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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you will only see here.
We'll take you through what's moving the markets and answer your questions about investing.
Coming up on today show, we'll discuss whether the early year rally in equities is running out of momentum with TD Asset Management's Michael O'Brien. Money talks Anthony Okolie has a look at the latest TD Direct Investing investor sentiment index.
And in today's WebBroker education segment, Nugwa Haruna gives us a primer on how leveraged exchange traded funds work and how you can find more information about them using the WebBroker platform.
So here's how you can get in touch with us. Just email moneytalklive@td.com or salute the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. There was some effort, I think, from the markets this morning to try to break the losing streak of the recent couple of days but sort of falling back into negative territory. The TSX Composite Index down just shy of 100 points, down half a percent.
there was a boost in the price of American benchmark or today. Crescent Point hanging onto its gains at nine bucks and $0.17.
They're pretty modest. About 1 1/2% to the upside.
Bausch Health reported its latest earnings and the street seems to like it. The stock is up a little more than 11%. It is well off its recent highs but getting a bit of a pop today. South of the border, the S&P 500 tried at the open to shake off the losing streak that it's been on but still a lot of things overhanging this market.
Concern about what the feds will do next, about inflation and rate. You are starting to wind down earnings season to a certain degree in the United States but we still got some big banks coming. Got the S&P 500 down about 20 points, half a percent.
Tech heavy NASDAQ, there have been some earnings including Nvidia, but it is on the downside. Weakness in Netflix today, at 315 bucks and change, it's down almost 6%. That's your market update.
A strong start to the year for markets has lost some momentum recently amid concerns about the future path of interest rates, but our current conditions setting up for more volatility had?
Joining us now with his view is Michael O'Brien, Portfolio manager at TD Asset Management. Great to have you back on the show.
>> Great to be here.
>> This was the year we headed into thinking that at some point, the central banks are going to stop their hikes and we will discuss how long they will stay at the interest rates they are at. The markets rallied.
Now we are in February and we are losing some steam.
What's going on?
>> Well, I think if you think about the start of the year, the markets got shot out of a cannon. They just had a huge run in January.
If we sort of step back and ask what drove that?
There were a few pretty legitimate or encouraging signs.
So the first, Europe did not get a cold winter, which was a huge deal that took a lot of pressure off the European economy.
So as we sit here today, the European economy is in better shape than we thought was going to be. That's a plus.
A second positive catalyst, people were wondering, when will China digit zero COVID policy?
When will it reopen? That's happened earlier and more aggressively than we thought, so again, another positive for the markets.
The third thing which you alluded to earlier that really catapulted the markets in January was we were seeingsome pretty encouraging data around prices.
Inflation was starting to come down.
It looked like there was some moderation there.
I think investors really took the ball and ran with it.
Started speculating about how quickly the Fed can go to the sidelines and not just go to the sidelines but also whether we might actually see some interest-rate cuts in the back half of the year.
That really lit a fire under the what I would say is the more speculative, frothy parts of the market. That's what we saw in January. So what's changed?
What changes we actually had some better than expected job numbers both in Canada and the US. A real whopper of a jobs report down there.
At the same time as that this inflationary trend took a bit of a pause in the latest CPI releases, particularly south of the border.
I think investors were forced to rethink just how quickly or easily this this inflationary process is going to be.
They begun to price out those rate cuts which I always thought were a bit optimistic, but that's starting to change.
And so I think what began in the bond market with this rethink of just how quickly inflation is going to ease, that's begun to filter into the equity market. So to answer your question, how far has this run, how much more have we got to go?
My read is that we pulled forward a lot of the 2023 returns into the first four or five weeks of the year, so it's natural to think that's going to slow down.
It shouldn't be a big surprise. But I think the other part of it which is interesting is I think the nature of market leadership is changing here as we look.
So like I mentioned, the first few weeks of the year, it was really about finding those names.
They had a very tough back half last year which I would term more speculative.
Or companies with their best days will out into the future, they really benefit when interest rates fall.
So that's what drove the market in the first few weeks of the year.
As rates have begun to go up again, that's changing pretty quickly.
I think the market is due to take a bit of a breather here but more significantly, the leadership of the market is changing.
>> Let's talk about that.
You said the market sort of change their minds about where we are headed, that sort of fell in line with what the Fed was saying all along. Swe've got to get rates up to a certain point and hold them there for a while. Sword is in line with that.
if that's what plays out, you get a few more rate hikes, who knows how many more and what magnitude, from the Fed, find a place to stay at and they stay for a while.
When you start thinking in terms of portfolio?
>> What I'm thinking about in terms of my portfolio isspend less time trying to identify the world beating company in 2035 and focus more on the here and now.
What are the companies we have both confidence and in terms of being able to execute and was a pretty tricky environment?
Growth is still okay but it's flowing. At the same time, a lot of cost pressures.
So it really puts a premium on quality management I think.
Who can control their costs best?
Who can deliver on the earnings expectations? I'm really focusing on best rated companies here relatively dialling down the data a bit, dialling down the cyclicality of it, going more for the sure things which basically everybody ignored for the first three or four weeks of this year. Circling back into some of those names that I can really depend on, that I think will meet expectations.
>> Will dependable's mean patients as well? During the pandemic we saw these very aggressive moves from central banks, from governments with stimulus, the market takes off and everyone thought, the market will run out.
We are in a different environment now.
Does it mean a long-term horizon, a bit of patience to let your names work out over the long term?
>> I think you hit the nail on the head.
This is a very different world than the world we were in in 2020.
In 2020, you had massive fiscal stimulus as governments were sending out emergency stimulus checks. A passive monetary stimulus as banks were cutting rates to zero.
The environment today couldn't be more different. Liquidity is tightening.
Liquidity is becoming scarce, and that is not a positive environment for get rich quick investments.
It's just not.
At the same time, provided that the economy holds together here, a lot of these businesses, dependable, proven businesses, they will deliver over the long term.
It's just we shouldn't expect the fireworks that we got used to a year or two ago.
That is not the world or environment we are in for stocks.
>> Fascinating stuff and a great start to the show. We will get to your questions for Michael O'Brien in a moment's time, including questions about Suncor, Teck Resources and his outlook A reminder that you can get in touch with us at any time.
Email moneytalklive@moneytalklive@td.com or filler the viewer response box on the video player you're on Whataburger.
now let's get you updated on the world of business and to look at how the markets are trading.
Loblaws is reporting in nearly 10% jump in sales on strong demand in both its food and drugs business.
the grocer and parent company of shoppers drug Martsays cough and cold products as well as cosmetics were in high demand. And Loblaw's note the discount food stores outperformed as households struggle with inflation.
Shares of Nvidia are in the spotlight today that after the chipmaker delivered an earnings beat in its most recent quarter.
And perhaps more importantly, Nvidia semiconductors are excited to play a key role in the growth of artificial intelligence services such as ChatGPT.
Chinese tech giant Alibaba posted a 69% jump in profit for its most recent quarter.
The follow some cost-cutting measures in the company last year. There also expect patients at the economic reopening of China will benefit Alibaba's revenue growth this year.
Right now the name down to the tune of 2%.
A quick check in on the markets, we will start your home on Bay Street with the TSX Composite Index.
Markets tried to rally out of the gate this morning but they slid back into negative territory. 97 points in the hole, nothing too dramatic, about half a percent down for the TSX Composite Index. South of the border, the S&P 500 also down about half a percent as well as investors are trying to slog their way through February and figure out what's next from the Federal Reserve.
We are back now with Michael O'Brien taking your questions about Canadian stocks.
let's get to them. If your wants to get your view on Suncor.
We got an announcement out of the CEO this week.
>> That something investors have been waiting for for some time.
The situation at Suncor is after, for years, they were kind of the go to name in the oil sands. They have lost that crown over the last few years and that was due to sloppy execution. They've had a number of safety issues, some activists got invested in the company trying to spur some change. I think a lot of investors were waiting to see who's chosen to kind of get a read on how much culture change we might see, somebody that would go in there with a fresh set of eyes and shake things up. I think the company did a pretty decent job of balancing on the one hand, knowing the operations on the other hand. We've got that outside CEO. So what they did is they brought in the former CEO of Imperial oil, which is another oilsands operator, who knows Suncor's assets inside and out.
What's interesting is this gentleman, Rich Kruger, he's 63 years old, so I would read that as he's not a long term CEO here.
What Suncor has done is they put him in place,I think you will go in there, there will be no sacred cows with him and he will do some housecleaning. But the interim CEO, Chris Smith,who showed pretty well with investors that I think in the board's view needed a little bit more seasoning, he becomes the CFO. He gets a few more years to learn the business from a slightly different perspective and so I think you have that outside change agent which hopefully will shake things up a little bit.
Probably for 3 to 5 years. And you still have your… The in-house candidate who will be a little bit more seasoned by that point.
I think it's a pretty good balancing act they've struck there.
>> And now we have some clarity on the leadership going forward, for the next 3 to 5 years, which we need to think about in terms of energy prices overall?
West Texas intermediate, the American benchmark, has been pretty off early this year.
> Oil prices were sloppy earlier this year. They're bouncing around between 75, $80. Demand, this is a seasonally low period for demand. So it's not unusual that you would see select this time of year.
when I look at the supply demand balance as we sit here today, my expectation is that things will look a lot tighter as we do get into summer.
So right now, if I had to say this range that oils been bouncing around in, by the summer time, if it doesn't break lower or higher, I would think it's probably biased to the upside.
That would be my point of view.
>> Interesting stuff.
Let's take another question.
We had some significant stories about Canadian business this week. The viewer wants to know how we should view with the Teck coal business spinoff? What's going on here?
>> This is an interesting one. It's been in the works for some time. In the world of base metals, copper is a very sought after metal, primarily because it is seen as one of the leading green metals in other words as the world pushes forward with electrification, electric vehicles and whatnot. Copper is pretty indispensable to the transition. On the other hand, metallurgical coal used in the steelmaking process is seen as a dirty metal, not desirable.
So Teck, up to this point, has been in between two worlds where half the company looks great to investors in terms of the green metals of the future, the other half looks like a bit of a dinosaur called in the past with their coal business.
What's been interesting with companies over the last 12 to 18 months, they've had the good fortune of hitting a great cycle in terms of the net coal prices which have been very robust, above trend.
Those windfall cash flows from this older business have been used to invest in building a pretty significant copper mine in Chile, QV two, which is just about to ramp up now.
So you kind of harvested the cash flows from the legacy business to build the business of the future.
I think maybe the timing had to do with the fact that the bulk of the spend on QB two is now behind us.
It is so now they can afford, in financial terms, to spinoff the cash cow.
In terms of how much value this creates the company going forward, like I said, on the one hand, the new tech, which, going forward, will be very much focused on copper and a bit of zinc, that should be pretty attractive and would tend to trade higher than what we have seen. The other part of it though is the elk value business, the coal business being spun off. Pure play met coal companies trade at very low multiples.
To pile onto that, part of the spin agreement is that the vast majority, like up to 90% of free cash flow coming from the medical business, is going to be repatriated to the copper business.
So I don't see the attraction of this… The medical spinoff, to me, I best going to be a very difficult one to sell.
I'm not sure what the investment thesis is for investors.
So the Teck metals pure play may well trade at a higher valuation but when you think about the sum of the parts here, I'm not sure how much value is really being created.
>> Interesting stuff.
Another big story of the week.
No shortage of big stories.
Gotta guessed he wants to know whether it's desirable to continue to hold a position in First Quantum or are defensive measures required?
Another name that's been in the news. Even today, their bins more updates.
>> First Quantum is a great example of portfolio construction or investment lesson that we all should pay attention to which is geopolitics, political risk, country risk, however you want to define it, country risk is always a very important risk to consider when you're making investments and no more so than in the mining industry because at the end of the day, you can relocate a plant but you can relocate an orebody.
So that means you have to deal with some difficult regimes, as some different rules about democracy, rule of law, sanctity of contract. So in First Quantum's case, the dispute is over a very large copper mine, world-class copper mine in Panama. This country doesn't have much of a mining tradition.
This is the first major mine of any kind.
So it's a little bit of unproven territory. So what we are seeing is this mine has been basically completed and is no ropey coproduction. There's a pretty significant dispute between the company and the government as to who gets what in terms of the revenues from the mine.
I have a hard time saying exactly which way this is going to go.
if I had to guess, I would say First Quantum is going to have to give up a little bit more of the economics of the mine. Hopefully, it doesn't progress to full on nationalization which would be a very difficult situation for the company.
All that said, it just comes back to my first point which is when you are considering investing particularly in the material space, in the mining industry, you always have to be aware of what country risk you are taking on and is it worth it to you.
Investors with a higher risk tolerance, they might look at this as an acceptable risk because, like I said, it is a world-class mine.
If they can get this dispute ironed out with the government on reasonable terms, this is a mind that will be generating cash flow for First Quantum for up to 30 years.
If you're a little more risk averse, it really is hard to say have this going to play out in the end.
That's what you need to do, if you are buying the stock, you have to go in with eyes wide open and realize the risk you are taking. At interesting stuff.
A lot of interesting stories from Canadian companies this week.
At home, do your own research before making investment decisions. We will get back to your questions for Michael O'Brien on Canadian stocks in a moment.
You can get in touch with us at any time, just email moneytalklive@td.com.
Right now, let's get to our educational segment of the day.
there are many types of exchange traded funds available to investors on WebBroker.
Well, today, our Nugwa Haruna, Senior client education instructor with TD Direct Investing is going to take us through how leveraged ETFs work.
always great to have you here. Walk us through the basics on leveraged ETFs.
>> It's always a pleasure being here, Greg. Yeah, so with leveraged ETFs, what these ETF seem to do is they seem to amplify the return of that specific ETF.
Now that ETF will tend to track a specific index or underlying benchmark and unlike an interest ETF, which seeks to do the opposite of what the… Is doing, leveraged ETF will seek to maybe give a 200% return.
So for example, if you have a leveraged ETF tracking and index and goes up by 2%, an investor holding that ETF may expect to see a 4% increase in that position.
I will mention the similarities between inverse and leveraged ETFs. Both are constructed using financial derivatives.
Let's happen to WebBroker and see how investors can find leveraged ETFs.
Once in WebBroker, an investor is able to click on research. Under investments, you would click on ETFs.
So once you are here, an investor can scroll down and see some additional information. For instance, I can take a look and see what today's top movers are.
Just gonna click on this drop down and click on most active ETFs. Once I do that and I use the next drop-down right beside it, I can take a look at the performance of leveraged ETFs today.
So for example, we have this data crude oil daily bull ETF. What this tells me without getting deeper is I can see that this is bullish, the prices going up and it's typically done on a daily basis. So I'm going to click on here.
I want to see a little bit more about each of these ETFs. I'm gonna go summary and once I am on the ETF page here, I'm going to school down.
And so an investor who is looking for additional details to have an idea of how much… This ETF is seeking to create, they are able to see that information here.
This ETF is seeking to do up to 200 times, so two times of the daily performance of the specific index itself.
>> So we're taking a look through these and say you want to build a list. I have my own lists here in WebBroker. I like to put them together. If I want to put together a list of leveraged ETFs, walk me through the exercise.
>> Yeah.
So the first and I can do is one time on a page with the leveraged ETFs in WebBroker, I could just continue down in the category option and that's on WebBroker, or I could screen for that. Now that is one of our most popular tools, the screeners tool, because how powerful it is.
I'm going to click on research, but this time I'm going to go back to my ETFs page because it gives me an opportunity to use the mini screen tool. It's really quick to use while you are still on the same page.
So I'm going to scroll down here where I find my quick screen tool.
This time, I'm going to focus on ETF category.
Now, click on the drop-down. Avoid to scroll down.
It does take a bit of scrolling.
It is showing you there so many different options available to investors looking for different categories of ETFs here.
I'm going to scroll down and look for that specific category of leveraged ETFs. So I find it here.
It's passive, inverse /leveraged ETFs.
Once I do that, tell me there are 28 of those. Someone to scroll down and be those 28 matches here. This will bring me to the page with the list of those 28 leveraged ETFs.
Now, I actually want to highlight the top to hear because you didn't notice, Greg, that the first one we see here is a two times leveraged ETF. Looking to amplify the return of whatever underlying index it's tracking by two times, but you're also gonna notice something else in the name. It's a bear ETF which is another name for an inverse ETF. So this is an example of an inverse leveraged ETF. These names are starting to get a little confusing, but to simplify, what it is seeking to do is tracking a specific index and when it does that,it seeks to amplify the return two times but in the opposite direction. So essentially whatever index it is tracking, the value is up by 10%, this ETF will lose a 20% value.
Now when we talk about securities like this, we do want to talk about the risks, right?
So things to consider for investors who decide that they want to use leveraged ETFs or inverse ETFs is that these are on the riskier side.
Yes, they may amplify your gains, but it means they could also amplify your potential losses. One more thing I will touch on for leveraged ETFs is that you will find that the NER, which is the management expense ratio for these tends to be higher than basic ETFs because there is a lot of trading that takes place. So when I click on the summary tab over here and I filter by management expense ratio, you will notice that a lot of these, the lowest we find here is 1.35%.
.
.
Up to over 2%.
So this is significantly higher than you will find with other ETFs.
>> Great primer as always. Thanks for that.
>> Thank you. Have a great day.
>> Are things to Nugwa Haruna, Senior client education structure at TD Direct Investing.
You want to make sure to do your own research before you make any investment decision.
Make sure to check out the learning centre in WebBroker for more educational videos, live interactive master classes and upcoming webinars.
Before get back to your questions on Canadian stocks for Michael O'Brien, a reminder of how you can get in touch with us.
You have a question about investing or what's driving the markets? Our guests are eager to hear with on your mind, so send us your questions. There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com. Or you can use the question box right below the screen here on WebBroker.
Just writing your question and hit send.
We will see if one of our guest can get you the answer right here at MoneyTalk Live.
We are back now with Michael O'Brien, we are taking your questions about Canadian stocks is so let's get back to them. Oh, Canadian bank earnings season. How is it shaping up?
I think it begins from morning, doesn't it?
>> Yeah, it's going to get busy. So CIBC is the first company out and then the other five are out to the course of the next week. So we will get a lot of information in a pretty tight packager.
>> So let's talk about the fact that obviously the expectation going in is that probably not so much about the quarter that we just lived through but one of the banks gonna tell us about the economic landscape. What's the economy look like?
What do central banks do about that economy?
What should we be looking for in the banks?
> I think you're right. It's gonna be one of those quarters where whatever they report, it's unlikely to change the debate.
Investors that are cautious on the banks will probably find reason to stay cautious.
Investors that are more optimistic on the banks will probably feel reaffirmed that the banks did what they thought they were going to do. So I think were that leaves us is, as you say, very much looking forward.
The two big issues that investors will be focusing on, not surprisingly, credit.
Investors will be looking very closely to not just what they say in the conference calls but also what you see in the results in terms of are we seeing slippage or delinquency is starting to rise? My prediction is that the Q1 numbers are going to be strong.
the tone that management takes in terms of forward-looking thoughts on the loan book, people you paying very close attention to that.
The second issue which is a little bit more of a dry subject but it's very important is capital. If you remember back a month or two ago, the federal regulator moved to the goalposts a bit out for the banks in terms of increasing the amount of regulatory capital they are required to hold.
That happened that a bit of an awkward time for some of these banks who are, some of them are closing pretty significant acquisitions or planning to close significant acquisition.
So one of the things that came out of that, for example, if you remember the Bank of Montréal had to do a sizable equity raisejust a month or so ago. That was because of this change in terms of the regulatory capital requirements. I think regulators will be scrutinizing this more carefully than usual to see if any other of the banks are going to struggle to get where they need to be or if they conclude that this is an all clear for bank XY or Z, that gives them a little bit more confidence that they are looking at a big equity issue down the road.
That's going to take on a bit more importance than usual.
Watch the loan book trends and watch regular tray capital.
>> Two things to watch.
It's gonna be a very busy next seven days or so. The schedule another question.
A viewer wants your views on TC Energy going forward. What's the story with TC Energy?
>> I still refer to them as TransCanada PipeLines.
Old habits die hard.
Yeah, they are in a bit of a difficult situation here where, on the one hand, they've arguably got more growth projects than they've had in a little while.
Unfortunately, they don't have the balance sheet to support this.
They got into a situation where their debt levels increased and, at the same time, their dividend payout ratios got quite high.
So they are not retaining a lot of the cash they are generating right now, which makes them a little bit vulnerable.
Where we saw that chicken come home to roost big time in the last month or two, they have a pretty significant project building was called Coastal GasLink, which is a natural gas pipeline to feed LNG Canada in the West Coast. They run into some very significant cost overruns there which, again, strained their balance sheet had a very inopportune time. So where we find TC Energy today, in order to be able to execute on the 3 to 5 to 7 year growth projects they've got, they need to be able to sell some assets today in order to fund those. So I think what investors are really focused on is twofold. First of all, are there going to be any more significant cost overrides in some of these projects? Coastal GasLink, despite multiple increases in the expected costs, management still cautioned that there could be another $1.2 million overruns to calm depending on how construction progresses this year.
So that's one thing investors are going to be focused on. Another thing they are going to be laser focused on is asset sales.
Can they get a good price for some of these non-core assets?
I would say it more important for investor sentiment is how big does management go in terms of selling assets. Is it just cosmetic, do they do the bare minimum and try not to change the complexion of the company too much?
Or did they go a little bit further and get a little more bold, I would say, to really deal with this problem, the balance sheet and streamline the nature of the business?
So those are the two things investors are gonna be really focusing on over the next couple of months.
> Fascinating stuff to keep an eye on there with that name.
Let's take another question. This one about the auto parts industry. Magna, auto earnings margins look like they are getting squeezed. Is there value there or is this the name you want to stay away from in a recession?
We can't give direct advice about what to do with Magna, but what's the situation?
>> I will stay away from direct advice but one of the reasons investors are looking at this company very closely in terms of is this an investment opportunity is Magna is a classic early cycle stock. What I mean by that is as we come out of a downturn and difficult period, and if we get to that point where interest rates start to come down a little bit, consumers start to get a little more active, automobiles are one of the first places they go and clearly we've had a very unusual period in terms of autos. The last up cycle it kind of got aborted by the supply side issues.
It couldn't get enough chips.
People want to buy cars, they could make them fast enough. So I think there's a fair bit of pent up demand out there.
So I can see why investors are kicking the tires, pardon the pun.
The difficult part is first of all we are not through the down part of the economy.
We are just entering the difficult phase of the slowdown.
But more specifically to Magna, what we saw in their last earnings report is, in addition to just the macro headwinds that are out there, there are a number of company specific issues that surfaced.
They've had some issues with a few of their production plans.
There is a European plant that is underperforming.
They've had some issues in managing costs, so there margins are getting squeezed, as a viewer mention. And another thing that is positive for the long-term but challenging in the near term is as the world starts to shift more towards electric vehicles and as Magna wants to be a big part of that, they are having to spend a bit of money sedated position for that opportunity down the road.
So their cap ex s going up a fair bit over the next couple of years hereto prepare.
It's one of those things where we are not in a harvest phase, they are planting the seeds for hopefully future business in the future but they have to pay for it up front.
That's a difficult situation for a stock to be in.
Investors usually like to get in and harvest that cash flow as opposed to riding through the build phase.
> Interesting set. We'll get back to questions for Michael O'Brien Canadian stocks in a moment. Do your own research before you make any investment decisions.
A reminder that you get in touch with us at any time.
Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker.
Just writing your question and hit send.
We will see one of our guest can get you your answer right here MoneyTalk Live.
Every month, TD Direct Investing puts together a sentiment survey on how self-directed investors are feeling about the market.
Our Anthony Okolie has been digging to the latest results and joins us now.
>> Thanks very much. DII sentiment score did jump in the month of January.
It came in at a mildly bullish six points but it is up a whopping 72 points a month over month and this marks the first timeand months that sentiment landed in bullish territory for our self directed investors. Remote that the DII sentiment can range to +100 for most bullish 2-100 for most bearish and risk appetite among investors rose in January after stock markets got off to a strong start in 2023.
This was evident when you look at the components that make up the DII. One of the components I will focus on is a fight to safety component or proxy.
This measures how much investors pull back into safety or safer investment. This proxy actually jumped 20 points to +7which was less negative from the previous month, which indicates more risk on by investors in the month of January.
Overall sentiment rose across every sector but technology stood out as one of the most traded sectors last month.
Sentiment in the IT sector rose 12.2+4.
When you look at some of the most heavily traded companies, Shopify, Apple and Microsoft all ranks among the most heavily traded companies among the self-directed investors.
Financials and industrials, they rounded out the top three most heavily traded sectors.
On the flipside, healthcare was up plus one in terms of sentiment.
It dropped to one of the least traded for January after seeing it most active in December.
When we break down the DII by age, it's interesting.
Traditionalists who were born between 1928 to 1945, they were the most bullish on the markets last month as their sentiments soared to 16 points… Soared 16 points to a score of +6. The Gen Z millennial's board in 1981 or after were not too far behind.
There sentiment edged up four points to a score of +2.
again, Tesla, Shopify, Apple and Amazon were among some of the most bought securities across all ages and investor types.
This underscores the risk on behaviour by self-directed investors in month of January.
>> Some interesting breakdowns there by sector, by generation, but what about asset class?
>> We saw investors rotating out of Canadian equities and Canadian fixed income into US equities.
That sort of movement aligned with the heavily traded IT and consumer discretionary sectors. Consumer discretionary includes names like Amazon.
That included a significant amount of US stocks there.
This underscores the risk on behaviour by self-directed investors last month.
It also meshes with what our proxy flight to safety showed as equities are considered generally more risky investments than fixed income or cash.
> Very distinct set. Thanks, Anthony.
>> My pleasure.
>> Moneytalk's Anthony Okolie.
Let's check in on the markets. A quick run through. It we have the TSX composite index down about 1/3 of a percent. The market has been trying to break out of the funk they have been in the last couple of days that but it has not stuck.
let's take a look at Suncor.
We saw a bit of aBoosting crude prices today. American benchmark is up and some of the energy names.
Suncor is up one a and 1/3 toof a percent.
Loblaws is up to present at this hour.
South of the border, let's check in on the S&P 500. Try to break that losing streak.
Look like it had a little bit of momentum coming out of the gate this morning but it slid into negative territoryjust modestly, 13 points or 1/3 of a percent. The tech heavy NASDAQ, want to see how it's faring.
Down to the tune of almost half a percent.
Want to check in onNvidia.
They are important when it comes to talk of AI.
There is stock is a 26 points, 12%.
We are back with Michael O'Brien from TD Asset Management. We are talking about Canadian stocks.
Here's a nice broad-based question.
Do you think the TSX will outperform the US markets?
>> So I think when we try to break down what drives these two markets, the Canadian market has a very different profile and composition than the US market as a lot of viewers will know.
I think the argument for the US market outperform in Canada, it has to revolve around a rebound in the technology space where the US is vastly more technology exposure than Canada does.
Or the TSX does.
I think one of the drivers to that would need to be of you that interest rates are moving lower, that the Fed pit it really is going to happen because the technology sector has really fed off of these lower interest rates, just inflationary trends.
I think that would be the strongest argument for why the US market might outperform. If you flip the coin and say, okay, what would drive TSX outperformance?
What Would Dr., Canadian outperformance?
I think the first thing I would say is that the Canadian market is significantly cheaper than the US market.
So to the extent they were focused on valuation, what they were looking at price-to-earnings multiples where the TSX is about 13 times verses 18, 18 1/2 in the states, or dividend yield, word TSX is about twice that you'd find south of the border, price-to-book comments about half as expensive as the US, so it the valuations that wouldsupport the outperformance, it's on enough. Thinking about the composition of the Canadian market, I would argue that if you have a more positive view on the commodity cycle and to what extent is the China reopening going to put a floor under commodity prices, particularly oil, that definitely favours Canada which has a lot more exposure to energy materials.
And I would also argue that Canada should hold up better if interest rates don't go back to pre-pandemic norms to the extent that interest rates stay a bit higher for a bit longer, to the extent that inflation proves to be a bit stickier, I think the components of the TSX comp is it can probably handle that environment better than what you would see south of the border.
The banks, as interest rates have gone up, they have benefited in terms of their net interest margins.
A lot of people are viewing energy is an inflation hedge. If you have that kind of worldview or macro outlook, then the case for the TSX outperforming the US market is quite strong.
>> We will squeeze in one more question because you mention the fact that obviously when you're talking about the S&P 500, you were talking about the FAN G stocks. What about the tech stocks on the TSX?
the viewer wants to know if the guest has any on their radar.
>> I think it's really interesting.
When you look at the composition of the tech universe in Canada, it has changed a lot over the last 5 to 10 years.
The first obvious point is simply to say that technology is a far less important or not nearly as larger component of the TSX Composite Index as it is it is of the S&P 500 or the NASDAQ. However, within the technology universe, I would say that there are more options today than there would've been five or 10 years ago.
a lot of newer companies that have really gained a profile, I would divide them into two groups.
There's kind of like the old guard which is a little lower beta, a little more boring and less sexy.
They don't grow as fast but they tend to have a bit more proven business models and generate real free cash flow.
Then there is a newer guard, Shopify's poster child but there are a lot of other newer companies which don't necessarily have that near-term profitability. They are not really generating much of any free cash flow today, but there growth rates are higher and they have some interesting possibilities down the road.
I tend to be a bit more conservative as an investor so I'm more focused on the traditional, the rearguard if you want to call that, names like CDI and constellation software, proven track record generating free cash flow, if you have, you know,a more aggressive investing style or rates are heading lower, some of this new guard, which is a little more speculative, profit is a little further of the future, there could be some interesting opportunities there because certainly over the last six, nine, 12 months, a lot of the stocks have really seen their share prices come down quite a bit.
>> Fascinating environment to be in.
It's always a pleasure to have you.
>> Great to be here.
> Our thanks to Michael O'Brien, portfolio manager at TD Asset Management. At home, do your own research before you make investment decisions.
We will be back tomorrow, give you an update on the markets, want to see how they are going to react to some more inflationary indicators coming out of South of the border.
There will be a personal us managers and we will talk about the kind of stuff that the Fed keeps an eye on and the markets do as well. They will come tomorrow morning.
On Monday, Andres Rincon, head of ETF sales and strategy at TD Securities will be our guest taking your questions about exchange traded fund. You can get a head start with those questions. Just email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you will only see here.
We'll take you through what's moving the markets and answer your questions about investing.
Coming up on today show, we'll discuss whether the early year rally in equities is running out of momentum with TD Asset Management's Michael O'Brien. Money talks Anthony Okolie has a look at the latest TD Direct Investing investor sentiment index.
And in today's WebBroker education segment, Nugwa Haruna gives us a primer on how leveraged exchange traded funds work and how you can find more information about them using the WebBroker platform.
So here's how you can get in touch with us. Just email moneytalklive@td.com or salute the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. There was some effort, I think, from the markets this morning to try to break the losing streak of the recent couple of days but sort of falling back into negative territory. The TSX Composite Index down just shy of 100 points, down half a percent.
there was a boost in the price of American benchmark or today. Crescent Point hanging onto its gains at nine bucks and $0.17.
They're pretty modest. About 1 1/2% to the upside.
Bausch Health reported its latest earnings and the street seems to like it. The stock is up a little more than 11%. It is well off its recent highs but getting a bit of a pop today. South of the border, the S&P 500 tried at the open to shake off the losing streak that it's been on but still a lot of things overhanging this market.
Concern about what the feds will do next, about inflation and rate. You are starting to wind down earnings season to a certain degree in the United States but we still got some big banks coming. Got the S&P 500 down about 20 points, half a percent.
Tech heavy NASDAQ, there have been some earnings including Nvidia, but it is on the downside. Weakness in Netflix today, at 315 bucks and change, it's down almost 6%. That's your market update.
A strong start to the year for markets has lost some momentum recently amid concerns about the future path of interest rates, but our current conditions setting up for more volatility had?
Joining us now with his view is Michael O'Brien, Portfolio manager at TD Asset Management. Great to have you back on the show.
>> Great to be here.
>> This was the year we headed into thinking that at some point, the central banks are going to stop their hikes and we will discuss how long they will stay at the interest rates they are at. The markets rallied.
Now we are in February and we are losing some steam.
What's going on?
>> Well, I think if you think about the start of the year, the markets got shot out of a cannon. They just had a huge run in January.
If we sort of step back and ask what drove that?
There were a few pretty legitimate or encouraging signs.
So the first, Europe did not get a cold winter, which was a huge deal that took a lot of pressure off the European economy.
So as we sit here today, the European economy is in better shape than we thought was going to be. That's a plus.
A second positive catalyst, people were wondering, when will China digit zero COVID policy?
When will it reopen? That's happened earlier and more aggressively than we thought, so again, another positive for the markets.
The third thing which you alluded to earlier that really catapulted the markets in January was we were seeingsome pretty encouraging data around prices.
Inflation was starting to come down.
It looked like there was some moderation there.
I think investors really took the ball and ran with it.
Started speculating about how quickly the Fed can go to the sidelines and not just go to the sidelines but also whether we might actually see some interest-rate cuts in the back half of the year.
That really lit a fire under the what I would say is the more speculative, frothy parts of the market. That's what we saw in January. So what's changed?
What changes we actually had some better than expected job numbers both in Canada and the US. A real whopper of a jobs report down there.
At the same time as that this inflationary trend took a bit of a pause in the latest CPI releases, particularly south of the border.
I think investors were forced to rethink just how quickly or easily this this inflationary process is going to be.
They begun to price out those rate cuts which I always thought were a bit optimistic, but that's starting to change.
And so I think what began in the bond market with this rethink of just how quickly inflation is going to ease, that's begun to filter into the equity market. So to answer your question, how far has this run, how much more have we got to go?
My read is that we pulled forward a lot of the 2023 returns into the first four or five weeks of the year, so it's natural to think that's going to slow down.
It shouldn't be a big surprise. But I think the other part of it which is interesting is I think the nature of market leadership is changing here as we look.
So like I mentioned, the first few weeks of the year, it was really about finding those names.
They had a very tough back half last year which I would term more speculative.
Or companies with their best days will out into the future, they really benefit when interest rates fall.
So that's what drove the market in the first few weeks of the year.
As rates have begun to go up again, that's changing pretty quickly.
I think the market is due to take a bit of a breather here but more significantly, the leadership of the market is changing.
>> Let's talk about that.
You said the market sort of change their minds about where we are headed, that sort of fell in line with what the Fed was saying all along. Swe've got to get rates up to a certain point and hold them there for a while. Sword is in line with that.
if that's what plays out, you get a few more rate hikes, who knows how many more and what magnitude, from the Fed, find a place to stay at and they stay for a while.
When you start thinking in terms of portfolio?
>> What I'm thinking about in terms of my portfolio isspend less time trying to identify the world beating company in 2035 and focus more on the here and now.
What are the companies we have both confidence and in terms of being able to execute and was a pretty tricky environment?
Growth is still okay but it's flowing. At the same time, a lot of cost pressures.
So it really puts a premium on quality management I think.
Who can control their costs best?
Who can deliver on the earnings expectations? I'm really focusing on best rated companies here relatively dialling down the data a bit, dialling down the cyclicality of it, going more for the sure things which basically everybody ignored for the first three or four weeks of this year. Circling back into some of those names that I can really depend on, that I think will meet expectations.
>> Will dependable's mean patients as well? During the pandemic we saw these very aggressive moves from central banks, from governments with stimulus, the market takes off and everyone thought, the market will run out.
We are in a different environment now.
Does it mean a long-term horizon, a bit of patience to let your names work out over the long term?
>> I think you hit the nail on the head.
This is a very different world than the world we were in in 2020.
In 2020, you had massive fiscal stimulus as governments were sending out emergency stimulus checks. A passive monetary stimulus as banks were cutting rates to zero.
The environment today couldn't be more different. Liquidity is tightening.
Liquidity is becoming scarce, and that is not a positive environment for get rich quick investments.
It's just not.
At the same time, provided that the economy holds together here, a lot of these businesses, dependable, proven businesses, they will deliver over the long term.
It's just we shouldn't expect the fireworks that we got used to a year or two ago.
That is not the world or environment we are in for stocks.
>> Fascinating stuff and a great start to the show. We will get to your questions for Michael O'Brien in a moment's time, including questions about Suncor, Teck Resources and his outlook A reminder that you can get in touch with us at any time.
Email moneytalklive@moneytalklive@td.com or filler the viewer response box on the video player you're on Whataburger.
now let's get you updated on the world of business and to look at how the markets are trading.
Loblaws is reporting in nearly 10% jump in sales on strong demand in both its food and drugs business.
the grocer and parent company of shoppers drug Martsays cough and cold products as well as cosmetics were in high demand. And Loblaw's note the discount food stores outperformed as households struggle with inflation.
Shares of Nvidia are in the spotlight today that after the chipmaker delivered an earnings beat in its most recent quarter.
And perhaps more importantly, Nvidia semiconductors are excited to play a key role in the growth of artificial intelligence services such as ChatGPT.
Chinese tech giant Alibaba posted a 69% jump in profit for its most recent quarter.
The follow some cost-cutting measures in the company last year. There also expect patients at the economic reopening of China will benefit Alibaba's revenue growth this year.
Right now the name down to the tune of 2%.
A quick check in on the markets, we will start your home on Bay Street with the TSX Composite Index.
Markets tried to rally out of the gate this morning but they slid back into negative territory. 97 points in the hole, nothing too dramatic, about half a percent down for the TSX Composite Index. South of the border, the S&P 500 also down about half a percent as well as investors are trying to slog their way through February and figure out what's next from the Federal Reserve.
We are back now with Michael O'Brien taking your questions about Canadian stocks.
let's get to them. If your wants to get your view on Suncor.
We got an announcement out of the CEO this week.
>> That something investors have been waiting for for some time.
The situation at Suncor is after, for years, they were kind of the go to name in the oil sands. They have lost that crown over the last few years and that was due to sloppy execution. They've had a number of safety issues, some activists got invested in the company trying to spur some change. I think a lot of investors were waiting to see who's chosen to kind of get a read on how much culture change we might see, somebody that would go in there with a fresh set of eyes and shake things up. I think the company did a pretty decent job of balancing on the one hand, knowing the operations on the other hand. We've got that outside CEO. So what they did is they brought in the former CEO of Imperial oil, which is another oilsands operator, who knows Suncor's assets inside and out.
What's interesting is this gentleman, Rich Kruger, he's 63 years old, so I would read that as he's not a long term CEO here.
What Suncor has done is they put him in place,I think you will go in there, there will be no sacred cows with him and he will do some housecleaning. But the interim CEO, Chris Smith,who showed pretty well with investors that I think in the board's view needed a little bit more seasoning, he becomes the CFO. He gets a few more years to learn the business from a slightly different perspective and so I think you have that outside change agent which hopefully will shake things up a little bit.
Probably for 3 to 5 years. And you still have your… The in-house candidate who will be a little bit more seasoned by that point.
I think it's a pretty good balancing act they've struck there.
>> And now we have some clarity on the leadership going forward, for the next 3 to 5 years, which we need to think about in terms of energy prices overall?
West Texas intermediate, the American benchmark, has been pretty off early this year.
> Oil prices were sloppy earlier this year. They're bouncing around between 75, $80. Demand, this is a seasonally low period for demand. So it's not unusual that you would see select this time of year.
when I look at the supply demand balance as we sit here today, my expectation is that things will look a lot tighter as we do get into summer.
So right now, if I had to say this range that oils been bouncing around in, by the summer time, if it doesn't break lower or higher, I would think it's probably biased to the upside.
That would be my point of view.
>> Interesting stuff.
Let's take another question.
We had some significant stories about Canadian business this week. The viewer wants to know how we should view with the Teck coal business spinoff? What's going on here?
>> This is an interesting one. It's been in the works for some time. In the world of base metals, copper is a very sought after metal, primarily because it is seen as one of the leading green metals in other words as the world pushes forward with electrification, electric vehicles and whatnot. Copper is pretty indispensable to the transition. On the other hand, metallurgical coal used in the steelmaking process is seen as a dirty metal, not desirable.
So Teck, up to this point, has been in between two worlds where half the company looks great to investors in terms of the green metals of the future, the other half looks like a bit of a dinosaur called in the past with their coal business.
What's been interesting with companies over the last 12 to 18 months, they've had the good fortune of hitting a great cycle in terms of the net coal prices which have been very robust, above trend.
Those windfall cash flows from this older business have been used to invest in building a pretty significant copper mine in Chile, QV two, which is just about to ramp up now.
So you kind of harvested the cash flows from the legacy business to build the business of the future.
I think maybe the timing had to do with the fact that the bulk of the spend on QB two is now behind us.
It is so now they can afford, in financial terms, to spinoff the cash cow.
In terms of how much value this creates the company going forward, like I said, on the one hand, the new tech, which, going forward, will be very much focused on copper and a bit of zinc, that should be pretty attractive and would tend to trade higher than what we have seen. The other part of it though is the elk value business, the coal business being spun off. Pure play met coal companies trade at very low multiples.
To pile onto that, part of the spin agreement is that the vast majority, like up to 90% of free cash flow coming from the medical business, is going to be repatriated to the copper business.
So I don't see the attraction of this… The medical spinoff, to me, I best going to be a very difficult one to sell.
I'm not sure what the investment thesis is for investors.
So the Teck metals pure play may well trade at a higher valuation but when you think about the sum of the parts here, I'm not sure how much value is really being created.
>> Interesting stuff.
Another big story of the week.
No shortage of big stories.
Gotta guessed he wants to know whether it's desirable to continue to hold a position in First Quantum or are defensive measures required?
Another name that's been in the news. Even today, their bins more updates.
>> First Quantum is a great example of portfolio construction or investment lesson that we all should pay attention to which is geopolitics, political risk, country risk, however you want to define it, country risk is always a very important risk to consider when you're making investments and no more so than in the mining industry because at the end of the day, you can relocate a plant but you can relocate an orebody.
So that means you have to deal with some difficult regimes, as some different rules about democracy, rule of law, sanctity of contract. So in First Quantum's case, the dispute is over a very large copper mine, world-class copper mine in Panama. This country doesn't have much of a mining tradition.
This is the first major mine of any kind.
So it's a little bit of unproven territory. So what we are seeing is this mine has been basically completed and is no ropey coproduction. There's a pretty significant dispute between the company and the government as to who gets what in terms of the revenues from the mine.
I have a hard time saying exactly which way this is going to go.
if I had to guess, I would say First Quantum is going to have to give up a little bit more of the economics of the mine. Hopefully, it doesn't progress to full on nationalization which would be a very difficult situation for the company.
All that said, it just comes back to my first point which is when you are considering investing particularly in the material space, in the mining industry, you always have to be aware of what country risk you are taking on and is it worth it to you.
Investors with a higher risk tolerance, they might look at this as an acceptable risk because, like I said, it is a world-class mine.
If they can get this dispute ironed out with the government on reasonable terms, this is a mind that will be generating cash flow for First Quantum for up to 30 years.
If you're a little more risk averse, it really is hard to say have this going to play out in the end.
That's what you need to do, if you are buying the stock, you have to go in with eyes wide open and realize the risk you are taking. At interesting stuff.
A lot of interesting stories from Canadian companies this week.
At home, do your own research before making investment decisions. We will get back to your questions for Michael O'Brien on Canadian stocks in a moment.
You can get in touch with us at any time, just email moneytalklive@td.com.
Right now, let's get to our educational segment of the day.
there are many types of exchange traded funds available to investors on WebBroker.
Well, today, our Nugwa Haruna, Senior client education instructor with TD Direct Investing is going to take us through how leveraged ETFs work.
always great to have you here. Walk us through the basics on leveraged ETFs.
>> It's always a pleasure being here, Greg. Yeah, so with leveraged ETFs, what these ETF seem to do is they seem to amplify the return of that specific ETF.
Now that ETF will tend to track a specific index or underlying benchmark and unlike an interest ETF, which seeks to do the opposite of what the… Is doing, leveraged ETF will seek to maybe give a 200% return.
So for example, if you have a leveraged ETF tracking and index and goes up by 2%, an investor holding that ETF may expect to see a 4% increase in that position.
I will mention the similarities between inverse and leveraged ETFs. Both are constructed using financial derivatives.
Let's happen to WebBroker and see how investors can find leveraged ETFs.
Once in WebBroker, an investor is able to click on research. Under investments, you would click on ETFs.
So once you are here, an investor can scroll down and see some additional information. For instance, I can take a look and see what today's top movers are.
Just gonna click on this drop down and click on most active ETFs. Once I do that and I use the next drop-down right beside it, I can take a look at the performance of leveraged ETFs today.
So for example, we have this data crude oil daily bull ETF. What this tells me without getting deeper is I can see that this is bullish, the prices going up and it's typically done on a daily basis. So I'm going to click on here.
I want to see a little bit more about each of these ETFs. I'm gonna go summary and once I am on the ETF page here, I'm going to school down.
And so an investor who is looking for additional details to have an idea of how much… This ETF is seeking to create, they are able to see that information here.
This ETF is seeking to do up to 200 times, so two times of the daily performance of the specific index itself.
>> So we're taking a look through these and say you want to build a list. I have my own lists here in WebBroker. I like to put them together. If I want to put together a list of leveraged ETFs, walk me through the exercise.
>> Yeah.
So the first and I can do is one time on a page with the leveraged ETFs in WebBroker, I could just continue down in the category option and that's on WebBroker, or I could screen for that. Now that is one of our most popular tools, the screeners tool, because how powerful it is.
I'm going to click on research, but this time I'm going to go back to my ETFs page because it gives me an opportunity to use the mini screen tool. It's really quick to use while you are still on the same page.
So I'm going to scroll down here where I find my quick screen tool.
This time, I'm going to focus on ETF category.
Now, click on the drop-down. Avoid to scroll down.
It does take a bit of scrolling.
It is showing you there so many different options available to investors looking for different categories of ETFs here.
I'm going to scroll down and look for that specific category of leveraged ETFs. So I find it here.
It's passive, inverse /leveraged ETFs.
Once I do that, tell me there are 28 of those. Someone to scroll down and be those 28 matches here. This will bring me to the page with the list of those 28 leveraged ETFs.
Now, I actually want to highlight the top to hear because you didn't notice, Greg, that the first one we see here is a two times leveraged ETF. Looking to amplify the return of whatever underlying index it's tracking by two times, but you're also gonna notice something else in the name. It's a bear ETF which is another name for an inverse ETF. So this is an example of an inverse leveraged ETF. These names are starting to get a little confusing, but to simplify, what it is seeking to do is tracking a specific index and when it does that,it seeks to amplify the return two times but in the opposite direction. So essentially whatever index it is tracking, the value is up by 10%, this ETF will lose a 20% value.
Now when we talk about securities like this, we do want to talk about the risks, right?
So things to consider for investors who decide that they want to use leveraged ETFs or inverse ETFs is that these are on the riskier side.
Yes, they may amplify your gains, but it means they could also amplify your potential losses. One more thing I will touch on for leveraged ETFs is that you will find that the NER, which is the management expense ratio for these tends to be higher than basic ETFs because there is a lot of trading that takes place. So when I click on the summary tab over here and I filter by management expense ratio, you will notice that a lot of these, the lowest we find here is 1.35%.
.
.
Up to over 2%.
So this is significantly higher than you will find with other ETFs.
>> Great primer as always. Thanks for that.
>> Thank you. Have a great day.
>> Are things to Nugwa Haruna, Senior client education structure at TD Direct Investing.
You want to make sure to do your own research before you make any investment decision.
Make sure to check out the learning centre in WebBroker for more educational videos, live interactive master classes and upcoming webinars.
Before get back to your questions on Canadian stocks for Michael O'Brien, a reminder of how you can get in touch with us.
You have a question about investing or what's driving the markets? Our guests are eager to hear with on your mind, so send us your questions. There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com. Or you can use the question box right below the screen here on WebBroker.
Just writing your question and hit send.
We will see if one of our guest can get you the answer right here at MoneyTalk Live.
We are back now with Michael O'Brien, we are taking your questions about Canadian stocks is so let's get back to them. Oh, Canadian bank earnings season. How is it shaping up?
I think it begins from morning, doesn't it?
>> Yeah, it's going to get busy. So CIBC is the first company out and then the other five are out to the course of the next week. So we will get a lot of information in a pretty tight packager.
>> So let's talk about the fact that obviously the expectation going in is that probably not so much about the quarter that we just lived through but one of the banks gonna tell us about the economic landscape. What's the economy look like?
What do central banks do about that economy?
What should we be looking for in the banks?
> I think you're right. It's gonna be one of those quarters where whatever they report, it's unlikely to change the debate.
Investors that are cautious on the banks will probably find reason to stay cautious.
Investors that are more optimistic on the banks will probably feel reaffirmed that the banks did what they thought they were going to do. So I think were that leaves us is, as you say, very much looking forward.
The two big issues that investors will be focusing on, not surprisingly, credit.
Investors will be looking very closely to not just what they say in the conference calls but also what you see in the results in terms of are we seeing slippage or delinquency is starting to rise? My prediction is that the Q1 numbers are going to be strong.
the tone that management takes in terms of forward-looking thoughts on the loan book, people you paying very close attention to that.
The second issue which is a little bit more of a dry subject but it's very important is capital. If you remember back a month or two ago, the federal regulator moved to the goalposts a bit out for the banks in terms of increasing the amount of regulatory capital they are required to hold.
That happened that a bit of an awkward time for some of these banks who are, some of them are closing pretty significant acquisitions or planning to close significant acquisition.
So one of the things that came out of that, for example, if you remember the Bank of Montréal had to do a sizable equity raisejust a month or so ago. That was because of this change in terms of the regulatory capital requirements. I think regulators will be scrutinizing this more carefully than usual to see if any other of the banks are going to struggle to get where they need to be or if they conclude that this is an all clear for bank XY or Z, that gives them a little bit more confidence that they are looking at a big equity issue down the road.
That's going to take on a bit more importance than usual.
Watch the loan book trends and watch regular tray capital.
>> Two things to watch.
It's gonna be a very busy next seven days or so. The schedule another question.
A viewer wants your views on TC Energy going forward. What's the story with TC Energy?
>> I still refer to them as TransCanada PipeLines.
Old habits die hard.
Yeah, they are in a bit of a difficult situation here where, on the one hand, they've arguably got more growth projects than they've had in a little while.
Unfortunately, they don't have the balance sheet to support this.
They got into a situation where their debt levels increased and, at the same time, their dividend payout ratios got quite high.
So they are not retaining a lot of the cash they are generating right now, which makes them a little bit vulnerable.
Where we saw that chicken come home to roost big time in the last month or two, they have a pretty significant project building was called Coastal GasLink, which is a natural gas pipeline to feed LNG Canada in the West Coast. They run into some very significant cost overruns there which, again, strained their balance sheet had a very inopportune time. So where we find TC Energy today, in order to be able to execute on the 3 to 5 to 7 year growth projects they've got, they need to be able to sell some assets today in order to fund those. So I think what investors are really focused on is twofold. First of all, are there going to be any more significant cost overrides in some of these projects? Coastal GasLink, despite multiple increases in the expected costs, management still cautioned that there could be another $1.2 million overruns to calm depending on how construction progresses this year.
So that's one thing investors are going to be focused on. Another thing they are going to be laser focused on is asset sales.
Can they get a good price for some of these non-core assets?
I would say it more important for investor sentiment is how big does management go in terms of selling assets. Is it just cosmetic, do they do the bare minimum and try not to change the complexion of the company too much?
Or did they go a little bit further and get a little more bold, I would say, to really deal with this problem, the balance sheet and streamline the nature of the business?
So those are the two things investors are gonna be really focusing on over the next couple of months.
> Fascinating stuff to keep an eye on there with that name.
Let's take another question. This one about the auto parts industry. Magna, auto earnings margins look like they are getting squeezed. Is there value there or is this the name you want to stay away from in a recession?
We can't give direct advice about what to do with Magna, but what's the situation?
>> I will stay away from direct advice but one of the reasons investors are looking at this company very closely in terms of is this an investment opportunity is Magna is a classic early cycle stock. What I mean by that is as we come out of a downturn and difficult period, and if we get to that point where interest rates start to come down a little bit, consumers start to get a little more active, automobiles are one of the first places they go and clearly we've had a very unusual period in terms of autos. The last up cycle it kind of got aborted by the supply side issues.
It couldn't get enough chips.
People want to buy cars, they could make them fast enough. So I think there's a fair bit of pent up demand out there.
So I can see why investors are kicking the tires, pardon the pun.
The difficult part is first of all we are not through the down part of the economy.
We are just entering the difficult phase of the slowdown.
But more specifically to Magna, what we saw in their last earnings report is, in addition to just the macro headwinds that are out there, there are a number of company specific issues that surfaced.
They've had some issues with a few of their production plans.
There is a European plant that is underperforming.
They've had some issues in managing costs, so there margins are getting squeezed, as a viewer mention. And another thing that is positive for the long-term but challenging in the near term is as the world starts to shift more towards electric vehicles and as Magna wants to be a big part of that, they are having to spend a bit of money sedated position for that opportunity down the road.
So their cap ex s going up a fair bit over the next couple of years hereto prepare.
It's one of those things where we are not in a harvest phase, they are planting the seeds for hopefully future business in the future but they have to pay for it up front.
That's a difficult situation for a stock to be in.
Investors usually like to get in and harvest that cash flow as opposed to riding through the build phase.
> Interesting set. We'll get back to questions for Michael O'Brien Canadian stocks in a moment. Do your own research before you make any investment decisions.
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Every month, TD Direct Investing puts together a sentiment survey on how self-directed investors are feeling about the market.
Our Anthony Okolie has been digging to the latest results and joins us now.
>> Thanks very much. DII sentiment score did jump in the month of January.
It came in at a mildly bullish six points but it is up a whopping 72 points a month over month and this marks the first timeand months that sentiment landed in bullish territory for our self directed investors. Remote that the DII sentiment can range to +100 for most bullish 2-100 for most bearish and risk appetite among investors rose in January after stock markets got off to a strong start in 2023.
This was evident when you look at the components that make up the DII. One of the components I will focus on is a fight to safety component or proxy.
This measures how much investors pull back into safety or safer investment. This proxy actually jumped 20 points to +7which was less negative from the previous month, which indicates more risk on by investors in the month of January.
Overall sentiment rose across every sector but technology stood out as one of the most traded sectors last month.
Sentiment in the IT sector rose 12.2+4.
When you look at some of the most heavily traded companies, Shopify, Apple and Microsoft all ranks among the most heavily traded companies among the self-directed investors.
Financials and industrials, they rounded out the top three most heavily traded sectors.
On the flipside, healthcare was up plus one in terms of sentiment.
It dropped to one of the least traded for January after seeing it most active in December.
When we break down the DII by age, it's interesting.
Traditionalists who were born between 1928 to 1945, they were the most bullish on the markets last month as their sentiments soared to 16 points… Soared 16 points to a score of +6. The Gen Z millennial's board in 1981 or after were not too far behind.
There sentiment edged up four points to a score of +2.
again, Tesla, Shopify, Apple and Amazon were among some of the most bought securities across all ages and investor types.
This underscores the risk on behaviour by self-directed investors in month of January.
>> Some interesting breakdowns there by sector, by generation, but what about asset class?
>> We saw investors rotating out of Canadian equities and Canadian fixed income into US equities.
That sort of movement aligned with the heavily traded IT and consumer discretionary sectors. Consumer discretionary includes names like Amazon.
That included a significant amount of US stocks there.
This underscores the risk on behaviour by self-directed investors last month.
It also meshes with what our proxy flight to safety showed as equities are considered generally more risky investments than fixed income or cash.
> Very distinct set. Thanks, Anthony.
>> My pleasure.
>> Moneytalk's Anthony Okolie.
Let's check in on the markets. A quick run through. It we have the TSX composite index down about 1/3 of a percent. The market has been trying to break out of the funk they have been in the last couple of days that but it has not stuck.
let's take a look at Suncor.
We saw a bit of aBoosting crude prices today. American benchmark is up and some of the energy names.
Suncor is up one a and 1/3 toof a percent.
Loblaws is up to present at this hour.
South of the border, let's check in on the S&P 500. Try to break that losing streak.
Look like it had a little bit of momentum coming out of the gate this morning but it slid into negative territoryjust modestly, 13 points or 1/3 of a percent. The tech heavy NASDAQ, want to see how it's faring.
Down to the tune of almost half a percent.
Want to check in onNvidia.
They are important when it comes to talk of AI.
There is stock is a 26 points, 12%.
We are back with Michael O'Brien from TD Asset Management. We are talking about Canadian stocks.
Here's a nice broad-based question.
Do you think the TSX will outperform the US markets?
>> So I think when we try to break down what drives these two markets, the Canadian market has a very different profile and composition than the US market as a lot of viewers will know.
I think the argument for the US market outperform in Canada, it has to revolve around a rebound in the technology space where the US is vastly more technology exposure than Canada does.
Or the TSX does.
I think one of the drivers to that would need to be of you that interest rates are moving lower, that the Fed pit it really is going to happen because the technology sector has really fed off of these lower interest rates, just inflationary trends.
I think that would be the strongest argument for why the US market might outperform. If you flip the coin and say, okay, what would drive TSX outperformance?
What Would Dr., Canadian outperformance?
I think the first thing I would say is that the Canadian market is significantly cheaper than the US market.
So to the extent they were focused on valuation, what they were looking at price-to-earnings multiples where the TSX is about 13 times verses 18, 18 1/2 in the states, or dividend yield, word TSX is about twice that you'd find south of the border, price-to-book comments about half as expensive as the US, so it the valuations that wouldsupport the outperformance, it's on enough. Thinking about the composition of the Canadian market, I would argue that if you have a more positive view on the commodity cycle and to what extent is the China reopening going to put a floor under commodity prices, particularly oil, that definitely favours Canada which has a lot more exposure to energy materials.
And I would also argue that Canada should hold up better if interest rates don't go back to pre-pandemic norms to the extent that interest rates stay a bit higher for a bit longer, to the extent that inflation proves to be a bit stickier, I think the components of the TSX comp is it can probably handle that environment better than what you would see south of the border.
The banks, as interest rates have gone up, they have benefited in terms of their net interest margins.
A lot of people are viewing energy is an inflation hedge. If you have that kind of worldview or macro outlook, then the case for the TSX outperforming the US market is quite strong.
>> We will squeeze in one more question because you mention the fact that obviously when you're talking about the S&P 500, you were talking about the FAN G stocks. What about the tech stocks on the TSX?
the viewer wants to know if the guest has any on their radar.
>> I think it's really interesting.
When you look at the composition of the tech universe in Canada, it has changed a lot over the last 5 to 10 years.
The first obvious point is simply to say that technology is a far less important or not nearly as larger component of the TSX Composite Index as it is it is of the S&P 500 or the NASDAQ. However, within the technology universe, I would say that there are more options today than there would've been five or 10 years ago.
a lot of newer companies that have really gained a profile, I would divide them into two groups.
There's kind of like the old guard which is a little lower beta, a little more boring and less sexy.
They don't grow as fast but they tend to have a bit more proven business models and generate real free cash flow.
Then there is a newer guard, Shopify's poster child but there are a lot of other newer companies which don't necessarily have that near-term profitability. They are not really generating much of any free cash flow today, but there growth rates are higher and they have some interesting possibilities down the road.
I tend to be a bit more conservative as an investor so I'm more focused on the traditional, the rearguard if you want to call that, names like CDI and constellation software, proven track record generating free cash flow, if you have, you know,a more aggressive investing style or rates are heading lower, some of this new guard, which is a little more speculative, profit is a little further of the future, there could be some interesting opportunities there because certainly over the last six, nine, 12 months, a lot of the stocks have really seen their share prices come down quite a bit.
>> Fascinating environment to be in.
It's always a pleasure to have you.
>> Great to be here.
> Our thanks to Michael O'Brien, portfolio manager at TD Asset Management. At home, do your own research before you make investment decisions.
We will be back tomorrow, give you an update on the markets, want to see how they are going to react to some more inflationary indicators coming out of South of the border.
There will be a personal us managers and we will talk about the kind of stuff that the Fed keeps an eye on and the markets do as well. They will come tomorrow morning.
On Monday, Andres Rincon, head of ETF sales and strategy at TD Securities will be our guest taking your questions about exchange traded fund. You can get a head start with those questions. Just email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
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