view, as long as this is fairly contained in short, these companies should be able to manage through, the issue is if it goes into September, then you might have to see some guidance adjustments to the downside. It's probably more impactful for CN and CPE. About 80% of CNs businesses focus on Canada, CP has the diversification of the US and Mexico businesses which helps them out on the margin, they can manage a little bit better. The longer term concern is that if this stretches out over a long period of time or labour disruptions are more frequent going forward, the question is, what happens to rail volumes? There has been a steady decline in rail volumes over the last 10 to 15 years. Usually when a recession happens, volumes fall off and don't come back and the concern here is if you change the end consumer demand or business propensities too much, it will be difficult to bring those volumes back so you have to work to make sure that this is a 1 to 2 week disruption.
>> We are coming up on that deadline for either a strike or lockout so we will keep an eye on that for you. Next question here. I would like your guests thoughts on Japan. Sent in by our loyal viewer, Jeff.
Jeff, thanks for the questions and for watching. What we think?
>> Japan has been an interesting market over the summer, lots of volatility.
First of all, whenever you have a developed economy and their stock market declined 12% in a day and then rebounds 12% to the next day, that should raise questions. That type of volatility happens when investors are unsure if there is a significant change in policy so in those environments, it's good to take a step back and reassess the bigger picture.
There are two things that drew a lot of that drawdown. Part of it was the concern that they were going to be weaker.
The job market may be going into recession and compressing interest rate spread between the two countries so there was a bit of that influencing trade. To the bigger concern in my mind as the Bank of Japan made an interesting policy choice, trying to hike rates and even double down on the willingness to hike rates in an environment where almost every other central bank is cutting. That was a very curious college see decision and clearly out of step with what the marketer thinking. I think that's the key risk year. Markets need to get comfortable with whether there's going to be another policy mistakes in the Bank of Japan and then that later some political uncertainty with the Prime Minister not running again in September so is a good opportunity to step back and see where we are at on some of these macro drivers. That said, there's a lot of positive reform in Japan. Companies are unwinding their shareholdings. The Japanese stock exchanges really focus on appropriate governance reforms and getting valuations up.
Earnings growth in Japan is good. The market expects around 10% earnings growth over the next three years, but the same as the US, around 12%. Japan trays of 14 times earnings and the US trade that 20.
>> Interesting information on Japan. If you want your thoughts on Enbridge.
>> I think the backdrop for North American energy and pipeline assets is significantly improved from where it was a few years ago. Enbridge has one of the broadest numbers across North America.
They deal with an enormous amount of expert volumes with their pipelines and distribution as well. I think the big thing over the next year is the dividend yield. You have a large Canadian stock trading at a 7% yield. It's already a 2 1/2% premium to what you are getting on GICs. That's only going to widen out over time.
It will take time as money comes out of the GIC market.
Enbridge you should be a beneficiary.
That's in your term catalyst. The questions you would have a Enbridge would be on the sustainability of the dividend longer term.
Enbridge pays out there dividend mostly out of cash flow as a tire than the earnings. There's a bit of a concern from some analysts as to whether or not there is enough provision for maintenance. At 10 or 15 years down the road, they may have to slow the dividend growth down or adjust it to invest in those mainline assets.
The other concern would be on the growth side. Historically, Enbridge was a strong growth engine, lots of growth in the early 2010 prior to 2016, that is really slow down in the last seven years or so. It's been hard for them to generate growth.
What we have been seeing is a lot of the US peers focused on some of the oil plays in Texas and so on which have seen much stronger opportunities. I think it will be an interesting name given the dividend yield but for this to work longer term they need to figure out how to grow longer term.
>> Interesting insights on Enbridge.
As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Jeff evidence on real estate and infrastructure stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get our educational segment of the day.
If you're looking to do research on specific types of stocks, WebBroker has tools which can help. Joining us and with Maurice Caitlin Cormier, Senior client education instructor with TD Direct Investing. Always good to see you. Let's talk about what broker helping us sift through all the different stocks out there on the market.
>> Yeah, absolutely! There are so many stocks available on the market. It's hard and overwhelming for investors sometimes to figure. If you're looking to do a little bit of individual stock trading, where do you find a stock to investing, how do you pick a stock out of all the ones that are out there?
Let's use our screeners tool which essentially as you said takes all of the stocks listed on the Canadian and US exchanges and filters it down based on criteria that you are looking for in an investment. On the platform, we are going to click research, under tools, we are going to click on screeners.
We have screeners for stocks as well as technical events, mutual funds and ETFs.
If you're looking to screen for something else, there screeners for those as well but today we are going to look more on the stock side.
When we look here, you can see we have some themes that are already pre-created where you can look for a stock that's in a certain area of the market. For example, if you are interested in AI, you might want to find out what companies are involved in AI. You just have to click on this theme and it will bring out companies that may benefit from different changes within the AI market. It can show you the price performance for the stock in the stock price and it's giving you some names, giving you an idea of some companies you might want to look at. You can scroll through, see a bit more information about these companies. If you click on one, for example, it'll show you a little bit about what the company does and why it's listed on this particular list and ranked in this case as the number one stock on this particular list.
Based on stock performance and price, it's number one on this list. Maybe this is too much and you want to filter down a little bit more, maybe you are looking for Canadian companies, come up here and select Canadian exchanges. We had 42 matches. It took away my theme here. Let's just put that back.
Let's just go back here.
Go back to my AI. And I should just be able to go Canada here.
No. It doesn't want to show me just Canadian. So that's fine.
It was just showing me the US stocks that were available there. Under screeners and AI. But you can add additional criteria once you are in there to filter down the results a little more. Maybe you'll choose one that has a bit more results here.
Let's choose energy. There we go. We are under the theme of energy and if I click for example Canada, it will take my 39 matches down to nine and then I can see more specifically what I'm looking for in something within that particular theme.
>> I think you answered a question they're trying to do that screens are Canada and AI that we had on the show in the past from guests talking about AI. What is a place in Canada? Not a lot. Clearly that plays out in the market. You showed us a bit of customization. What you want to build your own custom screen?
>> Yeah, absolutely! I guess I have answered that question right there.
There's nothing showing up there.
Absolutely, if you have specific criteria, you're an investor, you do your own research and you know what you're looking for, you can build your own custom screen.
We are going to hop into the screeners tool but this time we are going to hit where it says screening instead and it's going to start out with a blank slate here. We are starting with 8000 matches here based on the information we have listed and we can click more criteria and you will see there are several different choices here were how you can actually filter the investments. For example, if you are looking at different valuation ratios, maybe you're looking at different financial information, may be want to know about earnings-per-share, volume of trading, there are lots of different areas that you can filter down. Let's go ahead and choose dividend growth.
I'm going to go back in and choose dividend growth rate, see if the dividend is increasing over time. And I'm also going to go to let's just choose a specific sector and industry as well.
Starting the sector and industry, I can clear all sectors and choose for example only consumer cyclical.
I will go with that. It will show me in here what different companies that's going to include and I can exclude any that I don't want to search for. I'm going to click on dividend growth rate. Let's say I'm looking for a positive growth rate. I can either use this button and type in here what a minimum growth rate that I'm looking for is and dividend yield, same idea. Maybe I'm looking for at least a 4% dividend yield. I have taken the 6000 stocks that were there originally and I'm down to 22 matches. I have significantly reduce the number of investments out there based on what I'm looking for and still looking in Canada and the US. I can see all of the results. I'm looking at the top 10. They are based on the criteria that I have input. So where these companies land within the rankings of the rest of the companies on the list.
And I can see the dividend growth rate, dividend yield, price performance and stock price all here and that they are all common shares.
If something here is most important to me, if dividend yield for example is most important, I can click twice and it will show me highest dividend yield to lowest dividend yield, and then again, if I wanted to see a little bit more about the company, I distantly click, it will bring up information about that company and show me why it was listed, for example, this 1 Was, #1 out of the 22 results and is showing me why that is the case.
So loss that can be done here. The last thing I will remember to say here is that you also will maybe want to save your screen. If you have gone through all the work to kind of create this and you want to be able to come back and look at the stocks at a future date, you can go ahead and type in here, for example, consumer… Cyclical and I can put in any description that I want, I can put on alerts if there's any changes in the top 10, if any companies come in or drop out of the top 10, I can save it for myself or with other traders that they can come on and be able to do it, save screen and then the next time I come in, under my stock screener, I go ahead and click on the little star here and I will see my consumer cyclical and I can go back and see those results again.
So lots available there, lots to dial into on stock screeners but I think it would be a great tool for a lot of investors to look for different investing opportunities.
>> Great stuff as always. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, Senior client education instructor with TD Direct Investing. For more educational resources, you can check at the learning centre on what broker or use this QR code to go to TD Direct Investing's YouTube page for more informative videos.
We are back with Jeff Evans from TD asset management taking your questions. What's your outlook on Canadian Apartment Properties REIT?
>> Let's step back and just look at the apartment sector in Canada in general, broad level, as mentioned earlier, we continue to see very strong occupancy. We are not building enough housing in general in Canada. On top of that, clearly have very strong population growth over the last few years through immigration. There has been a little bit of concern. There are policy changes earlier this year or two slow immigrations creating a bit of a headwind for these names. A lot of that we tend to be more companies exposed to students, which tends to be less in the Canadian apartment REIT client base. We are seeing an enormous amount of demand and no new supply really coming into the market in a significant way. What that means is that rents continue to grow across most Canadian markets. We are seeing fairly healthy both new lease growth when a tenant comes in, quite often seen 10% plus and insert markets even higher and then as a tenancy comes up for renewal every year, we are seeing may double-digit growth. Attractive dynamics in the sector. The cost of apartments versus housing, it continues to be cheaper to live in an apartment then to buy a house.
For Canadian apartment REITs in particular, they've done a lot of work in recent years cleaning up their business, selling off some smaller divisions. They recently sold the manufacturing housing group and refocus just on the core apartments.
They have been very active in disposing of some of their older properties and more capital-intensive property so that allows them to basically recycle into newer assets, raise the overall quality of the portfolio and really not change the yield too much.
They have done quite a lot of work in the overall portfolio quality. The other important thing about them is if you look at their in place rents versus market rents, there's about a 30% gap so over time, as tenants move out of the portfolio, you can take that unit, reprice its 30% higher and delivered to a new tenant. That creates a multiyear runway for cash flow growth with fairly high visibility.
The last two years have been a little bit different.
The more West Coast focused REITs where you are operating in non-rent-controlled markets, they've been able to move those rents up a little bit faster and capture some of that growth. For Canadian apartment, it's back and loaded. It will take some time because of rent control and very low turnover, nobody wants to leave these cheaper units, it takes a longer time for them to capture that. But otherwise, as we start to see rent growth slowing down a little bit, we see a pivot away from some of these non-rent-controlled markets to companies that have that tailwind of being able to reprice units to market rates.
>> Interesting things to keep in mind on the name.
A viewer would also like to get your thoughts on SmartCentres.
Now we are into retail.
>> Very interesting pivot. If you go back to 2019, precode, retail was in a bit of, pocket of uncertainty.
Amazon and e-commerce were strong competitive threats. There is one point where people thought you could buy everything you wanted from your cell phone, drone would show up and drop it on the porch. COVID dispelled that. It turns out people like to get together, get out of the house, do you think. It has underscored the value of a lot of these retail properties.
The tenants that were at risk were cleaned out during COVID so we have a much stronger tenant base and more portly, we are not building you retail across North America so there has really been a complete lack of supply because we cannot find the land and if you do find the land, it's usually better to build a condo or an apartment not on the property.
What that means is that there is an enormous amount of tenant demand for retail today and a new supply so tenants are at a point where they are signing not just leases for this year, they are looking into 27, 28 in some cases, and signing leases when there is still already a tenant in that unit and willing to pay much higher rents to get in there down the road. The constructive backdrop for retail in general. For SmartCentres in particular, they have a very strong portfolio with Walmart anchoring most of their shopping centres. High quality, investment grade tenant that anchors the property. The downside is that it tends to have a somewhat lower incomes q. given the customer mix so the Walmart side of it is okay to question is more how does that react to the other tenants in that Plaza?
People might go to Walmart to get the groceries a little bit cheaper. Did they shop at the other stores around that? That would be the? In the near term. For now things sting him to be holding up reasonably well but there is concern that if the strike song, there could be more pressure on the lower end versus the higher end consumer.
The other thing to keep in mind with SmartCentres, they have been using the stable Walmart anchor to will help set up a development anchor, putting up apartment buildings on vacant land and vacant space.
The development math on that development arm has been a lot more challenged so that's really the issue they've had to work through as they have a very strong development pipeline, there's lots of opportunities as rates come down and interest rates or rental rates go up so it's a constructive long-term outlook. We still need to see a little bit more certainty on the macro before that can really start to kick in again.
>> Interesting stuff there on SmartCentres. We are going to get back your questions for Jeff Evans on infrastructure and real estate stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and reminder you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
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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.
It was a strong quarter for gold producers, benefiting from record high gold prices. Anthony Okolie joins us now with a TD Cowen recap of their results and their outlook for the remainder of this year.
>> 10/14 companies in TD Cowen's coverage earnings-- which came in about 3% above expectations. When you look at key metric gross margins, it extended by nearly 55%, that's about the five-year average of 52% and of course gold search to all-time highs during the quarter. It average just over $2300 an ounce in the second quarter, that's up 13% versus the first quarter and of course we have seen in recent weeks US growth data that has raised expectations for September rate cuts and we know that rate cuts are favourable to gold prices.
When we look at some of the other key metrics, we will start with cash costs.
Producers did see higher cash costs in the quarter, these are things related to direct mining costs, labour, material, royalties, taxes. But it was primarily expensed by the large-cap companies. They saw cash costs up about 4% and that was company specific challenges in the quarter. The good news is it was better for made Producers where costs were relatively flat. When we look at some of the other key metrics, free cash flow, for example, gold producers in the coverage universe saw quarterly cash flow of 22% quarter over quarter. That is still below the 2020 levels and that's because many of these companies are building expansion or growth projects.
Short term, TD Cowen says the outlook is very positive. Gold prices right now are trading worth $2500 per ounce, that's all time high.
We are also continuing to see tailwinds for gold prices and continued central bank interest in using gold to supply the foreign exchange reserves. There is more uptake from retail investors for gold made a rising increasing clarity on the timing of the Federal Reserve rate cuts. TD Cowen believes the outlook for the rest of 2024 remains optimistic and very strong. They believe that gross margin expansion is expected to continue in that companies are well positioned to grow those margins through 2024, with higher gold prices and lower interest rates.
>> What are the risks? Cash technical risks of some of these mining projects.
There is also environmental and social risk among others.
>> Great stuff as always. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
And now for an update on the market.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. Let's jump into the heat map and get a nice view of the market movers.
This is the TSX 60. What's happening today? We have modest green on the top line, a modest 10th of a percent. Manulife and Sun Life, Manulife and Sun Life, I said those words before, showing some modest drink. Kinross to the downside in the mining bucket. South of the border, the big revision to the downside for a whole year of job creation in the states through March 2024, it feels like the markets trying to figure it out. Fed minutes at 2 PM. Returning to sales growth and the street likes that story there.
We are back now with Jeff Evans from TD asset management.
This question just came in. Does your guest see any opportunities in B and C office buildings? We hear about quality, what about these?
>> We mentioned earlier that occupancy in offices has slipped to the mid to low 80s.
It's interesting. In the eight quality properties, centrally located in a business district, on transit lines, vacancy rates are sometimes two or 3%.
These well-positioned assets are not seeing vacancy losses. A lot of that has come out of the B and C properties where you got 30 or 40% vacant buildings which is a significant challenge for landlords to try to bring that tenant base back in.
We have seen a lot of landlord shifting to heavy incentives, so free rent they are giving out to get tenants back in is that almost all time high and in a lot of cases, that's not even working. Giving away office space for free for several months or even a year or more.
What's happening is that landlords are having to get very creative. Part of the issue in these B and C buildings is their green energy attributes or ESG characteristics. A lot of them are not energy-efficient, they don't necessarily have the amenity space that tenants want is also what you're seeing is selectively some landlords are going into try to reposition older buildings, bring no to a modern standard and then reposition almost as a class a. There are a number of companies doing this in London, the UK, pretty much every commercial property is graded based on its energy efficiency and there are some public market companies that specialize in taking B or C assets where it makes sense, you have temp location right in the transit access, but if you can invest in cleaning up the building envelope and the energy systems is possible sometimes to make these buildings little bit more appealing.
There was a really interesting case in Canary wharf. HSBC is leaving one of their towers in Canary wharf at the end of next year.
There interesting design showing up online of some of the things that are being done to rethink that building.
They are literally talking about carving out chunks of the building, taking the windows off, taking out some of the floor plates in certain parts of the building, literally creating outdoor space, these big open-air almost like a park on the 30th floor of the building. I don't know if it will get done but those are some of the creative ideas that landlords are turning to to try to bring tenants back in, even changing the architecture of the building to make it more appealing. It does not work in every case.
It's driven by the economics of it. You need to be in a good location for that make sense. In a lot of cases, the B or C buildings, the occupancy gets fixed by converting its alternative use.
We are seeing at couple of REITs in Canada with well located office space, they are going for a rezoning process, tearing down 10 to 20 story office building to put a 60 story condo so a lot of that is how these assets are to be reposition over time.
>> We are at a time for questions. Before let you go, quick thoughts again. We have seen real estate and infrastructure lower, rates are following, perhaps a little bit more favourable for them?
>> Absolutely. I think the thing to keep in mind is these are the least correlated sectors to broader equities, gives you diversification. Historically, they tend to be fairly stable, low risk, great dividends that you can compound over time and as interest rates come down, this is a way of stepping out a little bit into the risk spectrum to maintain that yield an income without having to go into really high beta equities. It's a way of stepping into higher income and maintaining those levels for investors.
>> Fascinating stuff. Great to have you on the show. Hope you want to come back.
>> Thank you very much.
>> Our thanks to Jeff Evans from TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we did not have time to get your questions today, we are going to aim to get into future shows. Stay tuned for tomorrow's program. Scott Colbourne, managing Dir. and head of active fixed income with TD Asset Management will be our guests. We are going to talk about what we are seeing out there in the world of active fixed income. Also Jerome Powell is on deck for Friday morning at Jackson Hole. We are gonna be watching that one and we'll talk about that was caught as well. You can get a head start with your questions for Scott. Just email moneytalklive@td.com.
That's all the time you have to show today. Thanks for watching.
We'll see you tomorrow.
[theme music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss whether better days lie ahead for real estate and if her structure stocks with TD Asset Management to Jeff Evans.
MoneyTalk's Anthony Okolie will have a look at the big takeaways from the gold sector earnings season and to today's WebBroker education segment, Caitlin Cormier will show us how you can screen for different types of stocks using the platform.
You can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
The TSX Composite Index is up .16%.
At $12.61 per share, Kinross is down about 1.5%. A lot of movement in the stock last year, as well as in the commodity gold.
Suncor is a little bit flat, up about half a percent. South of the border, we have been so carefully watching all the economic data over the last two years to try to figure out when central banks could start lowering borrowing costs which, of course, they had retired to try to tame inflation, the resilience of the US economy was a big story.
The labour statistics Bureau in the states came out today and told us that there were fewer jobs than originally reported for the 12 month period through March 2024, that is nearly 30% less the growth that was reported. Still, 2 million jobs were created over the 12 month period.
And the markets seem to be trying to make sense of it. The S&P 500 came back on that news, what back higher, it's just above the breakeven line, up more than one point. We are getting fed minutes this afternoon as well, perhaps wait and see on that note. The tech heavy NASDAQ, how is it trying against the broader market? It's up about 1/5 of a percent. Target, a lot of retailers in the states today reporting. Target is up 12.5%, beat expectations. It had been suffering a run of sales declines and starting to see a turnaround in that area. Seems to have investors excited about the name today.
And that's your market update.
Well, of course, big technology stocks have been in favour among the investors for a while now but interest rates are trending lower. Could we begin to see more opportunity in some other sectors of the market like real estate, infrastructure?
Joining a centre discusses Jeff Evans, VP, Dir. and lead of empirical research and PM support at TD Asset Management.
Welcome to the program.
>> Great to be here.
Thanks for having me on.
>> Introduce yourself and discuss your coverage area.
>> I'll give you the high level summary. I spent about 20 years of in quantitative and empirical research at a number of brokers and dealers. Seven years ago, I had the opportunity to join TD and I focus on empirical research and equities. At a high level, what we do is we work closely with our equity portfolio managers and our fundamental research analysts to try to make sense of all the noise that's out there. There is an enormous amount of data these days on individual companies, whether it's the quarterly reports, income statements, balance sheets, all the different ratios. The media creates a lot of information as well so it's a lot for investors to process.
What our team focuses on, about five people focusing on this across the organization, we try to use statistical mathematical techniques to really narrow down what the most important metrics are, where showed our analysts focus their attention, were the most important metrics for companies that help drive outperformance and strong performance returns. It's about trying to figure out the best ways of allocating time to the best companies that have the best opportunities in the market to give our analysts the edge over time. Additionally, I am portfolio manager on some of our global real estate and if her structure products where we use a lot of the same techniques, empirical research and quantitative screening, to help identify securities that we think in a form and then later we use fundamental analysis to improve stock options in the portfolios.
>> Fascinating stuff. Let's start talking about some of those areas that you apply your research two. Real estate and infrastructure. We have interest rates trending lower. Sometimes the sectors are not logged in a high interest rate environment. Is there potential opportunity here?
>> It has been a challenging couple of years for the sectors. We have had over the last two years some of the largest and fastest increases in interest rates around the world that we've seen in probably 50 years. The reason why that's important for the sectors as you sent to be some of the highest leverage sectors in the equity market, they also tend to be is some of the higher dividend yield or income sectors.
When interest rates go from 0 to 5%, you can get a risk-free GIC from the bank at 5%, the incentive to own other things is less compelling. The business, many have continued to perform well over the last three years at the operating level but they are operating with a lot of leverage and as interest rates have come up, they refinanced that debt at higher rates and it has really made it harder for them to grow their bottom line faced with the interest-rate pressure. As we are starting to see interest-rate cuts come in, a couple from the BOC, hopefully going to get one in the US in September, we will get updates from Jackson Hole later this week, we are on the other side of that.
All of that leverage has gone upside down as those GIC slide lower over time, it will be a gradual process but as investors start to have to replace that cash flow, you will have to move into equities and real estate and infrastructure are sum of the standard to go to sectors when cash goes down.
Those talents for financing become headwinds become talents, much better operating environment.
>> Let's take the sectors one at a time.
Let's talk about the outlook for real estate. This is a big bucket.
>> A lot of different sectors. At a high level, if you are thinking about real estate, you have to think about how full are the buildings, what rent can you charge and decide grow over time?
Also what is the financing. I think financing is improving.
It comes back to occupancy and rent. If you go across the major sectors, whether it's apartments, single-family rental, industrial, data centres, cell phone towers, those of the big buckets in real estate, their pre-much full. Occupancy is tight. There might've been a little slippage here and there but broadly speaking operating very close to peak occupancy.
And then what's more important is that because of the inflation that we have seen in construction costs over the last couple of years, the increase in financing costs, nobody's building new buildings right now.
The math does not work aside from a few special cases. There is a little bit still coming into the market. We are seeing a lot of deliveries and 24. That will slow down and 25 and almost disappear and 26 and we will have an environment of strong occupancy today that should just get tighter, absent a recession. The operating fundamentals are very strong into 26.
That's important for landlords because of occupancy is full, you can usually charge pretty good runs and push rent increases through your tenants at healthy rates.
Across apartment REITs in Canada, we are seeing strong immigration and demand for housing, there is help you rent growth across the country. A little weaker in the US because they built a lot of supply in the Sun Belt so it's a little more regional but generally healthy rent growth in apartments. Industrial, there some dynamics going on there too but a very good path for industrial REITs to raise the rents over the next couple of years and bring it up to market. This whole dynamic of being able to price particularly in retail where there has been no supply for 10 years, lots of opportunity to raise rents across the board. It comes down to interest rates masking a lot of the strong fundamentals and we think as you get into 26, the set up remain favourable.
>> What about office? This is what I hear is the standard. Rachel has returned strongly, industrials, warehouses, but are people going back to the office?
>> That is the one standout where there still is in occupancy decline.
Historically, offices were great assets.
You have 5 to 10 year leases, people generally held onto them, occupancy was high in the mid-90s. It slipped down to the mid-80s but it's regional. When we look at Asia, a lot of the Asian office markets tend to be healthy. Particularly the new buildings. Culturally, people want to be in the office. It's all upon those markets. Same thing and large parts of Europe. Spain is a great example, one of the fastest-growing and best economies in Europe.
Office has held up well, 92, 93% vacancy where it was 95 at the peak so lots of strong demand in certain submarkets. It's really the West Coast US, tech. The tech sector has been the area where things have struggled.
In some cases we are seeing occupancy well below 80% and landlord struggling to fill up their buildings.
We are seeing a few little re-shoots here and there. The AI startups in San Francisco starting to take some space us in helping to chip away at vacancy and get rid of some of the sublet space in the San Francisco market. You are also seeing within the apartment REITs, last year when there were tech layoffs, it was difficult to rent off apartments. We are seeing that come back. It's much stronger than it was a year ago. It tells us that at the margin something is starting to improve the tech space.
Where we are really trying to see it is the traditional office markets, like New York and Boston, this for you have financial, insurance, real estate tenants.
Leasing activity is picking up in those markets. We are seeing some tenants take more space as these leases come up for renewal, one of the big landlords in the states was talking about one of the tenants, a big consulting firm, they took 20% more space than they did before. Not everybody is doing that but there are anecdotal signs that people are starting to figure out their space needs. This may be another three or four years of leases that need to roll over still before we get completely comfortable that the COVID environment is sorted out but we are seeing some green shoots. We are not at the bottom. There still bit of occupancy slippage. But this acceleration in leasing probably won't help this year but as we get into 25 and 26, you should start to see some of this leasing activity happening now show up in the occupancy statistics so I think it's all probably too soon for office but certainly more optimistic than it has been for the last couple of years.
>> Interesting breakdown on real estate.
We have not touched on the infrastructure side. What are we thinking about the opportunities here?
>> Lots of different subsectors within every structure. Let start with transport, the rails, trucking companies, which are little bit more economically sensitive.
There were some green shoots earlier this year. We saw the ISM picking up, leading indicators were showing better signals.
Unfortunately that has rolled over in the last month or two. It has created a little bit of uncertainty on whether the economy is recovering. The payroll numbers being revised down does not help that dynamic.
Then we look at inventories, the other key thing. There was a lot of inventory destocking over the last couple of years.
Just anecdotally as one example, if you talk to the cold storage REITs that handle food and food processing, they are operating at some of the lowest inventory levels in occupancy that they have seen on record but it's reflective of the challenges to the consumer. We are not eating out as much, people are not using restaurants, they are eating from home.
It's change the amount of demand for a lot of these cold storage companies and that leads into the transports, we are not seeing that restocking cycle be accelerating as quickly as people thought.
It seems like it's coming, the inventory levels are relatively low prayer the ISM has hopefully bottomed out and should benefit for interest-rate cuts. We need to see a little more strength for the sectors will come back.
On the pipeline side, I think what's interesting here is there's a lot of concern as to whether they needed to exist five years ago.
I think what we have seen with all of the geopolitical noise in the last few years is that there really is a need for oil and gas. It's gonna be around for a long time.
We can't build renewables as fast as governments want to stay. Particularly, were relatively clean and secure energy as we produce in Canada, it's kind of silly to say that the energy is green by the energy companies have put a lot of effort into making their products as environmentally friendly as they can and taking as much carbon out of their production process as possible. We are seeing a long-term demand profile. Then things like LNG exporting to Asia and Europe to meet some of their energy and security needs. All of that has come together to create a much more attractive profile. It later in this AI datacentre team in the last year, we cannot meet that with nuclear renewables. It comes down to natural gas which created another incremental demand driver to support the demand on these pipelines. Generally is a strong sector with a healthy backdrop.
The other component would be utilities. A couple of years ago, this was kind of the backwater of the equity market that did not do too much.
Electricity demand was not growing. Maybe half a percent per year for the last two decades.
We are now at the low and seeing 1% per year per growth which is… I see estimates as 4% per year growth over the next decade.
A lot of that is datacentre is but a lot of it is bringing battery plants back into the US, it's bringing chip plants back into the US. Even just manufacturing facilities, airplanes and those sorts of things, this facilities use a lot of energy and we are now seeing a much more constructive outlook for utilities. It's a sector that has gone from a relatively low growth and boring sector to a few years ago to one that is now supporting a lot of the Nvidia and Microsoft side. You cannot have that and build out if you don't have the power. It's become a much more compelling sector. The earnings growth rates are still about the same. We have not seen companies upgrade guidance dramatically but it's the certainty and that guidance over a much longer period of time that makes it much more compelling sector today than it was even a few years ago.
>> Fascinating stuff and a great start the program. We are going to get your questions about real estate and into structure stocks for Jeff Evans in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
It's another sign of slowing demand in the electric vehicle market. Ford is delaying a new EV plant in Tennessee and its cancelling plans to produce an electric three row SUV, it says it will put more resources towards hybrid vehicles.
Automakers including Tesla have seen slowing demand for electric vehicles amid shifting consumer demand. Cash-strapped consumers searching for deals are boosting sales for the parent company winners and marshals, that would be TJX companies.
They beat expectations on the top and bottom line for its most recent quarter and is raising its full year sales forecast. TJX stores have been successfully luring shoppers away from competitors amid the high cost of living.
TJX is up about 6%. It Macy's, the stock last time I checked, moving in the other direction. Decidedly down more than 12%.
What's going on here? Department store chain cutting its full-year sales forecast struggling to bring those customers into its department stores. Macy's says even affluent shoppers are not spending as freely as they used to. Click check in on the markets. We will start on Bay Street with the TSX Composite Index.
We are up a modest 17 points, just seven ticks to the upside but it's green on the screen. South of the border, I want to check in on the S&P 500, the market trying to digest this news that they over counter jobs in the US to the tune of about 800,000 in a 12 month period up to March 2024.
There's been some movement in the market.
We are also waiting for the Fed minutes at 2 PM Eastern time as well so we will see what comes out of those.
We are back now with Jeff Evans from TD asset management.
Here's the first question. How disruptive could a strike or lockout be for Canadian Pacific Kansas City and CN?
>> It'll be an interesting couple of weeks.
It's a very unique dynamic from what we have seen in the past where it's normally CN negotiating a labour agreement when you're, CP the next, it makes it difficult to have a national shutdown in that scenario. This year, both of those contracts are renegotiated at the same time. It creates a stronger negotiating position for the union and the government is much more open to helping labour. In previous cases of labour strikes, there was back to work legislation. But now there is a willingness to tolerate a bit more disruption in the economy to support this political group. That said, there is probably an elevated risk of disruption, a lot of these companies have been talking about it for months. CN cut guidance back in June slightly in part in anticipation of this.
CP has generally said that they can maintain their guidance as long as this is a short disruption of one to two weeks. In our view, as long as this is fairly contained in short, these companies should be able to manage through, the issue is if it goes into September, then you might have to see some guidance adjustments to the downside. It's probably more impactful for CN and CPE. About 80% of CNs businesses focus on Canada, CP has the diversification of the US and Mexico businesses which helps them out on the margin, they can manage a little bit better. The longer term concern is that if this stretches out over a long period of time or labour disruptions are more frequent going forward, the question is, what happens to rail volumes? There has been a steady decline in rail volumes over the last 10 to 15 years. Usually when a recession happens, volumes fall off and don't come back and the concern here is if you change the end consumer demand or business propensities too much, it will be difficult to bring those volumes back so you have to work to make sure that this is a 1 to 2 week disruption.
>> We are coming up on that deadline for either a strike or lockout so we will keep an eye on that for you. Next question here. I would like your guests thoughts on Japan. Sent in by our loyal viewer, Jeff.
Jeff, thanks for the questions and for watching. What we think?
>> Japan has been an interesting market over the summer, lots of volatility.
First of all, whenever you have a developed economy and their stock market declined 12% in a day and then rebounds 12% to the next day, that should raise questions. That type of volatility happens when investors are unsure if there is a significant change in policy so in those environments, it's good to take a step back and reassess the bigger picture.
There are two things that drew a lot of that drawdown. Part of it was the concern that they were going to be weaker.
The job market may be going into recession and compressing interest rate spread between the two countries so there was a bit of that influencing trade. To the bigger concern in my mind as the Bank of Japan made an interesting policy choice, trying to hike rates and even double down on the willingness to hike rates in an environment where almost every other central bank is cutting. That was a very curious college see decision and clearly out of step with what the marketer thinking. I think that's the key risk year. Markets need to get comfortable with whether there's going to be another policy mistakes in the Bank of Japan and then that later some political uncertainty with the Prime Minister not running again in September so is a good opportunity to step back and see where we are at on some of these macro drivers. That said, there's a lot of positive reform in Japan. Companies are unwinding their shareholdings. The Japanese stock exchanges really focus on appropriate governance reforms and getting valuations up.
Earnings growth in Japan is good. The market expects around 10% earnings growth over the next three years, but the same as the US, around 12%. Japan trays of 14 times earnings and the US trade that 20.
>> Interesting information on Japan. If you want your thoughts on Enbridge.
>> I think the backdrop for North American energy and pipeline assets is significantly improved from where it was a few years ago. Enbridge has one of the broadest numbers across North America.
They deal with an enormous amount of expert volumes with their pipelines and distribution as well. I think the big thing over the next year is the dividend yield. You have a large Canadian stock trading at a 7% yield. It's already a 2 1/2% premium to what you are getting on GICs. That's only going to widen out over time.
It will take time as money comes out of the GIC market.
Enbridge you should be a beneficiary.
That's in your term catalyst. The questions you would have a Enbridge would be on the sustainability of the dividend longer term.
Enbridge pays out there dividend mostly out of cash flow as a tire than the earnings. There's a bit of a concern from some analysts as to whether or not there is enough provision for maintenance. At 10 or 15 years down the road, they may have to slow the dividend growth down or adjust it to invest in those mainline assets.
The other concern would be on the growth side. Historically, Enbridge was a strong growth engine, lots of growth in the early 2010 prior to 2016, that is really slow down in the last seven years or so. It's been hard for them to generate growth.
What we have been seeing is a lot of the US peers focused on some of the oil plays in Texas and so on which have seen much stronger opportunities. I think it will be an interesting name given the dividend yield but for this to work longer term they need to figure out how to grow longer term.
>> Interesting insights on Enbridge.
As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Jeff evidence on real estate and infrastructure stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get our educational segment of the day.
If you're looking to do research on specific types of stocks, WebBroker has tools which can help. Joining us and with Maurice Caitlin Cormier, Senior client education instructor with TD Direct Investing. Always good to see you. Let's talk about what broker helping us sift through all the different stocks out there on the market.
>> Yeah, absolutely! There are so many stocks available on the market. It's hard and overwhelming for investors sometimes to figure. If you're looking to do a little bit of individual stock trading, where do you find a stock to investing, how do you pick a stock out of all the ones that are out there?
Let's use our screeners tool which essentially as you said takes all of the stocks listed on the Canadian and US exchanges and filters it down based on criteria that you are looking for in an investment. On the platform, we are going to click research, under tools, we are going to click on screeners.
We have screeners for stocks as well as technical events, mutual funds and ETFs.
If you're looking to screen for something else, there screeners for those as well but today we are going to look more on the stock side.
When we look here, you can see we have some themes that are already pre-created where you can look for a stock that's in a certain area of the market. For example, if you are interested in AI, you might want to find out what companies are involved in AI. You just have to click on this theme and it will bring out companies that may benefit from different changes within the AI market. It can show you the price performance for the stock in the stock price and it's giving you some names, giving you an idea of some companies you might want to look at. You can scroll through, see a bit more information about these companies. If you click on one, for example, it'll show you a little bit about what the company does and why it's listed on this particular list and ranked in this case as the number one stock on this particular list.
Based on stock performance and price, it's number one on this list. Maybe this is too much and you want to filter down a little bit more, maybe you are looking for Canadian companies, come up here and select Canadian exchanges. We had 42 matches. It took away my theme here. Let's just put that back.
Let's just go back here.
Go back to my AI. And I should just be able to go Canada here.
No. It doesn't want to show me just Canadian. So that's fine.
It was just showing me the US stocks that were available there. Under screeners and AI. But you can add additional criteria once you are in there to filter down the results a little more. Maybe you'll choose one that has a bit more results here.
Let's choose energy. There we go. We are under the theme of energy and if I click for example Canada, it will take my 39 matches down to nine and then I can see more specifically what I'm looking for in something within that particular theme.
>> I think you answered a question they're trying to do that screens are Canada and AI that we had on the show in the past from guests talking about AI. What is a place in Canada? Not a lot. Clearly that plays out in the market. You showed us a bit of customization. What you want to build your own custom screen?
>> Yeah, absolutely! I guess I have answered that question right there.
There's nothing showing up there.
Absolutely, if you have specific criteria, you're an investor, you do your own research and you know what you're looking for, you can build your own custom screen.
We are going to hop into the screeners tool but this time we are going to hit where it says screening instead and it's going to start out with a blank slate here. We are starting with 8000 matches here based on the information we have listed and we can click more criteria and you will see there are several different choices here were how you can actually filter the investments. For example, if you are looking at different valuation ratios, maybe you're looking at different financial information, may be want to know about earnings-per-share, volume of trading, there are lots of different areas that you can filter down. Let's go ahead and choose dividend growth.
I'm going to go back in and choose dividend growth rate, see if the dividend is increasing over time. And I'm also going to go to let's just choose a specific sector and industry as well.
Starting the sector and industry, I can clear all sectors and choose for example only consumer cyclical.
I will go with that. It will show me in here what different companies that's going to include and I can exclude any that I don't want to search for. I'm going to click on dividend growth rate. Let's say I'm looking for a positive growth rate. I can either use this button and type in here what a minimum growth rate that I'm looking for is and dividend yield, same idea. Maybe I'm looking for at least a 4% dividend yield. I have taken the 6000 stocks that were there originally and I'm down to 22 matches. I have significantly reduce the number of investments out there based on what I'm looking for and still looking in Canada and the US. I can see all of the results. I'm looking at the top 10. They are based on the criteria that I have input. So where these companies land within the rankings of the rest of the companies on the list.
And I can see the dividend growth rate, dividend yield, price performance and stock price all here and that they are all common shares.
If something here is most important to me, if dividend yield for example is most important, I can click twice and it will show me highest dividend yield to lowest dividend yield, and then again, if I wanted to see a little bit more about the company, I distantly click, it will bring up information about that company and show me why it was listed, for example, this 1 Was, #1 out of the 22 results and is showing me why that is the case.
So loss that can be done here. The last thing I will remember to say here is that you also will maybe want to save your screen. If you have gone through all the work to kind of create this and you want to be able to come back and look at the stocks at a future date, you can go ahead and type in here, for example, consumer… Cyclical and I can put in any description that I want, I can put on alerts if there's any changes in the top 10, if any companies come in or drop out of the top 10, I can save it for myself or with other traders that they can come on and be able to do it, save screen and then the next time I come in, under my stock screener, I go ahead and click on the little star here and I will see my consumer cyclical and I can go back and see those results again.
So lots available there, lots to dial into on stock screeners but I think it would be a great tool for a lot of investors to look for different investing opportunities.
>> Great stuff as always. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, Senior client education instructor with TD Direct Investing. For more educational resources, you can check at the learning centre on what broker or use this QR code to go to TD Direct Investing's YouTube page for more informative videos.
We are back with Jeff Evans from TD asset management taking your questions. What's your outlook on Canadian Apartment Properties REIT?
>> Let's step back and just look at the apartment sector in Canada in general, broad level, as mentioned earlier, we continue to see very strong occupancy. We are not building enough housing in general in Canada. On top of that, clearly have very strong population growth over the last few years through immigration. There has been a little bit of concern. There are policy changes earlier this year or two slow immigrations creating a bit of a headwind for these names. A lot of that we tend to be more companies exposed to students, which tends to be less in the Canadian apartment REIT client base. We are seeing an enormous amount of demand and no new supply really coming into the market in a significant way. What that means is that rents continue to grow across most Canadian markets. We are seeing fairly healthy both new lease growth when a tenant comes in, quite often seen 10% plus and insert markets even higher and then as a tenancy comes up for renewal every year, we are seeing may double-digit growth. Attractive dynamics in the sector. The cost of apartments versus housing, it continues to be cheaper to live in an apartment then to buy a house.
For Canadian apartment REITs in particular, they've done a lot of work in recent years cleaning up their business, selling off some smaller divisions. They recently sold the manufacturing housing group and refocus just on the core apartments.
They have been very active in disposing of some of their older properties and more capital-intensive property so that allows them to basically recycle into newer assets, raise the overall quality of the portfolio and really not change the yield too much.
They have done quite a lot of work in the overall portfolio quality. The other important thing about them is if you look at their in place rents versus market rents, there's about a 30% gap so over time, as tenants move out of the portfolio, you can take that unit, reprice its 30% higher and delivered to a new tenant. That creates a multiyear runway for cash flow growth with fairly high visibility.
The last two years have been a little bit different.
The more West Coast focused REITs where you are operating in non-rent-controlled markets, they've been able to move those rents up a little bit faster and capture some of that growth. For Canadian apartment, it's back and loaded. It will take some time because of rent control and very low turnover, nobody wants to leave these cheaper units, it takes a longer time for them to capture that. But otherwise, as we start to see rent growth slowing down a little bit, we see a pivot away from some of these non-rent-controlled markets to companies that have that tailwind of being able to reprice units to market rates.
>> Interesting things to keep in mind on the name.
A viewer would also like to get your thoughts on SmartCentres.
Now we are into retail.
>> Very interesting pivot. If you go back to 2019, precode, retail was in a bit of, pocket of uncertainty.
Amazon and e-commerce were strong competitive threats. There is one point where people thought you could buy everything you wanted from your cell phone, drone would show up and drop it on the porch. COVID dispelled that. It turns out people like to get together, get out of the house, do you think. It has underscored the value of a lot of these retail properties.
The tenants that were at risk were cleaned out during COVID so we have a much stronger tenant base and more portly, we are not building you retail across North America so there has really been a complete lack of supply because we cannot find the land and if you do find the land, it's usually better to build a condo or an apartment not on the property.
What that means is that there is an enormous amount of tenant demand for retail today and a new supply so tenants are at a point where they are signing not just leases for this year, they are looking into 27, 28 in some cases, and signing leases when there is still already a tenant in that unit and willing to pay much higher rents to get in there down the road. The constructive backdrop for retail in general. For SmartCentres in particular, they have a very strong portfolio with Walmart anchoring most of their shopping centres. High quality, investment grade tenant that anchors the property. The downside is that it tends to have a somewhat lower incomes q. given the customer mix so the Walmart side of it is okay to question is more how does that react to the other tenants in that Plaza?
People might go to Walmart to get the groceries a little bit cheaper. Did they shop at the other stores around that? That would be the? In the near term. For now things sting him to be holding up reasonably well but there is concern that if the strike song, there could be more pressure on the lower end versus the higher end consumer.
The other thing to keep in mind with SmartCentres, they have been using the stable Walmart anchor to will help set up a development anchor, putting up apartment buildings on vacant land and vacant space.
The development math on that development arm has been a lot more challenged so that's really the issue they've had to work through as they have a very strong development pipeline, there's lots of opportunities as rates come down and interest rates or rental rates go up so it's a constructive long-term outlook. We still need to see a little bit more certainty on the macro before that can really start to kick in again.
>> Interesting stuff there on SmartCentres. We are going to get back your questions for Jeff Evans on infrastructure and real estate stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and reminder you can get in touch with us at any time.
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It was a strong quarter for gold producers, benefiting from record high gold prices. Anthony Okolie joins us now with a TD Cowen recap of their results and their outlook for the remainder of this year.
>> 10/14 companies in TD Cowen's coverage earnings-- which came in about 3% above expectations. When you look at key metric gross margins, it extended by nearly 55%, that's about the five-year average of 52% and of course gold search to all-time highs during the quarter. It average just over $2300 an ounce in the second quarter, that's up 13% versus the first quarter and of course we have seen in recent weeks US growth data that has raised expectations for September rate cuts and we know that rate cuts are favourable to gold prices.
When we look at some of the other key metrics, we will start with cash costs.
Producers did see higher cash costs in the quarter, these are things related to direct mining costs, labour, material, royalties, taxes. But it was primarily expensed by the large-cap companies. They saw cash costs up about 4% and that was company specific challenges in the quarter. The good news is it was better for made Producers where costs were relatively flat. When we look at some of the other key metrics, free cash flow, for example, gold producers in the coverage universe saw quarterly cash flow of 22% quarter over quarter. That is still below the 2020 levels and that's because many of these companies are building expansion or growth projects.
Short term, TD Cowen says the outlook is very positive. Gold prices right now are trading worth $2500 per ounce, that's all time high.
We are also continuing to see tailwinds for gold prices and continued central bank interest in using gold to supply the foreign exchange reserves. There is more uptake from retail investors for gold made a rising increasing clarity on the timing of the Federal Reserve rate cuts. TD Cowen believes the outlook for the rest of 2024 remains optimistic and very strong. They believe that gross margin expansion is expected to continue in that companies are well positioned to grow those margins through 2024, with higher gold prices and lower interest rates.
>> What are the risks? Cash technical risks of some of these mining projects.
There is also environmental and social risk among others.
>> Great stuff as always. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
And now for an update on the market.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. Let's jump into the heat map and get a nice view of the market movers.
This is the TSX 60. What's happening today? We have modest green on the top line, a modest 10th of a percent. Manulife and Sun Life, Manulife and Sun Life, I said those words before, showing some modest drink. Kinross to the downside in the mining bucket. South of the border, the big revision to the downside for a whole year of job creation in the states through March 2024, it feels like the markets trying to figure it out. Fed minutes at 2 PM. Returning to sales growth and the street likes that story there.
We are back now with Jeff Evans from TD asset management.
This question just came in. Does your guest see any opportunities in B and C office buildings? We hear about quality, what about these?
>> We mentioned earlier that occupancy in offices has slipped to the mid to low 80s.
It's interesting. In the eight quality properties, centrally located in a business district, on transit lines, vacancy rates are sometimes two or 3%.
These well-positioned assets are not seeing vacancy losses. A lot of that has come out of the B and C properties where you got 30 or 40% vacant buildings which is a significant challenge for landlords to try to bring that tenant base back in.
We have seen a lot of landlord shifting to heavy incentives, so free rent they are giving out to get tenants back in is that almost all time high and in a lot of cases, that's not even working. Giving away office space for free for several months or even a year or more.
What's happening is that landlords are having to get very creative. Part of the issue in these B and C buildings is their green energy attributes or ESG characteristics. A lot of them are not energy-efficient, they don't necessarily have the amenity space that tenants want is also what you're seeing is selectively some landlords are going into try to reposition older buildings, bring no to a modern standard and then reposition almost as a class a. There are a number of companies doing this in London, the UK, pretty much every commercial property is graded based on its energy efficiency and there are some public market companies that specialize in taking B or C assets where it makes sense, you have temp location right in the transit access, but if you can invest in cleaning up the building envelope and the energy systems is possible sometimes to make these buildings little bit more appealing.
There was a really interesting case in Canary wharf. HSBC is leaving one of their towers in Canary wharf at the end of next year.
There interesting design showing up online of some of the things that are being done to rethink that building.
They are literally talking about carving out chunks of the building, taking the windows off, taking out some of the floor plates in certain parts of the building, literally creating outdoor space, these big open-air almost like a park on the 30th floor of the building. I don't know if it will get done but those are some of the creative ideas that landlords are turning to to try to bring tenants back in, even changing the architecture of the building to make it more appealing. It does not work in every case.
It's driven by the economics of it. You need to be in a good location for that make sense. In a lot of cases, the B or C buildings, the occupancy gets fixed by converting its alternative use.
We are seeing at couple of REITs in Canada with well located office space, they are going for a rezoning process, tearing down 10 to 20 story office building to put a 60 story condo so a lot of that is how these assets are to be reposition over time.
>> We are at a time for questions. Before let you go, quick thoughts again. We have seen real estate and infrastructure lower, rates are following, perhaps a little bit more favourable for them?
>> Absolutely. I think the thing to keep in mind is these are the least correlated sectors to broader equities, gives you diversification. Historically, they tend to be fairly stable, low risk, great dividends that you can compound over time and as interest rates come down, this is a way of stepping out a little bit into the risk spectrum to maintain that yield an income without having to go into really high beta equities. It's a way of stepping into higher income and maintaining those levels for investors.
>> Fascinating stuff. Great to have you on the show. Hope you want to come back.
>> Thank you very much.
>> Our thanks to Jeff Evans from TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we did not have time to get your questions today, we are going to aim to get into future shows. Stay tuned for tomorrow's program. Scott Colbourne, managing Dir. and head of active fixed income with TD Asset Management will be our guests. We are going to talk about what we are seeing out there in the world of active fixed income. Also Jerome Powell is on deck for Friday morning at Jackson Hole. We are gonna be watching that one and we'll talk about that was caught as well. You can get a head start with your questions for Scott. Just email moneytalklive@td.com.
That's all the time you have to show today. Thanks for watching.
We'll see you tomorrow.
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