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[music] I'm Anthony Okolie in for Greg Bonnell and welcome to MoneyTalk Live which is brought to you by TD Direct Investing.
Coming up on today show, money talks Susan Prince will take us through the latest Canadian GDP report and what it says about the state of the economy. TD Asset Management Damian Fernandes will discuss why cash is king for his investing style.
And Michael O'Brien will have a look at how the Canadian market is stacking up against the major US indices for the rest of the year. Plus in today's WebBroker education segment, Bryan Rogers will show us how to set up trade alerts on the platform.
Before we get to our guest today, let's get you an update on the markets. We will start here in Canada where our main stock index open higher.
Driven by energy and technology stocks wrapping up what's been a pretty big week of quarterly earnings as well as a widely anticipating rate hike from the Fed on Wednesday.
Currently the S&P TSX Composite Index is up to the tune of nearly hundred 90 points, just under 1%.
Taking a look at the bigger movers. Shares of TC energy are lower, the energy giant announced a plan to spin off its liquid pipeline business into a separate company.
The potential set the potential spinoff news sent shares down to the tune of one point Just about 2.3 points today.
Now turning to the S&P 500, where US stocks open higher after key Fed inflation felt its lowest annual rate in nearly 2 years. The S&P 500 is trading just over 1%.
Taking a look at the tech heavy NASDAQ index which also opened in positive territory.
What has been a very busy week under earnings particularly under big tech companies, index is currently trading up a whopping 265 points.
Just under 2% today. Of course investors continue to digest lower earnings from other MegaCap tech stocks with Amazon.com and Apple, earnings out next week. Taking a look at some of the active movers today, Procter & Gamble. Shares of Procter & Gamble are moving higher today. The consumer's goods giant reported a second-quarter earnings that topped Wall Street's expectations as higher prices offset weak demand in China, currently, Procter & Gamble stock is up about five points or 3.3%.
Some other big movers, shares of Intel are moving higher in early trade. The chipmaker posted a second-quarter profit of $1.5 billion following two straight quarters of losses.
Shares of Intel right now are soaring more then… About 6.7%.
So some strong gains there so far for Intel.
And that's your market update.
The Canadian economy grew modestly in the month of May and joining us now to take us through the numbers is money talks Susan Prince.
Susan, tell us some of the details of the report. What are you finding interesting from the report?
>> What we are looking at, when you say moving modestly, it was less than half a percent. .3 of a percent. People were looking at the number for May. Remember, this is a lagging indicator. Two months lighting.
So we are looking at May's number. They were in line with consensus estimates.
So what analysts thought would happen, this is what happened.
And the previous month, April, it was up 1.1%.
So in line with consensus estimates, a soft number.
There was a small decline in the goods producing sector so a little bit of a drop there.
So we think "okay that's interesting but this report actually doesn't tell you all that much". That's because the factors that really skewed the numbers, made them a little less meaningful for this month are… Those are two things: first of all, the wildfires in Alberta really hurt the energy sector.
It fell by 2.9%.
So a temporary event, it doesn't really speak to ongoing productivity. The kinds of things that report we look at figuring out inflation and how well the country is doing. The second thing is the striking federal workers. They were on strike in April. They were largely back to work by the end of April.
So you see a week number in April and then you compare it.
So may looks stronger in that sector than it actually was.
So those numbers really change how… >> You view this data… >> Yeah.
The first thing I look at is what is it tell you?
Not that much. Why care?
Generally GDP numbers are an important factor for Bank of Canada when they are considering what they feel about inflation. This is an important measure of that.
The third thing I like to ask is: what's interesting about this?
The thing that I found interesting about this was the flash estimate for June.
So what stat can looks at is what they're looking at, a drop in GDP of just under 1/4 of a percent. And that means that it would leave Q2 tracking below the Bank of Canada estimate of growth of about 1%. So, we take a look and we wonder what that means is we are starting to look forward.
Robert Both who is the macro strategist at TD says that this soft tracking for Q2 GDP should take some pressure off the Bank about raising rates.
So that potentially is positive.
He also flagged that month-to-month, there continues to be volatility.
Exactly what we are talking about.
Wildfires… Strikes… Those sorts of things having an impact. But the bottom line is that he is reconfirming that the Bank position is that we see GDP being weaker in the second, third and fourth quarter of this year.
>> Perhaps there might be some optimism that the Bank of Canada might be moving towards a pause.
We will have to wait and see.
>> We will have to wait and see and certainly there will be lots of people, anybody with a variable rate mortgage looking at that.
Any businesses looking to do capital expansion, through borrowing money is looking at that and then the Capital Markets who were looking at building companies and using that to do that.
So we are all paying attention.
> Another important report coming out of the US is inflation which is again, showing some signs of moderating.
Tell us a little bit about that.
> Yeah. What we are looking at is the personal consumption expenditure and what comes out every month. We are seeing here is the number was actually lower than consensus. The year-over-year number… Analysts were looking for personal consumption expenditure to rise by about 4.2%. It grew by 4.
1%. The other part that makes this interesting is the number from May, was 4.6%. This number below 4.
6% is the first time in eight months that we've seen it below that level. So we have a lagging indicator. What we have is the data showing that people are slowing their spending a little bit.
So, what is the data tell you?
It tell you is that consumers are slowing their spending a little bit. Why do we care?
Well, the Fed uses this as a measure of inflation.
And it helps to identify if consumer spending may be starting to soften.
This, and I mentioned it's the first time in several months that it is drop-down.
But what I found interesting about this data were a couple of things: one is real consumption expenditure and Q2 in the United States was 1.
6% annualized.
That is down from 4.2% in the first quarter.
So if you're worried about inflation, it is clearly going in the opposite direction and that is something that the Federal Reserve will take into consideration when they look at whether or not they raise rates in September.
The other thing that was interesting about this is Americans may still be spending.
We saw them spending on vehicles and recreation and that sort of thing.
But it's starting to come at a cost to their savings. So the personal savings rate was also starting to slip slightly.
So you put those things together and you start to see a lagging indicator that says "maybe we are not able to catch our breath with inflation.
>> Certainly is still far from the Fed's 2% target but it is moving in the right direction.
>> Moving in the right direction.
>> Susan thank you very much.
>> Thanks Anthony.
>> Our thanks to MoneyTalk Live's Susan Prince. Staying with the economy, earlier we had a chance to speak with TD Wealth chiefs well strategist Brad Simpson with his take on the latest Fed rate decision here's our conversation.
>> At the end of the day, you have to think of the function of what a central-bank is and I think you have to go a little bit above the function of where we are today.
Every quarter we publish a big strategy research document and you just happen to have me today when we are publishing ours.
I don't know, in the next hour here.
So it's about 80 pages long and I think by 30 of it, we are talking about inflation and central banks.
So at the bottom line is, I think you have to think about it these terms: inflation for a central-bank is the main thing that they are concerned about.
And it… If you look back past in time, I would say every central banker in the world grew up in a world where they went to school, they listened to discussions with their parents, they remember all the thoughts and ideas they heard about in the 1970s inflation over and over and over again.
And the ills of it.
How no matter what you're going to do, make sure that you're going to never have 1970s, early 1980s happen again. I think if you think about it in that context, in my introductory article to our publication that we did which is called "soundproof", I have a quote from (…) Saying "central bankers is like childhood trauma, you never forget it". The reality is the things that central banks did since 2020, from COVID and the rest of the Ukraine war and all the fiscal policy that is on the background of pushing behind all this monetary policy, it's been with the simple goal first to get ourselves through the COVID-19, then let's work our way through getting the economy back up and running again. Since that time, let's face it, I think we can all agree that they kept interest rates too low for too long and I'm not really here to be critical of that, it's just the reality is it's interest rates are like a blunt tool they use.
Now what's happened is inflation on the other side, they are going to, at the expense of almost anything else, they're going to go through the process of ensuring that they take care of it.
So today, yeah, they are saying they are kind of data dependent and they will go day by day.
You saw the 25 basis points increase by the US central-bank yesterday.
ECB came out today.
Until they see and feel confident that inflation is eradicated or at least back to that 2 to 3% target, yes the trend looks good. But, I think you have to understand the impetus for them. And if you look at those terms, all of a sudden it starts to give you a pretty good idea.
>> I want to stay on monetary policy.
Talk to us about causing havoc on data and portfolio managers.
>> I think that's one of the things I really love about the environment we have right now.
Is this kind of contrast.
That is, you open up a newspaper or go to any… Read any book on business today and it's all about "big data"!
I know in our own company here, we love the word "big data". Nothing gets people more excited than that. My background is that of macroeconomics and is a Portfolio Manager, I come from a quantitative background.
I like data an awful lot. One of the things to think about in terms of this is this trial by error approach we are taking.
The steps and the sort of things that central banks have done in the last, especially the last three years, we can almost the last decade and if you look at that, the sort of measures that have been taken, you don't exactly know. They have not exactly known what's going to happen when they do the things that they do.
So the reality of it is what economists like to do, what quantitative portfolio managers like to do, what investment shocks around the globe like to do. We night we like to taste take meek data and we extrapolated to make the decisions for it.
… The issue we have for it right now is that that data that we are gathering from the past is… We are trying to extrapolated to a future that, an environment that we are today and quite frankly we have never quite seen before.
So the ultimate, I think, the thing we have to understand what this is it's kind of like high-frequency.
In this high-frequency, it creates all kind of distortions and if you think about it in that term, every time we try to use this data, what we are seeing here is it's distorting a little bit how we are looking at things. So one of the things we love to say in the investment business and in the origin of it if you search on Templeton, be aware of anybody at this time a year who is different. The reality is it's always different. This time, it's especially different. So the point in that is we have to start becoming a little bit clearer with ourselves. A little bit more candid with ourselves.
We all know, knowing the future is difficult.
And I think we have to know when we are making decisions either of trying to ascribe what the economy will look like over the coming quarters and then, what we are trying to ascribe what we think will happen in fixed income markets, our equity markets, our private markets. I think we have to be a little bit honest with ourselves here and say how much we can know is incredibly limited. And that's okay.
I think the issue actually, is not being that clear on that because you can make all kinds of assumptions of what went terribly wrong at the end of the day and that's not what you want to be doing.
>> That was Brad Simpson, Chief Wealth Strategist at TD Wealth. Now here's an update on the top stories in the business world today and look at how the markets are trading.
New figures, as indicated earlier with my discussion with Susan Prince, show the Canadian economy grew by 0.3% in May… Matching forecasts.
The modest increase was driven by a rebound in wholesale and publication and ministration as well as gains in the manufacturing and real estate sectors.
Those gains helped offset declines in the energy sector which was severely impacted by the raging wildfires in Alberta.
Looking ahead, early estimates suggest June will see a contraction of 0.2% in GDP. Meanwhile, inflation in the US showed further signs of cooling in the month of June, according to the latest personal consumer inflation rather, expenditures price index. The Fed's favourite garage of consumer inflation rose 3% in June from a year ago compared to 3.8% in May. The sharp slowdown was driven by falling gas prices as well as milder increases in grocery costs. This so-called core PCE which includes food and energy rose to 4.1% from a year ago to the lowest level in over two years.
Ford motors, driven by strong pricing and demand for automakers traditional vehicles. However its electrical vehicle unit reported a loss of over $1 billion during the quarter.
The company also warned the TV rollout was taking longer than expected due to higher costs.
And here's how the main benchmark index in Canada is trading right now.
Currently the S&P TSX is up maintaining a strength. Up about 115 points or 0.8%.
Turning to the United States, the S&P 500 a broad gauge of stocks there up about 37 points to the tune of 1%.
Well, it has underperformed the big US indices. The TSX has had a good year so far. But will that trend continue through the rest of 2023?
Michael O'Brien Portfolio Manager at TD Asset Management join me earlier to discuss.
>> It hasn't been lost on anybody that the US has really been the story of 2023.
Fantastic start to the year.
I think as we sit here today, the S&P is up about 20%.
Great start.
NASDAQ even stronger obviously. Those big tech heavyweights. Canada has not had a bad rating. I think we up at a total return basis with a seven year… That's respectable.
But obviously, we look south of the border and are a little envious of that performance.
I think a lot of the same trends, both north and south of the border, but Canada has had a few of the bigger components of our market.
The banks have been a little bit of a lag or. The energy stocks have lagged a bit.
Some of the big telcos have liked a bit.
But all in all we had a very strong start to the year.
Relative to where we were back last fall when markets were at their lows, a lot of concern around inflation and in order to bring inflation back to more acceptable levels. Central bankers, policymakers would have to inflict some pain on the economy.
Instead, we have had inflation come down nicely at least as quickly as most people expected but we have not seen that pain and the economy in the first half of the year both in the US and Canadian economies performing pretty well.
The job markets that have held up quite well. That explains the strength we've seen which I don't think a lot of people were calling for Bakken November and December.
>> You also said it's hard to get too bullish about big gains in the back half of the year. A lot of that has to do with what markets seem to be pricing on. What are you saying right now?
>> I guess my point on that would simply be we of particularly, in the US market, but more broadly speaking, it's been almost a perfect scenario this year. Like I described.
You know, economics 101 tells you that you're not supposed to have your cake and eat it too.
Yet we have seen inflation reseed without that impact of the job market.
Without the impact on the economy.
30 strong. You know really the only weakness we've seen, has been a sort of in the commodity complex which is actually helping bring inflation down.
So I guess where I'm at now is it's been a very smooth ride so far. But for the central bankers, the Fed, the Bank of Canada, to achieve this soft landing or the "no landing" scenario the people are calling for, it's still going to be a really tough ACT! to pull off. And so I think it's all about what's price and the markets today?
What's priced in the markets today when you look at more valuations and where they are. The S&P for example.
It's close to 20 times earnings which is quite elevated. It's telling you that investors expect a soft landing. Where is if you sort of go back to some market history, you would say that the odds of a soft landing are not as favourable as the markets are implying. So, from the starting point, it's a little bit of a challenge with what's been priced into the markets.
The other part of it too is even if inflation continues to behave pretty well, >> I think people are having trouble hearing Steve.
>> If the economy continues to hold up, they are not to be in a rush to cut. Which means, you know, even if we do achieve a soft landing, it's hard to picture an environment where earnings growth is going to reaccelerate in a substantial manner.
Because you know, the policymakers are going to continue to keep things tight.
On the other hand, if all these recessionary scenes we are looking at, if they are not giving the false signal of that's were heading, then obviously you know, the economic environment over the next 9 to 12 months is going to be much more difficult. So either way, either way you slice it I don't see a big rebound in earnings growth over the next two or three quarters.
So that makes me a little bit cautious because I'm not betting on further multiple extensions.
>> You talked about indicators. There's also some lagging economic indicators to keep your eye on. Going forward.
>> Yes. You look at the whole panoply there. You try to triangulate what's happening but when you think about, you and I both just said, job markets held up very well. It has. That tends to be more of a coincidence or a lagging indicator.
It's sort of an inflation we have set out.
Inflation is come down.
Those tend to be sort of a coincidence or lagging indicators. All the classic lead indicators, things like your purchasing managers index… Those types of things or like I mentioned, the inverted yield curve.
Those tend to be leading indicators and they have been flashing red for some time.
So we are really at this turning point.
So this age-old question of "is it different this time?
"… When we get to this point in the cycle, the tendency is for us to say "it's different this time, it's going to be a better outcome." The odds are that it's probably not.
So I'm just trying to be sober and realistic about the odds of achieving this perfect economic scenario.
History would tell us it probably won't happen. Markets are already pricing in a pretty positive outcome so I'm just saying, you know, I'm being cautious.
>> You also said that Canada is not looking too bad compared to the US marks right now.
Why is that?
>> I think like I mentioned earlier, there are a couple of big pockets and components of the Canadian market that have been laggards.
They have not seen that 30, 40, 50% return that we've seen out of a lot of these other stocks.
Specifically the banks, the Canadian banks got caught up in the controversy around… Or you know, the problems with some of the US regional banks. Remember Silicon Valley Bank family in a couple of the other ones.
A lot of pressure on deposits, concern about loan losses.
That dragged the Canadian banks down to.
They started to stabilize here. I think we've seen better deposit trends. You know, we have not seen that deposits like the really spark the problems of these US regionals.
I think we will realize that lending margins are probably going to be a little bit pressured here for the next couple of quarters so that's kind of… In the price.
So far the credit concerns, you know, the loan books have held up pretty well so far.
So, I think at this point, the banks of kind of stabilized. They are not expensive stocks.
They still of these headwinds that they will have to deal with.
But you know, they are not expensive.
>> What about energy?
>> I was going to say another big part of the Canadian market is the energy space.
Again they are commodities struggled in the early parts of the year and people had hoped that the Chinese reopening story would really drive the commodity complex in the first half the year. It's kind of underwhelmed.
Chinese oil demand is been good but it has not really pushed the whole commodity complex higher.
And so, instead of seeing oil prices in the $80-$90 level, you are looking at 60 and 70.
So again, that's another part of the market..
You are seeing oil prices starting to strengthen a little bit.
And valuations again, gaining in expectations are quite reasonable for that.
So if you get a scenario in the back half of the year where the banks and the energy stocks start to work, that could be a really nice tailwind for the TSX. Canadian compensate.
>> That was Michael O'Brien, Portfolio Manager at TD Asset Management.
And now let's get to today's education segment.
In today's educational segment, were having a look at how you can track whether your trade is gone through once you make an order and here to help us with that is Bryan Rogers, Senior Client Education Instructor with TD Direct Investing.
Bryan welcome to the show. How can investors see whether their trade is been completed?
>> Well thanks Anthony.
We go over in the segment a lot talking about the different types of orders, we talk about market orders and limit orders and stop orders but oftentimes we don't go that last step of "what you do if you have to cancel your order or want to change your order or even see if it's filled or not?" Most brokerages will call this an order status section.
Not something super complicated. Many of you may know this already but if you're new to investing, I want to jump into WebBroker and show you where you can find the order status.
So that would be under the trading tab.
You're going to go to the order status that's under trade management here and it did it take you to a screen that looks like this.
This is just a demo account. There is nothing here at the moment. But if you open your own account and placed the trade you will see here under "all" you will see all the order still open and you will see where you can enter a limit order at a certain price that's not filled yet.
You can actually change it from there, change it, cancel it, replace the order, you can ask the reverse the order as well if you do buy and you want to do a cell.
All those things would be in the area "all" then you have open, fill orders and cancel orders… You can actually also look at historical orders for a period of time if you want to look at… This is what we show for a certain period of time.
It is on the active tab and then under historical you can see all your previous orders if you want to kind of have an idea of what you've done prior to the last two days.
>> Okay so now we know how to find the order status.
Some orders sometimes will cross several hours or days. Is there a way to be notified of an order fill?
> Yes for sure.
One of the ways is in that order status section, if you were in WebBroker, you are logged in, you may have to go back to the order status and say "okay, what's going on with my order?
Is it filled, is it open, can I change it?" But they do have another feature if you're constantly logging into WebBroker to monitor the market and look at charts or whatever you might be doing.
They do have trade notifications.
So if we jump back into WebBroker, this is fairly new.
I want to show you where you can add that on if you've been using WebBroker for a long time.
Maybe you know this was there.
You can actually go into the very top here I will click on my name so in your own account you would see your own personal name at the top right.
You click on that and you're going to go to "customize site".
That's can give you an area where there is a tab that says "trade notifications".
I can't show you an example of the moment without an actual trade order coming through. But I can give you an idea what it looks like.
What this page is here is if you have trade notifications turned on, if you had this little icon Ray were on my mouse is they are showing trade notifications, you can see where you can say whenever an order is filled, you want an order and you want a notification rather.
You can set these parameters. You can also show where you want to see it and have it pop up on the bottom left of your screen, the bottom right… And for how long as well.
I would not recommend doing it too long.
If it's gonna bother you and sit there for 15 seconds or 10 seconds.
Also if you can and leave it open until you actually decide to close it as well.
So the last thing, and he is always in WebBroker, anything on the screen, you can click on this?
Over on the top right. That will give you a little bit more information on this feature in WebBroker.
So if I scroll down, it will talk about what trade notifications are and there is little picture of an example of what they look like.
So you can see it pop up one at a time.
At the bottom were sold… Rejected so the net gives you a little bit more insight into what's going on with your trade.
While you're logged into the WebBroker platform.
Breath now I'm a long-time user of WebBroker and I do not to do that. So thank you very much for that information.
Bryan thanks for joining us.
>> My pleasure.
> Our thanks to Bryan Rogers, Senior Client Education Instructor TD Direct Investing.
Make sure you check out the learning centre in WebBroker for more educational videos, live interactive master classes and upcoming webinars.
There are plenty of different ways to analyse a potential investment. Whether it be a company's valuation or history of dividend growth.
Damian Fernandes, Portfolio Manager at TD Asset Management tells us one of his favourite metrics is a company's free cash flow and he join me earlier to explain why.
>> When you think about any business, a convenience store, restaurant, or Apple or Google in the stock market. What is the value of that business?
It is not what is happening in AI or with their AI platform is or what the regulations are saying or how fast revenues are going. The value of that business is how much cash that business is generating. That's what free cash flow is.
It's what's left over after you've paid the expenses and after you pay the tax man, you paid interest expense, you have invested to grow the business whatever is left over is free cash flow. Historically, companies, whether private businesses are public, the value of those businesses is how much cash can be generated today and how much will be generated in the future.
So for us, we almost have this dogmatic religiosity run free cash flow. We want to find businesses with the marketplace doesn't believe how much cash flow is being generated and we want to invest in those businesses. That's the bread-and-butter. That's what's led to our success over time. Particularly these times when interest rates are at historic highs.
High inflation. So free cash flow is certainly important in metric for that.
>> For sure because free cash flow is what's there after you pay for the interest payment. As companies are refinancing, you can find their interest payments have increased.
But if you focus on free cash flow, that divides some insulation against it.
> Given that backdrop there are few central themes your interest now. Let's go through a few of them. We will start with luxury.
>> Sure so for us it's two things.
We will start off, we want to find companies that are growing free cash flows.
But the precursor to that is you want to be an industry rather in industries with secular growth attributes. It's one thing to be a great business but if you're in a declining industry, you are almost beholden to the forces of that industry.
It's going to be really difficult to generate that free cash flow growth. So the first thing for us is "let's find industries that are growing". One growing his luxury spending. Globally.
High-end luxury spending, high-end consumer unlike the low and consumer is not feeling that pitch that pinch of inflation because they have more disposable income.
Secondly, to be a luxury company whether it's Ferrari or Hermes.
.
.
You and I could not wreck replicate that we could not start a luxury company tomorrow. These luxury companies… When you think about the terms, from economic terms, there is so much demand for them that they can keep raising prices. The more they raise prices, the more demand increases.
Because you almost have this ability where consumers want to differentiate and as consumers, I know the lower end consumers facing pressure but globally, you have rising in class.
Rising middle class wants to differentiate and show and demonstrate some of that newfound wealth. Luxury is one of the easiest, most iconic ways that is front and centre. People see close, watches.
How you differentiate in that. So really luxury companies, we think it's a cycle and growth theme and it will continue.
>> You mentioned luxury. You also focus on some green themes.
Whether electrification, clean energy or the need for stronger energy.
> So that's a great theme.
When you think about what's been in the news recently, it's been inflation reduction acts. That the US passed.
Really a clean energy bill. We hear about Europe that is also trying to follow and subsidize clean energy. Globally, we know that energy transition is full force.
So first, this is a very easy way were a lot of dollars are being spent and invested in capital investment to try and move collectively, the profile from industry manufacturing energy usage towards more clean energy sources. For us, we what we are trying to do is think about how we can participate in this right?
You can try and pick your EV or you can pick solar panels but for us, an easy way to think about clean energy is thinking about if you need electrification, you need more wire.
If you need more wiring, the most efficient way for energy is copper.
They have a long tail of demand ahead of them.
You need to improve your grade infrastructure. If all of us plugged in our TVs today, we would probably fill up the grid. There's not enough capacity. So retrofitting the grid and improving capacity, companies tied to that, I can give you some names there but for us it's always thinking about what the secular theme is in which companies can be identified and that will participate in that growth.
>> Okay so I want to move on to healthcare. Talk to us about that.
>> Yeah so sadly, the world is getting older.
Everyone is getting older.
I know… There's no avoiding it. When I think about that, as you have increased wealth and globally, there are demographic challenges, less births and people living longer, healthcare is an obvious example of a secular growth theme. It's counterintuitive but as people grow older and want to prolong and ensure that they have the same lifestyle, they spend more on healthcare. So everything from drug discovery to actual pharmaceuticals to companies that help support a healthy lifestyle, that whole healthcare theme has a secular growth aspect to it and again, for us that's one of these areas were we just think that spending in healthcare is going to keep increasing as people want to have the same lifestyle they did and want to improve their health outcomes. We want to find companies that participate in that.
>> Okay now just for the show you and I were talking about Italy.
Talk to us about travel. The demand seems to be pretty strong for people to travel especially internationally.
>> I think that continues. Even pre-pandemic when we found experiential consumption. People were moving towards, I call it the, colloquially the Instagram generation.
Everybody goes to these beautiful takes places and takes pictures and post them on social media. So even pre-pandemic you had this movement towards experiential consumption. Vacations… New areas, travel.
The pandemic hits and what happens?
We are all quarantined at home.
Restricted.
Goods demand really increases.
Because our people are wrapped in their homes and they want a better environment.
As we move out of the pandemic these last two years, it's almost like this revenge spending took hold. People want to say prices be damned, "I want to see what I missed out on".
Whether it's in your case, going to Italy or all people going towards travel in any case.
For us travel theme is really important.
It's like how do we think about whether it's hotels or companies that enable booking for travel purchases. All of those shares will see lots of free cash flow growth in them.
>> So in these sectors, what about business models and free cash flow performance that you're looking for?
>> We talked about this idea about identifying companies and industries that are growing cash flow.
I think people sometimes forget that regular businesses : what we are looking for his leadership. I will give you an example in terms of free cash flow generation that might seem counterintuitive. Let's pick to companies: Apple, I'm pretty sure many have an Apple iPhone.
Many people use iPhones.
And Cosco membership.
>> I've got a membership at Cosco.
>> You might think what does my iPhone have in common with Kirkland Brands to mark Cosco's generic brand.
But both those business models, they are very profitable and generate a lot of free cash flow but interestingly, they have this element of almost like an annuity.
Every year you get a payback from an insurance company, you are an annuity for Cosco and Apple. Every year, you renew your membership. You keep using your iPhone, you keep renewing your Cosco membership, upgrade… And every three years you replace your iPhone or Costco charges you a 10% premium.
Think about this, it's almost like a rising in annuity and Cosco, it's like they provide customer utility but just by being a member, a membership model and they keep generating this cash flow year after year, like an annuity that grows every few years as you replace your iPhone at a 10% premium, these are models that we really like.
They might not have the same sexiness as travel and luxury and healthcare but they are very conventional business models that generate prodigious amounts of cash flow.
So the next time you are in Cosco, Anthony, and you're using an iPhone, just remember you are paying both those companies.
> I am an annuity for those companies.
(Laughing) >> That was Damian Fernandes, Portfolio Manager at TD Asset Management. Now for an update on the markets.
We are having a look at td's advanced dashboard, a platform designed for active traders available through TD Direct Investing.
Were looking at the heat map function here which gives you a view of the market movers on the TSX 60 a price and volume.
We see the red line for TC energy. TRP of course planning to announce they plan to expand their pipeline, liquid pipeline business.
Just below that is Imperial oil, seeing some strong bits today over 5%. Cenovus as well seeing some strong bits as well.
Taking a look at the technology sector, Shopify is also seeing some strong gains in early trading.
Let's take a look at the S&P 100.
We will start with technology.
Technology is been in the news this week.
Google, both shares of Google are doing fairly well.
Of course, Google announcing fairly strong quarterly earnings as well this week.
Intel, the bottom is also seeing some strong bids and Meta as well.
Also a strong quarterly report.
Taking a look at the consumer cyclical's, of course Amazon is looking to be reporting its earnings next week.
Seeing some strength there.
Tesla is also up.
Ford reported stronger second-quarter earnings but we are seeing some weakness or some concerns over a TV rollout.
The shares down more than 4%.
And you can find more information on the TD advanced dashboard by visiting td.com/advanced dashboard.
We will be off next week for a brief summary hiatus and we will be back on Tuesday, August 8 and David Mau Portfolio Manager with TD Asset Management will be Greg's guest taking your questions on global and industrial stocks. You can always find episodes of MoneyTalk Live and our other great interviews and articles on our website MoneyTalk Live@td.
comthat's all for show today.
Take care!
See you on August 8!
[music]
Coming up on today show, money talks Susan Prince will take us through the latest Canadian GDP report and what it says about the state of the economy. TD Asset Management Damian Fernandes will discuss why cash is king for his investing style.
And Michael O'Brien will have a look at how the Canadian market is stacking up against the major US indices for the rest of the year. Plus in today's WebBroker education segment, Bryan Rogers will show us how to set up trade alerts on the platform.
Before we get to our guest today, let's get you an update on the markets. We will start here in Canada where our main stock index open higher.
Driven by energy and technology stocks wrapping up what's been a pretty big week of quarterly earnings as well as a widely anticipating rate hike from the Fed on Wednesday.
Currently the S&P TSX Composite Index is up to the tune of nearly hundred 90 points, just under 1%.
Taking a look at the bigger movers. Shares of TC energy are lower, the energy giant announced a plan to spin off its liquid pipeline business into a separate company.
The potential set the potential spinoff news sent shares down to the tune of one point Just about 2.3 points today.
Now turning to the S&P 500, where US stocks open higher after key Fed inflation felt its lowest annual rate in nearly 2 years. The S&P 500 is trading just over 1%.
Taking a look at the tech heavy NASDAQ index which also opened in positive territory.
What has been a very busy week under earnings particularly under big tech companies, index is currently trading up a whopping 265 points.
Just under 2% today. Of course investors continue to digest lower earnings from other MegaCap tech stocks with Amazon.com and Apple, earnings out next week. Taking a look at some of the active movers today, Procter & Gamble. Shares of Procter & Gamble are moving higher today. The consumer's goods giant reported a second-quarter earnings that topped Wall Street's expectations as higher prices offset weak demand in China, currently, Procter & Gamble stock is up about five points or 3.3%.
Some other big movers, shares of Intel are moving higher in early trade. The chipmaker posted a second-quarter profit of $1.5 billion following two straight quarters of losses.
Shares of Intel right now are soaring more then… About 6.7%.
So some strong gains there so far for Intel.
And that's your market update.
The Canadian economy grew modestly in the month of May and joining us now to take us through the numbers is money talks Susan Prince.
Susan, tell us some of the details of the report. What are you finding interesting from the report?
>> What we are looking at, when you say moving modestly, it was less than half a percent. .3 of a percent. People were looking at the number for May. Remember, this is a lagging indicator. Two months lighting.
So we are looking at May's number. They were in line with consensus estimates.
So what analysts thought would happen, this is what happened.
And the previous month, April, it was up 1.1%.
So in line with consensus estimates, a soft number.
There was a small decline in the goods producing sector so a little bit of a drop there.
So we think "okay that's interesting but this report actually doesn't tell you all that much". That's because the factors that really skewed the numbers, made them a little less meaningful for this month are… Those are two things: first of all, the wildfires in Alberta really hurt the energy sector.
It fell by 2.9%.
So a temporary event, it doesn't really speak to ongoing productivity. The kinds of things that report we look at figuring out inflation and how well the country is doing. The second thing is the striking federal workers. They were on strike in April. They were largely back to work by the end of April.
So you see a week number in April and then you compare it.
So may looks stronger in that sector than it actually was.
So those numbers really change how… >> You view this data… >> Yeah.
The first thing I look at is what is it tell you?
Not that much. Why care?
Generally GDP numbers are an important factor for Bank of Canada when they are considering what they feel about inflation. This is an important measure of that.
The third thing I like to ask is: what's interesting about this?
The thing that I found interesting about this was the flash estimate for June.
So what stat can looks at is what they're looking at, a drop in GDP of just under 1/4 of a percent. And that means that it would leave Q2 tracking below the Bank of Canada estimate of growth of about 1%. So, we take a look and we wonder what that means is we are starting to look forward.
Robert Both who is the macro strategist at TD says that this soft tracking for Q2 GDP should take some pressure off the Bank about raising rates.
So that potentially is positive.
He also flagged that month-to-month, there continues to be volatility.
Exactly what we are talking about.
Wildfires… Strikes… Those sorts of things having an impact. But the bottom line is that he is reconfirming that the Bank position is that we see GDP being weaker in the second, third and fourth quarter of this year.
>> Perhaps there might be some optimism that the Bank of Canada might be moving towards a pause.
We will have to wait and see.
>> We will have to wait and see and certainly there will be lots of people, anybody with a variable rate mortgage looking at that.
Any businesses looking to do capital expansion, through borrowing money is looking at that and then the Capital Markets who were looking at building companies and using that to do that.
So we are all paying attention.
> Another important report coming out of the US is inflation which is again, showing some signs of moderating.
Tell us a little bit about that.
> Yeah. What we are looking at is the personal consumption expenditure and what comes out every month. We are seeing here is the number was actually lower than consensus. The year-over-year number… Analysts were looking for personal consumption expenditure to rise by about 4.2%. It grew by 4.
1%. The other part that makes this interesting is the number from May, was 4.6%. This number below 4.
6% is the first time in eight months that we've seen it below that level. So we have a lagging indicator. What we have is the data showing that people are slowing their spending a little bit.
So, what is the data tell you?
It tell you is that consumers are slowing their spending a little bit. Why do we care?
Well, the Fed uses this as a measure of inflation.
And it helps to identify if consumer spending may be starting to soften.
This, and I mentioned it's the first time in several months that it is drop-down.
But what I found interesting about this data were a couple of things: one is real consumption expenditure and Q2 in the United States was 1.
6% annualized.
That is down from 4.2% in the first quarter.
So if you're worried about inflation, it is clearly going in the opposite direction and that is something that the Federal Reserve will take into consideration when they look at whether or not they raise rates in September.
The other thing that was interesting about this is Americans may still be spending.
We saw them spending on vehicles and recreation and that sort of thing.
But it's starting to come at a cost to their savings. So the personal savings rate was also starting to slip slightly.
So you put those things together and you start to see a lagging indicator that says "maybe we are not able to catch our breath with inflation.
>> Certainly is still far from the Fed's 2% target but it is moving in the right direction.
>> Moving in the right direction.
>> Susan thank you very much.
>> Thanks Anthony.
>> Our thanks to MoneyTalk Live's Susan Prince. Staying with the economy, earlier we had a chance to speak with TD Wealth chiefs well strategist Brad Simpson with his take on the latest Fed rate decision here's our conversation.
>> At the end of the day, you have to think of the function of what a central-bank is and I think you have to go a little bit above the function of where we are today.
Every quarter we publish a big strategy research document and you just happen to have me today when we are publishing ours.
I don't know, in the next hour here.
So it's about 80 pages long and I think by 30 of it, we are talking about inflation and central banks.
So at the bottom line is, I think you have to think about it these terms: inflation for a central-bank is the main thing that they are concerned about.
And it… If you look back past in time, I would say every central banker in the world grew up in a world where they went to school, they listened to discussions with their parents, they remember all the thoughts and ideas they heard about in the 1970s inflation over and over and over again.
And the ills of it.
How no matter what you're going to do, make sure that you're going to never have 1970s, early 1980s happen again. I think if you think about it in that context, in my introductory article to our publication that we did which is called "soundproof", I have a quote from (…) Saying "central bankers is like childhood trauma, you never forget it". The reality is the things that central banks did since 2020, from COVID and the rest of the Ukraine war and all the fiscal policy that is on the background of pushing behind all this monetary policy, it's been with the simple goal first to get ourselves through the COVID-19, then let's work our way through getting the economy back up and running again. Since that time, let's face it, I think we can all agree that they kept interest rates too low for too long and I'm not really here to be critical of that, it's just the reality is it's interest rates are like a blunt tool they use.
Now what's happened is inflation on the other side, they are going to, at the expense of almost anything else, they're going to go through the process of ensuring that they take care of it.
So today, yeah, they are saying they are kind of data dependent and they will go day by day.
You saw the 25 basis points increase by the US central-bank yesterday.
ECB came out today.
Until they see and feel confident that inflation is eradicated or at least back to that 2 to 3% target, yes the trend looks good. But, I think you have to understand the impetus for them. And if you look at those terms, all of a sudden it starts to give you a pretty good idea.
>> I want to stay on monetary policy.
Talk to us about causing havoc on data and portfolio managers.
>> I think that's one of the things I really love about the environment we have right now.
Is this kind of contrast.
That is, you open up a newspaper or go to any… Read any book on business today and it's all about "big data"!
I know in our own company here, we love the word "big data". Nothing gets people more excited than that. My background is that of macroeconomics and is a Portfolio Manager, I come from a quantitative background.
I like data an awful lot. One of the things to think about in terms of this is this trial by error approach we are taking.
The steps and the sort of things that central banks have done in the last, especially the last three years, we can almost the last decade and if you look at that, the sort of measures that have been taken, you don't exactly know. They have not exactly known what's going to happen when they do the things that they do.
So the reality of it is what economists like to do, what quantitative portfolio managers like to do, what investment shocks around the globe like to do. We night we like to taste take meek data and we extrapolated to make the decisions for it.
… The issue we have for it right now is that that data that we are gathering from the past is… We are trying to extrapolated to a future that, an environment that we are today and quite frankly we have never quite seen before.
So the ultimate, I think, the thing we have to understand what this is it's kind of like high-frequency.
In this high-frequency, it creates all kind of distortions and if you think about it in that term, every time we try to use this data, what we are seeing here is it's distorting a little bit how we are looking at things. So one of the things we love to say in the investment business and in the origin of it if you search on Templeton, be aware of anybody at this time a year who is different. The reality is it's always different. This time, it's especially different. So the point in that is we have to start becoming a little bit clearer with ourselves. A little bit more candid with ourselves.
We all know, knowing the future is difficult.
And I think we have to know when we are making decisions either of trying to ascribe what the economy will look like over the coming quarters and then, what we are trying to ascribe what we think will happen in fixed income markets, our equity markets, our private markets. I think we have to be a little bit honest with ourselves here and say how much we can know is incredibly limited. And that's okay.
I think the issue actually, is not being that clear on that because you can make all kinds of assumptions of what went terribly wrong at the end of the day and that's not what you want to be doing.
>> That was Brad Simpson, Chief Wealth Strategist at TD Wealth. Now here's an update on the top stories in the business world today and look at how the markets are trading.
New figures, as indicated earlier with my discussion with Susan Prince, show the Canadian economy grew by 0.3% in May… Matching forecasts.
The modest increase was driven by a rebound in wholesale and publication and ministration as well as gains in the manufacturing and real estate sectors.
Those gains helped offset declines in the energy sector which was severely impacted by the raging wildfires in Alberta.
Looking ahead, early estimates suggest June will see a contraction of 0.2% in GDP. Meanwhile, inflation in the US showed further signs of cooling in the month of June, according to the latest personal consumer inflation rather, expenditures price index. The Fed's favourite garage of consumer inflation rose 3% in June from a year ago compared to 3.8% in May. The sharp slowdown was driven by falling gas prices as well as milder increases in grocery costs. This so-called core PCE which includes food and energy rose to 4.1% from a year ago to the lowest level in over two years.
Ford motors, driven by strong pricing and demand for automakers traditional vehicles. However its electrical vehicle unit reported a loss of over $1 billion during the quarter.
The company also warned the TV rollout was taking longer than expected due to higher costs.
And here's how the main benchmark index in Canada is trading right now.
Currently the S&P TSX is up maintaining a strength. Up about 115 points or 0.8%.
Turning to the United States, the S&P 500 a broad gauge of stocks there up about 37 points to the tune of 1%.
Well, it has underperformed the big US indices. The TSX has had a good year so far. But will that trend continue through the rest of 2023?
Michael O'Brien Portfolio Manager at TD Asset Management join me earlier to discuss.
>> It hasn't been lost on anybody that the US has really been the story of 2023.
Fantastic start to the year.
I think as we sit here today, the S&P is up about 20%.
Great start.
NASDAQ even stronger obviously. Those big tech heavyweights. Canada has not had a bad rating. I think we up at a total return basis with a seven year… That's respectable.
But obviously, we look south of the border and are a little envious of that performance.
I think a lot of the same trends, both north and south of the border, but Canada has had a few of the bigger components of our market.
The banks have been a little bit of a lag or. The energy stocks have lagged a bit.
Some of the big telcos have liked a bit.
But all in all we had a very strong start to the year.
Relative to where we were back last fall when markets were at their lows, a lot of concern around inflation and in order to bring inflation back to more acceptable levels. Central bankers, policymakers would have to inflict some pain on the economy.
Instead, we have had inflation come down nicely at least as quickly as most people expected but we have not seen that pain and the economy in the first half of the year both in the US and Canadian economies performing pretty well.
The job markets that have held up quite well. That explains the strength we've seen which I don't think a lot of people were calling for Bakken November and December.
>> You also said it's hard to get too bullish about big gains in the back half of the year. A lot of that has to do with what markets seem to be pricing on. What are you saying right now?
>> I guess my point on that would simply be we of particularly, in the US market, but more broadly speaking, it's been almost a perfect scenario this year. Like I described.
You know, economics 101 tells you that you're not supposed to have your cake and eat it too.
Yet we have seen inflation reseed without that impact of the job market.
Without the impact on the economy.
30 strong. You know really the only weakness we've seen, has been a sort of in the commodity complex which is actually helping bring inflation down.
So I guess where I'm at now is it's been a very smooth ride so far. But for the central bankers, the Fed, the Bank of Canada, to achieve this soft landing or the "no landing" scenario the people are calling for, it's still going to be a really tough ACT! to pull off. And so I think it's all about what's price and the markets today?
What's priced in the markets today when you look at more valuations and where they are. The S&P for example.
It's close to 20 times earnings which is quite elevated. It's telling you that investors expect a soft landing. Where is if you sort of go back to some market history, you would say that the odds of a soft landing are not as favourable as the markets are implying. So, from the starting point, it's a little bit of a challenge with what's been priced into the markets.
The other part of it too is even if inflation continues to behave pretty well, >> I think people are having trouble hearing Steve.
>> If the economy continues to hold up, they are not to be in a rush to cut. Which means, you know, even if we do achieve a soft landing, it's hard to picture an environment where earnings growth is going to reaccelerate in a substantial manner.
Because you know, the policymakers are going to continue to keep things tight.
On the other hand, if all these recessionary scenes we are looking at, if they are not giving the false signal of that's were heading, then obviously you know, the economic environment over the next 9 to 12 months is going to be much more difficult. So either way, either way you slice it I don't see a big rebound in earnings growth over the next two or three quarters.
So that makes me a little bit cautious because I'm not betting on further multiple extensions.
>> You talked about indicators. There's also some lagging economic indicators to keep your eye on. Going forward.
>> Yes. You look at the whole panoply there. You try to triangulate what's happening but when you think about, you and I both just said, job markets held up very well. It has. That tends to be more of a coincidence or a lagging indicator.
It's sort of an inflation we have set out.
Inflation is come down.
Those tend to be sort of a coincidence or lagging indicators. All the classic lead indicators, things like your purchasing managers index… Those types of things or like I mentioned, the inverted yield curve.
Those tend to be leading indicators and they have been flashing red for some time.
So we are really at this turning point.
So this age-old question of "is it different this time?
"… When we get to this point in the cycle, the tendency is for us to say "it's different this time, it's going to be a better outcome." The odds are that it's probably not.
So I'm just trying to be sober and realistic about the odds of achieving this perfect economic scenario.
History would tell us it probably won't happen. Markets are already pricing in a pretty positive outcome so I'm just saying, you know, I'm being cautious.
>> You also said that Canada is not looking too bad compared to the US marks right now.
Why is that?
>> I think like I mentioned earlier, there are a couple of big pockets and components of the Canadian market that have been laggards.
They have not seen that 30, 40, 50% return that we've seen out of a lot of these other stocks.
Specifically the banks, the Canadian banks got caught up in the controversy around… Or you know, the problems with some of the US regional banks. Remember Silicon Valley Bank family in a couple of the other ones.
A lot of pressure on deposits, concern about loan losses.
That dragged the Canadian banks down to.
They started to stabilize here. I think we've seen better deposit trends. You know, we have not seen that deposits like the really spark the problems of these US regionals.
I think we will realize that lending margins are probably going to be a little bit pressured here for the next couple of quarters so that's kind of… In the price.
So far the credit concerns, you know, the loan books have held up pretty well so far.
So, I think at this point, the banks of kind of stabilized. They are not expensive stocks.
They still of these headwinds that they will have to deal with.
But you know, they are not expensive.
>> What about energy?
>> I was going to say another big part of the Canadian market is the energy space.
Again they are commodities struggled in the early parts of the year and people had hoped that the Chinese reopening story would really drive the commodity complex in the first half the year. It's kind of underwhelmed.
Chinese oil demand is been good but it has not really pushed the whole commodity complex higher.
And so, instead of seeing oil prices in the $80-$90 level, you are looking at 60 and 70.
So again, that's another part of the market..
You are seeing oil prices starting to strengthen a little bit.
And valuations again, gaining in expectations are quite reasonable for that.
So if you get a scenario in the back half of the year where the banks and the energy stocks start to work, that could be a really nice tailwind for the TSX. Canadian compensate.
>> That was Michael O'Brien, Portfolio Manager at TD Asset Management.
And now let's get to today's education segment.
In today's educational segment, were having a look at how you can track whether your trade is gone through once you make an order and here to help us with that is Bryan Rogers, Senior Client Education Instructor with TD Direct Investing.
Bryan welcome to the show. How can investors see whether their trade is been completed?
>> Well thanks Anthony.
We go over in the segment a lot talking about the different types of orders, we talk about market orders and limit orders and stop orders but oftentimes we don't go that last step of "what you do if you have to cancel your order or want to change your order or even see if it's filled or not?" Most brokerages will call this an order status section.
Not something super complicated. Many of you may know this already but if you're new to investing, I want to jump into WebBroker and show you where you can find the order status.
So that would be under the trading tab.
You're going to go to the order status that's under trade management here and it did it take you to a screen that looks like this.
This is just a demo account. There is nothing here at the moment. But if you open your own account and placed the trade you will see here under "all" you will see all the order still open and you will see where you can enter a limit order at a certain price that's not filled yet.
You can actually change it from there, change it, cancel it, replace the order, you can ask the reverse the order as well if you do buy and you want to do a cell.
All those things would be in the area "all" then you have open, fill orders and cancel orders… You can actually also look at historical orders for a period of time if you want to look at… This is what we show for a certain period of time.
It is on the active tab and then under historical you can see all your previous orders if you want to kind of have an idea of what you've done prior to the last two days.
>> Okay so now we know how to find the order status.
Some orders sometimes will cross several hours or days. Is there a way to be notified of an order fill?
> Yes for sure.
One of the ways is in that order status section, if you were in WebBroker, you are logged in, you may have to go back to the order status and say "okay, what's going on with my order?
Is it filled, is it open, can I change it?" But they do have another feature if you're constantly logging into WebBroker to monitor the market and look at charts or whatever you might be doing.
They do have trade notifications.
So if we jump back into WebBroker, this is fairly new.
I want to show you where you can add that on if you've been using WebBroker for a long time.
Maybe you know this was there.
You can actually go into the very top here I will click on my name so in your own account you would see your own personal name at the top right.
You click on that and you're going to go to "customize site".
That's can give you an area where there is a tab that says "trade notifications".
I can't show you an example of the moment without an actual trade order coming through. But I can give you an idea what it looks like.
What this page is here is if you have trade notifications turned on, if you had this little icon Ray were on my mouse is they are showing trade notifications, you can see where you can say whenever an order is filled, you want an order and you want a notification rather.
You can set these parameters. You can also show where you want to see it and have it pop up on the bottom left of your screen, the bottom right… And for how long as well.
I would not recommend doing it too long.
If it's gonna bother you and sit there for 15 seconds or 10 seconds.
Also if you can and leave it open until you actually decide to close it as well.
So the last thing, and he is always in WebBroker, anything on the screen, you can click on this?
Over on the top right. That will give you a little bit more information on this feature in WebBroker.
So if I scroll down, it will talk about what trade notifications are and there is little picture of an example of what they look like.
So you can see it pop up one at a time.
At the bottom were sold… Rejected so the net gives you a little bit more insight into what's going on with your trade.
While you're logged into the WebBroker platform.
Breath now I'm a long-time user of WebBroker and I do not to do that. So thank you very much for that information.
Bryan thanks for joining us.
>> My pleasure.
> Our thanks to Bryan Rogers, Senior Client Education Instructor TD Direct Investing.
Make sure you check out the learning centre in WebBroker for more educational videos, live interactive master classes and upcoming webinars.
There are plenty of different ways to analyse a potential investment. Whether it be a company's valuation or history of dividend growth.
Damian Fernandes, Portfolio Manager at TD Asset Management tells us one of his favourite metrics is a company's free cash flow and he join me earlier to explain why.
>> When you think about any business, a convenience store, restaurant, or Apple or Google in the stock market. What is the value of that business?
It is not what is happening in AI or with their AI platform is or what the regulations are saying or how fast revenues are going. The value of that business is how much cash that business is generating. That's what free cash flow is.
It's what's left over after you've paid the expenses and after you pay the tax man, you paid interest expense, you have invested to grow the business whatever is left over is free cash flow. Historically, companies, whether private businesses are public, the value of those businesses is how much cash can be generated today and how much will be generated in the future.
So for us, we almost have this dogmatic religiosity run free cash flow. We want to find businesses with the marketplace doesn't believe how much cash flow is being generated and we want to invest in those businesses. That's the bread-and-butter. That's what's led to our success over time. Particularly these times when interest rates are at historic highs.
High inflation. So free cash flow is certainly important in metric for that.
>> For sure because free cash flow is what's there after you pay for the interest payment. As companies are refinancing, you can find their interest payments have increased.
But if you focus on free cash flow, that divides some insulation against it.
> Given that backdrop there are few central themes your interest now. Let's go through a few of them. We will start with luxury.
>> Sure so for us it's two things.
We will start off, we want to find companies that are growing free cash flows.
But the precursor to that is you want to be an industry rather in industries with secular growth attributes. It's one thing to be a great business but if you're in a declining industry, you are almost beholden to the forces of that industry.
It's going to be really difficult to generate that free cash flow growth. So the first thing for us is "let's find industries that are growing". One growing his luxury spending. Globally.
High-end luxury spending, high-end consumer unlike the low and consumer is not feeling that pitch that pinch of inflation because they have more disposable income.
Secondly, to be a luxury company whether it's Ferrari or Hermes.
.
.
You and I could not wreck replicate that we could not start a luxury company tomorrow. These luxury companies… When you think about the terms, from economic terms, there is so much demand for them that they can keep raising prices. The more they raise prices, the more demand increases.
Because you almost have this ability where consumers want to differentiate and as consumers, I know the lower end consumers facing pressure but globally, you have rising in class.
Rising middle class wants to differentiate and show and demonstrate some of that newfound wealth. Luxury is one of the easiest, most iconic ways that is front and centre. People see close, watches.
How you differentiate in that. So really luxury companies, we think it's a cycle and growth theme and it will continue.
>> You mentioned luxury. You also focus on some green themes.
Whether electrification, clean energy or the need for stronger energy.
> So that's a great theme.
When you think about what's been in the news recently, it's been inflation reduction acts. That the US passed.
Really a clean energy bill. We hear about Europe that is also trying to follow and subsidize clean energy. Globally, we know that energy transition is full force.
So first, this is a very easy way were a lot of dollars are being spent and invested in capital investment to try and move collectively, the profile from industry manufacturing energy usage towards more clean energy sources. For us, we what we are trying to do is think about how we can participate in this right?
You can try and pick your EV or you can pick solar panels but for us, an easy way to think about clean energy is thinking about if you need electrification, you need more wire.
If you need more wiring, the most efficient way for energy is copper.
They have a long tail of demand ahead of them.
You need to improve your grade infrastructure. If all of us plugged in our TVs today, we would probably fill up the grid. There's not enough capacity. So retrofitting the grid and improving capacity, companies tied to that, I can give you some names there but for us it's always thinking about what the secular theme is in which companies can be identified and that will participate in that growth.
>> Okay so I want to move on to healthcare. Talk to us about that.
>> Yeah so sadly, the world is getting older.
Everyone is getting older.
I know… There's no avoiding it. When I think about that, as you have increased wealth and globally, there are demographic challenges, less births and people living longer, healthcare is an obvious example of a secular growth theme. It's counterintuitive but as people grow older and want to prolong and ensure that they have the same lifestyle, they spend more on healthcare. So everything from drug discovery to actual pharmaceuticals to companies that help support a healthy lifestyle, that whole healthcare theme has a secular growth aspect to it and again, for us that's one of these areas were we just think that spending in healthcare is going to keep increasing as people want to have the same lifestyle they did and want to improve their health outcomes. We want to find companies that participate in that.
>> Okay now just for the show you and I were talking about Italy.
Talk to us about travel. The demand seems to be pretty strong for people to travel especially internationally.
>> I think that continues. Even pre-pandemic when we found experiential consumption. People were moving towards, I call it the, colloquially the Instagram generation.
Everybody goes to these beautiful takes places and takes pictures and post them on social media. So even pre-pandemic you had this movement towards experiential consumption. Vacations… New areas, travel.
The pandemic hits and what happens?
We are all quarantined at home.
Restricted.
Goods demand really increases.
Because our people are wrapped in their homes and they want a better environment.
As we move out of the pandemic these last two years, it's almost like this revenge spending took hold. People want to say prices be damned, "I want to see what I missed out on".
Whether it's in your case, going to Italy or all people going towards travel in any case.
For us travel theme is really important.
It's like how do we think about whether it's hotels or companies that enable booking for travel purchases. All of those shares will see lots of free cash flow growth in them.
>> So in these sectors, what about business models and free cash flow performance that you're looking for?
>> We talked about this idea about identifying companies and industries that are growing cash flow.
I think people sometimes forget that regular businesses : what we are looking for his leadership. I will give you an example in terms of free cash flow generation that might seem counterintuitive. Let's pick to companies: Apple, I'm pretty sure many have an Apple iPhone.
Many people use iPhones.
And Cosco membership.
>> I've got a membership at Cosco.
>> You might think what does my iPhone have in common with Kirkland Brands to mark Cosco's generic brand.
But both those business models, they are very profitable and generate a lot of free cash flow but interestingly, they have this element of almost like an annuity.
Every year you get a payback from an insurance company, you are an annuity for Cosco and Apple. Every year, you renew your membership. You keep using your iPhone, you keep renewing your Cosco membership, upgrade… And every three years you replace your iPhone or Costco charges you a 10% premium.
Think about this, it's almost like a rising in annuity and Cosco, it's like they provide customer utility but just by being a member, a membership model and they keep generating this cash flow year after year, like an annuity that grows every few years as you replace your iPhone at a 10% premium, these are models that we really like.
They might not have the same sexiness as travel and luxury and healthcare but they are very conventional business models that generate prodigious amounts of cash flow.
So the next time you are in Cosco, Anthony, and you're using an iPhone, just remember you are paying both those companies.
> I am an annuity for those companies.
(Laughing) >> That was Damian Fernandes, Portfolio Manager at TD Asset Management. Now for an update on the markets.
We are having a look at td's advanced dashboard, a platform designed for active traders available through TD Direct Investing.
Were looking at the heat map function here which gives you a view of the market movers on the TSX 60 a price and volume.
We see the red line for TC energy. TRP of course planning to announce they plan to expand their pipeline, liquid pipeline business.
Just below that is Imperial oil, seeing some strong bits today over 5%. Cenovus as well seeing some strong bits as well.
Taking a look at the technology sector, Shopify is also seeing some strong gains in early trading.
Let's take a look at the S&P 100.
We will start with technology.
Technology is been in the news this week.
Google, both shares of Google are doing fairly well.
Of course, Google announcing fairly strong quarterly earnings as well this week.
Intel, the bottom is also seeing some strong bids and Meta as well.
Also a strong quarterly report.
Taking a look at the consumer cyclical's, of course Amazon is looking to be reporting its earnings next week.
Seeing some strength there.
Tesla is also up.
Ford reported stronger second-quarter earnings but we are seeing some weakness or some concerns over a TV rollout.
The shares down more than 4%.
And you can find more information on the TD advanced dashboard by visiting td.com/advanced dashboard.
We will be off next week for a brief summary hiatus and we will be back on Tuesday, August 8 and David Mau Portfolio Manager with TD Asset Management will be Greg's guest taking your questions on global and industrial stocks. You can always find episodes of MoneyTalk Live and our other great interviews and articles on our website MoneyTalk Live@td.
comthat's all for show today.
Take care!
See you on August 8!
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