Show Transcript
Print Transcript
[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today show, we are going to discuss the outlook for the Canadian markets as investors navigate recent developments in both the energy and financial sectors. Michael O'Brien, portfolio manager at TD Asset Management will be our guest.
Moneytalk's Anthony Okolie is going to have a look at a new provincial housing outlook from TD Economics.
And in today's WebBroker education segment, Hiren Amin is going to show us how you can research preferred shares using the plot for them.
Here's how you can get in touch with us.
Just email moneytalklive@td.
com or you can follow that viewer response box under the video player here on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. We've been drifting modestly lower throughout today's session.
There was a big jump yesterday off the back of that OPEC production cut which sent to the energy shares quite a bit higher. A bit of a calmer day at 20,232, down about 46 points on the TSX or 1/4 of a percent.
Let's check in on Kinross Gold. I know some modest bid and some of the gold miners. Gold is on the move higher today.
The modest bid seems to be growing throughout the session. Six bucks and $0.78 per share, you got Kinross up 5.6% pureblood check-in on Denison Mines.
at about 38, you down about 5%.
Across the border, we seem to be drifting lower. Right now the S&P 500, that broader read of the American market is down about 26 points, a little more than half a percent. A quick check in on the tech heavy NASDAQ.
It's holding up against the broader market. 55 point deficit, a little shy of 1/2%.
And First Republican Bank, seems that we are not completely shaking off some of the concerns we have about US regionals and their health. Got First Republic right now at 1381 per share, down a little bit more than 5%.
And that's your market update.
We appear to be at a potential crossroads for the two biggest actors on the TSX, investors of course weighing the impact of the OPEC+ production cuts on the energy sector and all these continued concerns about the health of the banking sector. Joining us now to discuss were things they go from here is Michael O'Brien, portfolio manager at TD Asset Management.
Great to have you back on the show.
>> Thanks for having me.
>> These are the two big ones on the TSX. Obviously, no shortage of big global headlines around them.
Let's start with energy. It seems to be the latest one with OPEC's big surprise on the weekend.
What has this done for the TSX energy sector in terms of where we thought it might be this year?
>> Well, I think that if you look at what was happening in energy in the last month and 1/2, two months, up until the OPEC announcement, really, the narrative had been captured by concerns around the economic outlook.
So it was much darker, a much more bearish narrative. A lot of people focusing on if there is a recession, how much demand will there be and then the week oil price made people think that this was definitely where we were heading.
I think the OPEC announcement, which got people a bit by surprise, and basically reminded investors that this is a two-way street.
People were getting a little too carried away with all the bad things that could happen. What investors kind of for God to end the Saudi's reminded us in no uncertain terms is that there is somebody looking out for this market.
OPEC, I think, communicated in no uncertain terms that they don't want to see oil prices with a seven in front of it or A6 in front of it. They put their money where their mouth is.
They are going to defend these prices.
And that shifts the conversation or the debate into a much more balanced one now.
Obviously, concerns about the economy haven't gone away.
Concerns about potential impact on demand having gone away.
It's just we are now reminded that the supply side of the equation is quite constrain and the leading players are going to do their part to make sure that oil prices don't fall out of bed completely. When you bring this back to the stocks, we are sitting here today, oil is in the 80 dollar range and we think about light heavy differentials in Western Canada.
They spent most of the winter between the 20 and 30% discount.
Despite all the negativity and the concerns on the economic impact in the headlines, we are left with a basket of stocks that is still very profitable and will be returning a lot of cash to shareholders one way or another this year.
> So energy has its own thesis to trade off of now because up to the weekend and the surprise production cut, there were concerns weighing on the financial sector seemed to be weighing on energy as well. How we shaken off, I mean I was showing you a US regional banks the audience to start off with, they seem to be a bit under pressure.
How we moved past that story or are there lingering concern?
> I think what you are seeing today is there are lingering concerns.
J.P. Morgan's CEO Jamie Dimon, who is kind of viewed as the elder statesman for the American banking industry, his letter to shareholders today, his production was that we are not done. There will still be some bumps in the road as we go through this.
If you think back to the financial crisis, it seemed to come in waves.
So I think we would be remiss not to expect a few flareups as we go forward.
That said, I do feel that the authorities, the central banks, the regulators move pretty quickly in the situation.
Things do seem to be stabilizing in terms of at least the data investors can see around deposit flowsand what the bank lending facilities are being drawn on in the US. They would indicate that things aren't back to normal. There are still some pressures out there, but at least those worst fears seem to be headed off.
This idea of cascading bank rooms does not seem to be happening. Deposit flows are stabilizing.
So I would say we are not out of the woods but clearly we are in a better place than we were two or three weeks ago, which is what we would've hoped, in other words, that you can contain this, one or two banks mismanage their balance sheets aren't going to infect the whole system.
>> One of the words I was hearing aboutthis was idiosyncratic.
These banks organize their affairs in a way that wasn't the most prudent way and that other banks weren't going to fall into the same trap, really.
>> Yes.
And anybody who lived through the financial crisis of 2008 2009, we all learned the hard way to be careful when you say something is idiosyncratic because what often appears to be idiosyncratic, it turns out to not be so unique after all.
>> May be other people were up to the same thing.
>> Exactly. In this case, again, I think we are in a good place here and when you do go back and do the autopsy, so to speak, on Silicon Valley Bank and what went wrong, there are some glaring mistakes that they made and it is a unique franchise where it was far too concentrated with a specific customer base, venture capital.
Their deposit base wasn't diversified. Their assets and liabilities were mismatched.
There is some glaring mistakes there and it is a very idiosyncratic situation.
However, I guess what I would say the root cause of what force this on Silicon Valley Bank which is a rapid rate hike cycle.
That is not unique to Silicon Valley Bank and some of the pressures that we saw that impacted a number of US regional banks very hard to a greater or lesser extent, you can find those factors affecting other banks.
One of those areas people are specifically looking at, investors particularly with a microscopic attention to detail, is these assets on the balance sheets, you took in a deposit, invested it in a five or 10 year U.S.
Treasuryback when interest rates were one or 2%.
that wasn't unique to Silicon Valley Bank.
They did more of it, it was more egregious and less well-managed, but to a greater or lesser extent you will see that in a lot of the other banks.
that's where becomes important as an investor to try to differentiate between the situation Silicon Valley Bank found itself in and the other banks that you want to own, invest in or do investing.
And so we will floaters and for Canadian banks… >> Were talking about Silicon Valley Bank, then Credit Suisse, the other side of the world. Back. Home, our financials did feel some downward pressure because of all this.
>> Absolutely.
Again, the root cause of all these issues is a very rapid rate hike cycle, both the Bank of Canada and the US Federal Reserve.
That creates pressure on the system.
Then when it comes to, okay, how do we differentiate, how do we separate the banks that are in real trouble versus the banks that are going to be more resilient?
I could go down a long list in terms of why the Canadian banks are different but I think the most basic and simple difference is if you look at the nature of our deposit base, for the big five, big six banks, very diverse, very sticky deposit bases whereas Silicon Valley Bank, the root of the issue there was you had massive depositor flight to and basically the vast majority of Silicon Valley's deposit base was venture-capital investors and tech startup companies that were burning cash rapidly and needed their money back.
If you look at whether it's TD Bank or Royal Bank, Bank of Montréal, the sources and the diversity of the funding sources that we have to run our banks here in Canada, far more stable.
So everything I've been hearing to date, you are not seeing the same kind of disruptive drawdown deposits in the Canadian banking system.
And at the end of the day, if you don't have that pressure on the deposit base, there is no reason to worry about some of these other problems that Silicon Valley Bank had with maturity, securities portfolios are underwater.
If you don't have the deposit pressure to hold those, it's not an issue.
And so I think at least what we seen so far, idiosyncratic is a dangerous word but when you sort of slow it and compared to the Canadian situation, I think the Canadian banks are in far better shape in terms of that liquidity pressure.
>> Important points to keep in mind. A great start to the program. We will get back to your questions about Canadian stocks are Michael O'Brien in just a moment's time.
a reminder of course he can get in touch with us at any time.
Email moneytalklive@td.com or Phil at the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Ford is reporting a 10% increase in the first quarter US auto sales as compared to the same period last year.
the Detroit automaker moved almost 476,000 vehicles over those three months, with its F-series pickups and its bronco SUVs in the lead.
While it's money-losing electric vehicle business did grow sales dramatically, it still represents roughly 2% of the overall sales volumes.
Virgin Orbit filing for Chapter 11 bankruptcy protection in the United States. This move coming just days after the company reportedly told employees was pausing operations for the "Foreseeable future." Virgin Orbit suffered a rocket failure in January and has failed to secure long-term funding in the wake of that incident. The company of course was spun out of Richard Branson's Virgin Galactic in 2017.
We got some signs today that the aggressive rate hikes from the Fed could be having an impact on low labour market. Job openings fell below 10 million in February for the first time since May 2021 south of the border.
While rates have moved dramatically higher over the past year, the labour market and consumer spending as well had been showing some resilience.
A quick check in on the market. We will start here at home on Bay Street with the TSX Composite Index, down 50 points right now, nothing too dramatic, about 1/4 of a percent as the price of crude now is off of the big jump yesterday, sitting just a little bit above 80 bucks per barrel.
South of the border, we've been drifting at it.
Let's check in on the S&P 500.
Down 27 points right now, two thirds of a percent.
We are back now with Michael O'Brien, taking your questions about Canadian stocks. Plenty of questions coming in, so let's get to them. Number one off the hop. How does the recent rise in commodity prices stack up against recession risks?
>> So I think where we are going with this question is how is it that commodity prices can be increasing at a time when there is so much negative economic news out there.
So when I look at it, there are two pieces to this, two sides to this answer.
First of all, if we go into more of an economic downturn, if there is a recession, that clearly will have an impact on commodities.
Commodities, they are cyclical by definition, they do tend to be ahead fully levered to local growth and so there is no question if we get into a more difficult or more challenged growth environment, that will have an impact on commodity prices.
The other part of this is depending on which specific commodities were looking at, some are more sensitive to economic growth than others.
For example, oil doesn't have the same demand sensitivity as some of these other commodities like steel, for example.
Agricultural products don't tend to have that same volatility.
But to a greater or lesser extent, they are all going to be affected.
I think where you really want to focus on in terms of which ones are going to be more resilient or which ones might actually see prices buck the trend and a hold or go higher, it really comes down to the supply side.
Is there plentiful supply that's going to come out of the works, that's going to swap that reduction in demand or is supply pretty well controlled?
I mean, the most obvious example is OPEC pulling barrels off of the market to tighten up the supply demand balance in oil which is why you see oil shooting up in the last couple of days.
I think each commodity has its own story, you just need to be well-versed in terms of which one has that supply side of the story that is going to at least partially mitigate if not offset the pressure on the demand side from weaker global growth.
>> Some of the debate around what OPEC did in terms of surprising is over the weekend with the production cut, people of said, clearly, they don't like the six or seven handle, they want to see eight or higher on the crew.
Was OPEC then looking for the down the road and saying, we think demand is going to come off because of a weaker economy?
Trying to get into their heads, I guess.
>> Yeah, and the reality is that OPEC will have a lot more visibility into real-world demand then us on the outside as investors.
So we won't really know the full answer until after it's happened. Six months from now, we will know if OPEC saw something today that we didn't. I think another part of this though is that OPEC has been frustrated that they haven't been controlling the narrative.
They kind of lost control of the narrative a little while ago, and I think this is, at least in part, an effort for them to reassert control.
So like I say, they see a lot more than we do in terms of real-time demand, but I can't tell you today what exactly drove them to that here and now.
>> Let's get to another question now, an interesting one about the retail sector in this country. Nordstrom.
What does Nordstrom leaving Canada mean for the Canadian retail sector?
>> Nordstrom had an enormous presence in terms of store account in Canada.
They came fairly recently and they are kind of heading back south of the border with their tails between their legs.
The department store space has been difficult for a while so they are retrenching and heading home.
In terms of direct impact on the Canadian retail environment, I don't think it moves the needle tremendously. I think they only had 1/2 a dozen stores across the country.
So in and of itself, it's not a big story, it's just really another example of how shopping patterns are changing and whether you're going to big box stores like Costco or shopping online at Amazon, department stores, it's a challenged business model these days.
The other interesting part of that if we're thinking of other readthroughs is it's a good example of some of the challenges that are facing commercial real estate owners which, again, goes back to some of the concerns around banks, particularly US regional banks that have a disproportionate amount of their loan books extended to commercial real estate.
So if you think about it, try to picture in your head here in Toronto the Eaton Centre or the York Dale Mall, there's going to be a big hole in the mall when Nordstrom closes down and it's not obvious what's going to replace that square footage.
I think a lot of these mall owners, retail real estate, and you could say the same thing about the downtown office towers that we work in here today, coming out of the pandemic and with a lot of these changes, those are more challenged asset classes. There will be difficulties for some of these companies, real estate owners that owned some of the office properties, might not be Classe. I can look at my window and see whole floors that are empty and some of these towers around us.
> It was reported today about vacancy in downtown Canadian cities being at its highest in years.
> Yes, so there are definitely pressures there.
I would say on the retail side, that's a similar issue where Nordstrom is leaving.
In and of itself it's not a huge deal but what it represents is, again, pressure on that asset class.
>> Let's get to another question from the audience.
This one about… Will Canadian automakers like Magna benefit from electric vehicle production?
>> So this is an interesting one.
I think we should think about this transition to electric vehicles for a player like Magna, it's not so much that it's an opportunity, it's something that they need to participate in, they have to participate in.
Their customers are going to demand they participate in it.
And so they will make the adjustment and they've been taking steps to meet that transition over the last number of years, whether acquiring companies with certain skill sets or building it themselves.
But the way I kind of think of it is that the cost of doing business.
And so at the end of the day, they will make this transition. They will be a key supplier to the auto OEMs as they have always been, but I think from an investment point of view, they're going to have to spend a lot of money to get there. So this isn't going to be a clear and obvious when that's going to be the cost of staying in business and staying relevant will force them to make a lot of investments and that's money that's not going to be coming back to shareholders, per se.
So they will get there but it's not an unambiguous route.
> One of the things I've heard in the past is adores a door, whether it's an electric vehicle or not, but when you and I were chatting earlier this week, there are some things that go into a car that are very specific to an internal combustion engine that it is not needed anymore.
>> Yeah, like an engine. A little thing like that.
So clearly, there will be parts of Magna… And this goes for any auto supplier, there will be certain parts of Magna's business that will lose from this transition.
And then there will be other, newer parts that win from the transition and so the hope is if you continue to invest intelligently and stay ahead of the curve, as that transition happens, whatever you are losing on the tail side, you are gaining from the new adoption of electric vehicles.
So that's the game they have to play in eyes wide open, they know what they have to do and but like I say, it's just you have to look at that, take it with a bit of caution as an investor because they will have to spend money to get there.
>> As always, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Michael O'Brien on Canadian stocks in just a moment's time.
And a reminder course that you in touch with us at any time.
Just a moment he talk live at all,.
Let's get our educational segment of the day.
Preferred shares are one asset class available to investors and WebBroker has tools which can help you research the space.
Joining us now with more, Hiren Amin, Senior client education instructorwith TD Direct Investing.
Hiren, always great to see you. Let's talk about preferred shares. Walk us through them.
>> My pleasure. Most investors are probably familiar with common shares, it's part of our wheelhouse when it comes to investing in a self-directed space, but the Black sheep of the family I would say is preferred shares.
So just take a step back to paint a picture, when companies are going public or looking to raise capital, they do it two ways, either through the issuance of debt or equity. On the equity side, there are two ways they can do it, through common shares which will pretty much know and then you have the preferred shares. It's almost like a mutt, hybrid, because they feature both stock and bond features it. So it provides fixed income payments in the form of dividends whichit is similar to a bond and it also has a shareprice like a stock that has the opportunity to rise or fall and that's why preferred shares are often referred to as a bond with a maturity date.
Now they are called preferred because these shareholders are pretty much rank higher than common shareholders when it gets to getting a piece of the pie. In other words, getting dividends.
In exchange for holding this higher ranking in the capital structure of a company, they often have to forgo any sort of voting rights when it comes to matters dealing with the company.
Now I just want to talk about this. There are kind of four different types of preferred share classes that you will find. The first one I want to mention is fixed rate resets. These are preferred shares where the dividends on the shares are going to be fixed for a certain period of time, that's usually 135 years, and then they get reset on a predetermined date based on a predetermined rate that is above the five-year Canada bond yield trading in the market at that time. These fixed rate reset preferred shares are in fact most popular investment structure in our Canadian preferred shared market, accounting for more than 60% of all available preferred shares. The second one is fixed rate perpetual. The dividends will be fixed for the life of the share but they have a callable feature which means that the issuer, the company, has the ability to redeem them at a fixed price by a certain date.
Then the third type is what we call floaters, and these are simply just referred to as a variable rate preferred shares. These are going to have dividends that are subject to regular adjustments based on the flow in interest rate such as the prime rate that is going on in the market.
Finally, we have something known as retractable's in which the company has the ability to or rather I should say the investor has the ability to put these back to the issuer at a fixed rate and fix prices.
I want to take a moment, we are going to step into WebBroker here and we want to show our audience how you can look up preferred shares for the security you have in mind. I'm going to pull up CIBC. As you can see when I type in CIBC symbol, CM, the search brings up a number of different search results here. The ones that are preferred shares are going to be categorized at the bottom and they're going to be marked with this PR symbology after the symbol.
they have lower volatility.
These shares tend not to swing as muchas typical common shares and there is some charm with that but the other thing to keep in mind in terms of the risk is lower liquidity. As you can see on this preferred share,there hasn't been much trading at all today, in fact.
So we are going to see a lower volume on these typically that's also going to translate to have a wider bid and ask spreads.
>> A great primer there on preferred, what they are and also an exercise where you can go into a specific name you might have in mind and look at their preferred.
But if you want to use WebBroker to see a list of preferred shares that are offered by companies? How do you do that?
>> Yeah, if we want to see what the bank of the world preferred shares are out there we will use the screener tool.
We will click on the research tab, under tools, head over to the screener function. This will allow us to filter the universe of stocks or in other words the preferred shares in this case, and we will be able to pull those up there. So once we have the screeners coming up there, slowly but surely, it's loading up there, we are going to be able to look at the different parameters.
I'm going to head over to the screening function here.
I'm going to clean out all of the old results and just edit and show you what functions we can look for.
The first one in the one where you want to get started is the shared type.
When I select the shared type, he primus want to go down this list and select preferred shares.
I'm going to just scan it within our Canadian market space here so I'm just going to select Canada as the exchange you want to focus in on and that I want to select two additional criteria over here.
I'm going to just choose volume. You want to see a little bit of volume traded on these.
I'm also going to choose dividend yield since these are pretty much income products that our investors are looking to get.
So on the volume side, we are keeping it at a minimum of let's say 2000 shares traded if we can keep it and then on dividend we want a minimum of 5% per year.
Once you have those parameters and, you can see the search results will populate, there are 254.
You can see we have the first one ranked over here. If you're kind of wanting to find out why it's rank number one, you can click on the ranking itself over here.
There we go. And that's going to pop out and kind of give a belief explainer on what the company is and why it's ranked number one based on the search criteria.
That's the way you can find those universal preferred shares.
>> Great stuff as always. Thanks for that.
> My pleasure.
>> Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before you back to your questions about Canadian stocks for Michael O'Brien, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker.
Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Michael O'Brien, we are taking your questions about Canadian stocks. Lots coming in, so let's get to them. This one in the last couple of minutes. What is your outlook for the Canadian banks?
Are they still the safe bet they were before, given everything that's been happening?
Now, there is nothing that is risk free but let's run down the situation of the Canadian banks amid all this.
>> Yeah, to echo what you just said, at the end of the day, banks are levered financial institutions. We have seen in the past that they can be volatile so that's the disclaimer.
But when you look at the situation today, the way would frame it up for the Canadian banks isI feel very confident in where the banks share prices will be in 3 to 5 years. I can't tell you how they're going to perform over the next one, two, three quarters.
And the reason I say that is in the very short term, staring us in the face, there are some very obvious headwinds that we are well aware of.
It's clear from here that home losses will increase.
It's a question of how much.
It's clear from here that there's going to be pressure on loan growth.
It's likely that loan growth will slow a bit.
There is also going to be some pressure coming out of this now the deposits are going to be more expensive for a lot of banks, the banks, instead of paying is zero in our savings account, they might have to pay is 5% and a GIC. That's going to take some of the shine off their debt interest margins which had been expanding strongly up to this point.
So it's obvious that there is some headwinds facing the sector.
But the reason I say I feel very confident where they're going to be 3 to 5 years from now is for two reasons.
First of all, fundamentally speaking, the banks are billed to weather these types of environments.
the Canadian banks, they are very resilient. They are very well capitalized, and they are also very well-regulated which means even when they sometimes screw up, the regulator's are there to rein them in, where is unlike what happened with Silicon Valley Bank in the States.
so I have no doubt that as we go through this summer, it's going to be a kind of real-world stress test for them. Loan losses will go up.
they won't go up as much is a lot of investors think.
And so when they come out the other side of this, I think we will learn that the Canadian banks are what I believe them to be, which is very resilient, very strong institution. That's the first reason. I'm pretty optimistic on a longer time horizon. The second reason I'm optimistic on a longer time horizon is simply they are good value.
If you look at where bank stocks have traditionally traded, whether you're looking at price-to-earnings multiples or dividend yield, in both cases, we are starting from a very attractive place today.
So depending on your time horizon, depending on your tolerance for scary headlines which may or may not pop out this summer as we go through these, I think in the short term it's going to be bumpy but in the long term, the setup still looks very good.
>> Getting another one about some recent events in the news. What about this offer by Glencore to buy Teck Resources?
An unsolicited bid which Teck said it shut down. Is this good for investors? This is a very interesting one.
>> Clearly was good for investors yesterday. The stock was up 19 or 20%.
I think it's good for investors if forno other reason than it makes it very obvious to all of us, in case you forgot, that Teck Resources is very attractive to strategic buyers, in other words, other mining companies, particularly for their copper business. They have a new Coppermine that's just ramping up that's going to be a very important line for this company for many years to come. So clearly, this is an unambiguous positive for investors.
That said, I think it's really important to understand in the situation is Teck Resources has with they have a dual class share structure. So the class B shares, which investors like us would own, they aren't really the controlling shareholders. It's the class a shares that really call the shots here, and specifically the Keble family who would be viewed as the controlling shareholder here. The fact that Glencore made an unsolicited bid, a hostile bid in the parlance, that has zero chance of succeeding.
It has to be a friendly deal. They have to have big Keble family on board.
And clearly from the press release, at least at that price, the one that was reportedly offered, the answer is a resounding no.
Right now, so it's an interesting question. So why now?
Glencore knows this. Glencore knows that you can't go hostile and get a deal.
Then why did they do it now? It could be a few different reasons for that.
Obviously… >> Teck Resources in the middle of splitting the company.
That Glencore is sort of inserting themselves into that conversation Glencore has a bit of skin in the game hereto because what Teck Resources is splitting off is their coal operations. Glencore also has a very large coal business so what Glencore is exactly angling for to get out of this, it's unclear to me but bringing it back to reviewers question, clearly it's a win for the shareholders.
>> Very interesting times indeed. We'll get back to your question for Michael O'Brien on Canadian stocks in just a moment. As always, make sure you do your own research before you make any investment decisions and reminder that you can contact us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker.
Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Canadian home sales appear to have turned a corner. So is the housing market poised to rebound in the second half of this year or is there still some weakness on the horizon? Our Anthony Okolie has been digging into a new TD Economics report on the provincial housing market Outlook.
What's in there?
>> TD Economics is forecasting that sales gains through 2023 was stronger growth expected in the second half of this year. Underpinning this forecast is their view that sales will likely undershot levels consistent with fundamentals. They point to the fact that income and availability of the housing supply are now closing the gap.
Now also in the near term, a tight labour market should drive continued income gains, even as the economy and hiring slows. That being said, the weak start to the year will likely drive a steep annual average sales decline in 2023, according to TD Economics. A tough affordability to environment will limit the strength of the housing recovery and TD Economics expect sales to remain below peak pandemic levels through 2024.
In contrast to sales, Canadian average home prices past a modest downside left and they expect it to bottom in the second half of 2023.
For the peak to trough average home prices are expected to drop by about 21%.
Now I brought along a chart that kind of takes a look at the housing markets across region. Keep in mind, the numbers are negative because of the weak start to the year that will drive steep annual average declines in 2023.
Out of the gate, Ontario and BC are set to report their strongest Gourley sales growth this year, but that shouldn't be taken a sign of strength. In fact, 2023 likely will be the softest sales year since the early 2000's in both provinces, according to TD Economics.
Now, when it comes to home prices though, the weakened quarterly price growth will be in Ontario and BC. Also lagging will be the Atlantic regions like Nova Scotia.
Again, driving that weakness is a slowdown into provincial migration and a moderation in home prices from the outsized pandemic area gains that we saw previously.
However, prices are expected to hold up better in provinces like Québec and the Prairie provinces like Saskatchewan. TD Economics expects these patterns to hold up in 2024 because of more favourable affordability in the prairies versus Ontario, BC and the Atlantic region.
Greg?
>> Alright, so that the outlook there.
What are the risks to that outlook?
>> I think the key risks include some regulatory changes by the banking regulator around tightening the rules around lending conditions and stress testing.
There's also the potential for more financial market volatility and instability, also weaker than expected economic growth.
If that happens, we can see expected job losses. That would hurt housing demand and that could hurt the cost of selling in the market.
They also point to the fact that not all risks are to the downside. For example, they could see sales catching up faster than expected which could provide a lift to average home prices across Canada.
> Interesting stuff as always.
Thanks.
>> My pleasure.
>> Money talks Anthony Okolie.
Let's chicken and on the markets now. We seem to be weakening as the session wears on.
It right now you're down about 41 points or 50% in the TSX Composite Index after the big jump in the price of crude yesterday.
Let's check in on Hudbay Minerals right now, she was happening in the Commodity space. It's down to the tune of about 6%.
let's check in on sent Terra gold.
It's a bit of a mixed picture among the minors.
Gold still getting a bid at nine bucks and $0.13 per share, sent Terra is up a little more than 3%.
South of the border, we continue to weaken through the lunchtime trading session. The S&P 500 right now is down a little shy of 30 points, almost 3/4 of a percent.
A quick check in on the tech heavy NASDAQ, we will see how it standing up against the broader market.
It's right in step with her, down 89 points or three quarters of a percent. Bank of America, one of the financials, we should do regional off the top of the show.
How is Bank of America faring in this environment?
At 2771 right now, you've got Banc of America down a little bit more than 3%.
We are back now with Michael O'Brien from TD Asset Management talking Canadian stocks. Here's another big one.
What does your guest think of Alimentation Couche-Tard considering the transition to EV?
You got gas bars, convenience stores and drivers moving to a lecture.
How does that all play out?
>> This is actually a really interesting situation where Couche-Tard, whether this was brilliant foresight or a fortuitous accident, a number of years ago they made a major acquisition of a number of Scandinavian fuel sites.
They bought a chain from Statoil, particularly in Norway.
The significance of that is that in recent years, Norway has been one of the fastest and strongest adopters of electric vehicles.
If you look at the penetration curve in terms of electric vehicle ownership in Norway, vastly ahead of what we see in North America.
And so it's happened is essentially, Couche-Tard's had a real-world laboratory to try to see firsthand and understand what adjustments will need to be made in order to transition from your traditional service station filling up a gasoline powered car tale what's going to be the evolution of a service station that's catering more to electric vehicles.
And so the good news to report from a shareholder perspective is despite this massive increasein electric vehicle penetration in Norway, their business has done just fine, thank you very much.
So they found ways to adjust. Simple things. For example, takes longer to charge electric vehicle than it does to fill a gasoline powered car, so it leaves you more time to go in and wander the store.
>> I need more than just one Twinkie. Two Twinkies.
>> Or a hotdog.
So these real-world learnings are going to set them up very well for the transition here in North America as they take what they've learned in Scandinavia, implement out to their store base here in North America. I think it puts them ahead of the competition in terms of making that adjustment.
>> We have run out of time for viewer question. Before I let you go, let's go back to the top of the show, the conversation we had. A lot of big things happening at there.
Central bank issues, OPEC surprises us with a cut, volatility in US regional banks. If an investor sets back and try to take their breath and stock of all this, which they have in mind?
>> I think it's always important for us to not get too carried away.
And it's funny, despite all the negative headlines we've seen in the last one, two, three months, the NASDAQ south of the border had its best quarter in years.
So I think on the one hand, you don't want to get carried away with pessimism.
On the other hand, we shouldn't fool ourselves.
This is going to be a difficult period of timefor the economy.
The economy can be a little bit distinct from what the stock market does but clearly here in North America and I think in a number of other markets, certainly Western Europe, the impact of all the central bank tightening's will be felt in the economy.
Unemployment will rise.
Bankruptcies will go up. All these things will happen.
And so what we've always go to ask ourselves is how much of that is reflected in today's share prices and how much is still to come?
I think, if I can predict anything, the next few months are going to be very volatile.
I think there's a lot of uncertainty in the market.
But I think this too shall pass. When we come out of it, the world is going to keep spinning and we just have to eat constantly reassessing. Are we being paid to take the risk?
Are these risks adequately reflected in the stocks?
When the case is yes, you step in and buy.
When the case is no, you stand back and be patient.
It's really the same it's it's always been, just with all the headlines today, it's easy to get overwhelmed.
As always a pleasure having you, Michael.
>> Absolutely.
>> Our thanks to Michael O'Brien, portfolio manager at TD Asset Management.
Stay tuned. On tomorrow's show, Peter Hodson, founder and head of research at 5i Research will be our guest, take your questions about mid-cap stocks.
A reminder that you get a head start with those questions. Just email moneytalklive@td.com. That's all the time you have for the show today.
Thanks for watching, and we will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today show, we are going to discuss the outlook for the Canadian markets as investors navigate recent developments in both the energy and financial sectors. Michael O'Brien, portfolio manager at TD Asset Management will be our guest.
Moneytalk's Anthony Okolie is going to have a look at a new provincial housing outlook from TD Economics.
And in today's WebBroker education segment, Hiren Amin is going to show us how you can research preferred shares using the plot for them.
Here's how you can get in touch with us.
Just email moneytalklive@td.
com or you can follow that viewer response box under the video player here on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. We've been drifting modestly lower throughout today's session.
There was a big jump yesterday off the back of that OPEC production cut which sent to the energy shares quite a bit higher. A bit of a calmer day at 20,232, down about 46 points on the TSX or 1/4 of a percent.
Let's check in on Kinross Gold. I know some modest bid and some of the gold miners. Gold is on the move higher today.
The modest bid seems to be growing throughout the session. Six bucks and $0.78 per share, you got Kinross up 5.6% pureblood check-in on Denison Mines.
at about 38, you down about 5%.
Across the border, we seem to be drifting lower. Right now the S&P 500, that broader read of the American market is down about 26 points, a little more than half a percent. A quick check in on the tech heavy NASDAQ.
It's holding up against the broader market. 55 point deficit, a little shy of 1/2%.
And First Republican Bank, seems that we are not completely shaking off some of the concerns we have about US regionals and their health. Got First Republic right now at 1381 per share, down a little bit more than 5%.
And that's your market update.
We appear to be at a potential crossroads for the two biggest actors on the TSX, investors of course weighing the impact of the OPEC+ production cuts on the energy sector and all these continued concerns about the health of the banking sector. Joining us now to discuss were things they go from here is Michael O'Brien, portfolio manager at TD Asset Management.
Great to have you back on the show.
>> Thanks for having me.
>> These are the two big ones on the TSX. Obviously, no shortage of big global headlines around them.
Let's start with energy. It seems to be the latest one with OPEC's big surprise on the weekend.
What has this done for the TSX energy sector in terms of where we thought it might be this year?
>> Well, I think that if you look at what was happening in energy in the last month and 1/2, two months, up until the OPEC announcement, really, the narrative had been captured by concerns around the economic outlook.
So it was much darker, a much more bearish narrative. A lot of people focusing on if there is a recession, how much demand will there be and then the week oil price made people think that this was definitely where we were heading.
I think the OPEC announcement, which got people a bit by surprise, and basically reminded investors that this is a two-way street.
People were getting a little too carried away with all the bad things that could happen. What investors kind of for God to end the Saudi's reminded us in no uncertain terms is that there is somebody looking out for this market.
OPEC, I think, communicated in no uncertain terms that they don't want to see oil prices with a seven in front of it or A6 in front of it. They put their money where their mouth is.
They are going to defend these prices.
And that shifts the conversation or the debate into a much more balanced one now.
Obviously, concerns about the economy haven't gone away.
Concerns about potential impact on demand having gone away.
It's just we are now reminded that the supply side of the equation is quite constrain and the leading players are going to do their part to make sure that oil prices don't fall out of bed completely. When you bring this back to the stocks, we are sitting here today, oil is in the 80 dollar range and we think about light heavy differentials in Western Canada.
They spent most of the winter between the 20 and 30% discount.
Despite all the negativity and the concerns on the economic impact in the headlines, we are left with a basket of stocks that is still very profitable and will be returning a lot of cash to shareholders one way or another this year.
> So energy has its own thesis to trade off of now because up to the weekend and the surprise production cut, there were concerns weighing on the financial sector seemed to be weighing on energy as well. How we shaken off, I mean I was showing you a US regional banks the audience to start off with, they seem to be a bit under pressure.
How we moved past that story or are there lingering concern?
> I think what you are seeing today is there are lingering concerns.
J.P. Morgan's CEO Jamie Dimon, who is kind of viewed as the elder statesman for the American banking industry, his letter to shareholders today, his production was that we are not done. There will still be some bumps in the road as we go through this.
If you think back to the financial crisis, it seemed to come in waves.
So I think we would be remiss not to expect a few flareups as we go forward.
That said, I do feel that the authorities, the central banks, the regulators move pretty quickly in the situation.
Things do seem to be stabilizing in terms of at least the data investors can see around deposit flowsand what the bank lending facilities are being drawn on in the US. They would indicate that things aren't back to normal. There are still some pressures out there, but at least those worst fears seem to be headed off.
This idea of cascading bank rooms does not seem to be happening. Deposit flows are stabilizing.
So I would say we are not out of the woods but clearly we are in a better place than we were two or three weeks ago, which is what we would've hoped, in other words, that you can contain this, one or two banks mismanage their balance sheets aren't going to infect the whole system.
>> One of the words I was hearing aboutthis was idiosyncratic.
These banks organize their affairs in a way that wasn't the most prudent way and that other banks weren't going to fall into the same trap, really.
>> Yes.
And anybody who lived through the financial crisis of 2008 2009, we all learned the hard way to be careful when you say something is idiosyncratic because what often appears to be idiosyncratic, it turns out to not be so unique after all.
>> May be other people were up to the same thing.
>> Exactly. In this case, again, I think we are in a good place here and when you do go back and do the autopsy, so to speak, on Silicon Valley Bank and what went wrong, there are some glaring mistakes that they made and it is a unique franchise where it was far too concentrated with a specific customer base, venture capital.
Their deposit base wasn't diversified. Their assets and liabilities were mismatched.
There is some glaring mistakes there and it is a very idiosyncratic situation.
However, I guess what I would say the root cause of what force this on Silicon Valley Bank which is a rapid rate hike cycle.
That is not unique to Silicon Valley Bank and some of the pressures that we saw that impacted a number of US regional banks very hard to a greater or lesser extent, you can find those factors affecting other banks.
One of those areas people are specifically looking at, investors particularly with a microscopic attention to detail, is these assets on the balance sheets, you took in a deposit, invested it in a five or 10 year U.S.
Treasuryback when interest rates were one or 2%.
that wasn't unique to Silicon Valley Bank.
They did more of it, it was more egregious and less well-managed, but to a greater or lesser extent you will see that in a lot of the other banks.
that's where becomes important as an investor to try to differentiate between the situation Silicon Valley Bank found itself in and the other banks that you want to own, invest in or do investing.
And so we will floaters and for Canadian banks… >> Were talking about Silicon Valley Bank, then Credit Suisse, the other side of the world. Back. Home, our financials did feel some downward pressure because of all this.
>> Absolutely.
Again, the root cause of all these issues is a very rapid rate hike cycle, both the Bank of Canada and the US Federal Reserve.
That creates pressure on the system.
Then when it comes to, okay, how do we differentiate, how do we separate the banks that are in real trouble versus the banks that are going to be more resilient?
I could go down a long list in terms of why the Canadian banks are different but I think the most basic and simple difference is if you look at the nature of our deposit base, for the big five, big six banks, very diverse, very sticky deposit bases whereas Silicon Valley Bank, the root of the issue there was you had massive depositor flight to and basically the vast majority of Silicon Valley's deposit base was venture-capital investors and tech startup companies that were burning cash rapidly and needed their money back.
If you look at whether it's TD Bank or Royal Bank, Bank of Montréal, the sources and the diversity of the funding sources that we have to run our banks here in Canada, far more stable.
So everything I've been hearing to date, you are not seeing the same kind of disruptive drawdown deposits in the Canadian banking system.
And at the end of the day, if you don't have that pressure on the deposit base, there is no reason to worry about some of these other problems that Silicon Valley Bank had with maturity, securities portfolios are underwater.
If you don't have the deposit pressure to hold those, it's not an issue.
And so I think at least what we seen so far, idiosyncratic is a dangerous word but when you sort of slow it and compared to the Canadian situation, I think the Canadian banks are in far better shape in terms of that liquidity pressure.
>> Important points to keep in mind. A great start to the program. We will get back to your questions about Canadian stocks are Michael O'Brien in just a moment's time.
a reminder of course he can get in touch with us at any time.
Email moneytalklive@td.com or Phil at the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Ford is reporting a 10% increase in the first quarter US auto sales as compared to the same period last year.
the Detroit automaker moved almost 476,000 vehicles over those three months, with its F-series pickups and its bronco SUVs in the lead.
While it's money-losing electric vehicle business did grow sales dramatically, it still represents roughly 2% of the overall sales volumes.
Virgin Orbit filing for Chapter 11 bankruptcy protection in the United States. This move coming just days after the company reportedly told employees was pausing operations for the "Foreseeable future." Virgin Orbit suffered a rocket failure in January and has failed to secure long-term funding in the wake of that incident. The company of course was spun out of Richard Branson's Virgin Galactic in 2017.
We got some signs today that the aggressive rate hikes from the Fed could be having an impact on low labour market. Job openings fell below 10 million in February for the first time since May 2021 south of the border.
While rates have moved dramatically higher over the past year, the labour market and consumer spending as well had been showing some resilience.
A quick check in on the market. We will start here at home on Bay Street with the TSX Composite Index, down 50 points right now, nothing too dramatic, about 1/4 of a percent as the price of crude now is off of the big jump yesterday, sitting just a little bit above 80 bucks per barrel.
South of the border, we've been drifting at it.
Let's check in on the S&P 500.
Down 27 points right now, two thirds of a percent.
We are back now with Michael O'Brien, taking your questions about Canadian stocks. Plenty of questions coming in, so let's get to them. Number one off the hop. How does the recent rise in commodity prices stack up against recession risks?
>> So I think where we are going with this question is how is it that commodity prices can be increasing at a time when there is so much negative economic news out there.
So when I look at it, there are two pieces to this, two sides to this answer.
First of all, if we go into more of an economic downturn, if there is a recession, that clearly will have an impact on commodities.
Commodities, they are cyclical by definition, they do tend to be ahead fully levered to local growth and so there is no question if we get into a more difficult or more challenged growth environment, that will have an impact on commodity prices.
The other part of this is depending on which specific commodities were looking at, some are more sensitive to economic growth than others.
For example, oil doesn't have the same demand sensitivity as some of these other commodities like steel, for example.
Agricultural products don't tend to have that same volatility.
But to a greater or lesser extent, they are all going to be affected.
I think where you really want to focus on in terms of which ones are going to be more resilient or which ones might actually see prices buck the trend and a hold or go higher, it really comes down to the supply side.
Is there plentiful supply that's going to come out of the works, that's going to swap that reduction in demand or is supply pretty well controlled?
I mean, the most obvious example is OPEC pulling barrels off of the market to tighten up the supply demand balance in oil which is why you see oil shooting up in the last couple of days.
I think each commodity has its own story, you just need to be well-versed in terms of which one has that supply side of the story that is going to at least partially mitigate if not offset the pressure on the demand side from weaker global growth.
>> Some of the debate around what OPEC did in terms of surprising is over the weekend with the production cut, people of said, clearly, they don't like the six or seven handle, they want to see eight or higher on the crew.
Was OPEC then looking for the down the road and saying, we think demand is going to come off because of a weaker economy?
Trying to get into their heads, I guess.
>> Yeah, and the reality is that OPEC will have a lot more visibility into real-world demand then us on the outside as investors.
So we won't really know the full answer until after it's happened. Six months from now, we will know if OPEC saw something today that we didn't. I think another part of this though is that OPEC has been frustrated that they haven't been controlling the narrative.
They kind of lost control of the narrative a little while ago, and I think this is, at least in part, an effort for them to reassert control.
So like I say, they see a lot more than we do in terms of real-time demand, but I can't tell you today what exactly drove them to that here and now.
>> Let's get to another question now, an interesting one about the retail sector in this country. Nordstrom.
What does Nordstrom leaving Canada mean for the Canadian retail sector?
>> Nordstrom had an enormous presence in terms of store account in Canada.
They came fairly recently and they are kind of heading back south of the border with their tails between their legs.
The department store space has been difficult for a while so they are retrenching and heading home.
In terms of direct impact on the Canadian retail environment, I don't think it moves the needle tremendously. I think they only had 1/2 a dozen stores across the country.
So in and of itself, it's not a big story, it's just really another example of how shopping patterns are changing and whether you're going to big box stores like Costco or shopping online at Amazon, department stores, it's a challenged business model these days.
The other interesting part of that if we're thinking of other readthroughs is it's a good example of some of the challenges that are facing commercial real estate owners which, again, goes back to some of the concerns around banks, particularly US regional banks that have a disproportionate amount of their loan books extended to commercial real estate.
So if you think about it, try to picture in your head here in Toronto the Eaton Centre or the York Dale Mall, there's going to be a big hole in the mall when Nordstrom closes down and it's not obvious what's going to replace that square footage.
I think a lot of these mall owners, retail real estate, and you could say the same thing about the downtown office towers that we work in here today, coming out of the pandemic and with a lot of these changes, those are more challenged asset classes. There will be difficulties for some of these companies, real estate owners that owned some of the office properties, might not be Classe. I can look at my window and see whole floors that are empty and some of these towers around us.
> It was reported today about vacancy in downtown Canadian cities being at its highest in years.
> Yes, so there are definitely pressures there.
I would say on the retail side, that's a similar issue where Nordstrom is leaving.
In and of itself it's not a huge deal but what it represents is, again, pressure on that asset class.
>> Let's get to another question from the audience.
This one about… Will Canadian automakers like Magna benefit from electric vehicle production?
>> So this is an interesting one.
I think we should think about this transition to electric vehicles for a player like Magna, it's not so much that it's an opportunity, it's something that they need to participate in, they have to participate in.
Their customers are going to demand they participate in it.
And so they will make the adjustment and they've been taking steps to meet that transition over the last number of years, whether acquiring companies with certain skill sets or building it themselves.
But the way I kind of think of it is that the cost of doing business.
And so at the end of the day, they will make this transition. They will be a key supplier to the auto OEMs as they have always been, but I think from an investment point of view, they're going to have to spend a lot of money to get there. So this isn't going to be a clear and obvious when that's going to be the cost of staying in business and staying relevant will force them to make a lot of investments and that's money that's not going to be coming back to shareholders, per se.
So they will get there but it's not an unambiguous route.
> One of the things I've heard in the past is adores a door, whether it's an electric vehicle or not, but when you and I were chatting earlier this week, there are some things that go into a car that are very specific to an internal combustion engine that it is not needed anymore.
>> Yeah, like an engine. A little thing like that.
So clearly, there will be parts of Magna… And this goes for any auto supplier, there will be certain parts of Magna's business that will lose from this transition.
And then there will be other, newer parts that win from the transition and so the hope is if you continue to invest intelligently and stay ahead of the curve, as that transition happens, whatever you are losing on the tail side, you are gaining from the new adoption of electric vehicles.
So that's the game they have to play in eyes wide open, they know what they have to do and but like I say, it's just you have to look at that, take it with a bit of caution as an investor because they will have to spend money to get there.
>> As always, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Michael O'Brien on Canadian stocks in just a moment's time.
And a reminder course that you in touch with us at any time.
Just a moment he talk live at all,.
Let's get our educational segment of the day.
Preferred shares are one asset class available to investors and WebBroker has tools which can help you research the space.
Joining us now with more, Hiren Amin, Senior client education instructorwith TD Direct Investing.
Hiren, always great to see you. Let's talk about preferred shares. Walk us through them.
>> My pleasure. Most investors are probably familiar with common shares, it's part of our wheelhouse when it comes to investing in a self-directed space, but the Black sheep of the family I would say is preferred shares.
So just take a step back to paint a picture, when companies are going public or looking to raise capital, they do it two ways, either through the issuance of debt or equity. On the equity side, there are two ways they can do it, through common shares which will pretty much know and then you have the preferred shares. It's almost like a mutt, hybrid, because they feature both stock and bond features it. So it provides fixed income payments in the form of dividends whichit is similar to a bond and it also has a shareprice like a stock that has the opportunity to rise or fall and that's why preferred shares are often referred to as a bond with a maturity date.
Now they are called preferred because these shareholders are pretty much rank higher than common shareholders when it gets to getting a piece of the pie. In other words, getting dividends.
In exchange for holding this higher ranking in the capital structure of a company, they often have to forgo any sort of voting rights when it comes to matters dealing with the company.
Now I just want to talk about this. There are kind of four different types of preferred share classes that you will find. The first one I want to mention is fixed rate resets. These are preferred shares where the dividends on the shares are going to be fixed for a certain period of time, that's usually 135 years, and then they get reset on a predetermined date based on a predetermined rate that is above the five-year Canada bond yield trading in the market at that time. These fixed rate reset preferred shares are in fact most popular investment structure in our Canadian preferred shared market, accounting for more than 60% of all available preferred shares. The second one is fixed rate perpetual. The dividends will be fixed for the life of the share but they have a callable feature which means that the issuer, the company, has the ability to redeem them at a fixed price by a certain date.
Then the third type is what we call floaters, and these are simply just referred to as a variable rate preferred shares. These are going to have dividends that are subject to regular adjustments based on the flow in interest rate such as the prime rate that is going on in the market.
Finally, we have something known as retractable's in which the company has the ability to or rather I should say the investor has the ability to put these back to the issuer at a fixed rate and fix prices.
I want to take a moment, we are going to step into WebBroker here and we want to show our audience how you can look up preferred shares for the security you have in mind. I'm going to pull up CIBC. As you can see when I type in CIBC symbol, CM, the search brings up a number of different search results here. The ones that are preferred shares are going to be categorized at the bottom and they're going to be marked with this PR symbology after the symbol.
they have lower volatility.
These shares tend not to swing as muchas typical common shares and there is some charm with that but the other thing to keep in mind in terms of the risk is lower liquidity. As you can see on this preferred share,there hasn't been much trading at all today, in fact.
So we are going to see a lower volume on these typically that's also going to translate to have a wider bid and ask spreads.
>> A great primer there on preferred, what they are and also an exercise where you can go into a specific name you might have in mind and look at their preferred.
But if you want to use WebBroker to see a list of preferred shares that are offered by companies? How do you do that?
>> Yeah, if we want to see what the bank of the world preferred shares are out there we will use the screener tool.
We will click on the research tab, under tools, head over to the screener function. This will allow us to filter the universe of stocks or in other words the preferred shares in this case, and we will be able to pull those up there. So once we have the screeners coming up there, slowly but surely, it's loading up there, we are going to be able to look at the different parameters.
I'm going to head over to the screening function here.
I'm going to clean out all of the old results and just edit and show you what functions we can look for.
The first one in the one where you want to get started is the shared type.
When I select the shared type, he primus want to go down this list and select preferred shares.
I'm going to just scan it within our Canadian market space here so I'm just going to select Canada as the exchange you want to focus in on and that I want to select two additional criteria over here.
I'm going to just choose volume. You want to see a little bit of volume traded on these.
I'm also going to choose dividend yield since these are pretty much income products that our investors are looking to get.
So on the volume side, we are keeping it at a minimum of let's say 2000 shares traded if we can keep it and then on dividend we want a minimum of 5% per year.
Once you have those parameters and, you can see the search results will populate, there are 254.
You can see we have the first one ranked over here. If you're kind of wanting to find out why it's rank number one, you can click on the ranking itself over here.
There we go. And that's going to pop out and kind of give a belief explainer on what the company is and why it's ranked number one based on the search criteria.
That's the way you can find those universal preferred shares.
>> Great stuff as always. Thanks for that.
> My pleasure.
>> Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before you back to your questions about Canadian stocks for Michael O'Brien, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker.
Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Michael O'Brien, we are taking your questions about Canadian stocks. Lots coming in, so let's get to them. This one in the last couple of minutes. What is your outlook for the Canadian banks?
Are they still the safe bet they were before, given everything that's been happening?
Now, there is nothing that is risk free but let's run down the situation of the Canadian banks amid all this.
>> Yeah, to echo what you just said, at the end of the day, banks are levered financial institutions. We have seen in the past that they can be volatile so that's the disclaimer.
But when you look at the situation today, the way would frame it up for the Canadian banks isI feel very confident in where the banks share prices will be in 3 to 5 years. I can't tell you how they're going to perform over the next one, two, three quarters.
And the reason I say that is in the very short term, staring us in the face, there are some very obvious headwinds that we are well aware of.
It's clear from here that home losses will increase.
It's a question of how much.
It's clear from here that there's going to be pressure on loan growth.
It's likely that loan growth will slow a bit.
There is also going to be some pressure coming out of this now the deposits are going to be more expensive for a lot of banks, the banks, instead of paying is zero in our savings account, they might have to pay is 5% and a GIC. That's going to take some of the shine off their debt interest margins which had been expanding strongly up to this point.
So it's obvious that there is some headwinds facing the sector.
But the reason I say I feel very confident where they're going to be 3 to 5 years from now is for two reasons.
First of all, fundamentally speaking, the banks are billed to weather these types of environments.
the Canadian banks, they are very resilient. They are very well capitalized, and they are also very well-regulated which means even when they sometimes screw up, the regulator's are there to rein them in, where is unlike what happened with Silicon Valley Bank in the States.
so I have no doubt that as we go through this summer, it's going to be a kind of real-world stress test for them. Loan losses will go up.
they won't go up as much is a lot of investors think.
And so when they come out the other side of this, I think we will learn that the Canadian banks are what I believe them to be, which is very resilient, very strong institution. That's the first reason. I'm pretty optimistic on a longer time horizon. The second reason I'm optimistic on a longer time horizon is simply they are good value.
If you look at where bank stocks have traditionally traded, whether you're looking at price-to-earnings multiples or dividend yield, in both cases, we are starting from a very attractive place today.
So depending on your time horizon, depending on your tolerance for scary headlines which may or may not pop out this summer as we go through these, I think in the short term it's going to be bumpy but in the long term, the setup still looks very good.
>> Getting another one about some recent events in the news. What about this offer by Glencore to buy Teck Resources?
An unsolicited bid which Teck said it shut down. Is this good for investors? This is a very interesting one.
>> Clearly was good for investors yesterday. The stock was up 19 or 20%.
I think it's good for investors if forno other reason than it makes it very obvious to all of us, in case you forgot, that Teck Resources is very attractive to strategic buyers, in other words, other mining companies, particularly for their copper business. They have a new Coppermine that's just ramping up that's going to be a very important line for this company for many years to come. So clearly, this is an unambiguous positive for investors.
That said, I think it's really important to understand in the situation is Teck Resources has with they have a dual class share structure. So the class B shares, which investors like us would own, they aren't really the controlling shareholders. It's the class a shares that really call the shots here, and specifically the Keble family who would be viewed as the controlling shareholder here. The fact that Glencore made an unsolicited bid, a hostile bid in the parlance, that has zero chance of succeeding.
It has to be a friendly deal. They have to have big Keble family on board.
And clearly from the press release, at least at that price, the one that was reportedly offered, the answer is a resounding no.
Right now, so it's an interesting question. So why now?
Glencore knows this. Glencore knows that you can't go hostile and get a deal.
Then why did they do it now? It could be a few different reasons for that.
Obviously… >> Teck Resources in the middle of splitting the company.
That Glencore is sort of inserting themselves into that conversation Glencore has a bit of skin in the game hereto because what Teck Resources is splitting off is their coal operations. Glencore also has a very large coal business so what Glencore is exactly angling for to get out of this, it's unclear to me but bringing it back to reviewers question, clearly it's a win for the shareholders.
>> Very interesting times indeed. We'll get back to your question for Michael O'Brien on Canadian stocks in just a moment. As always, make sure you do your own research before you make any investment decisions and reminder that you can contact us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker.
Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Canadian home sales appear to have turned a corner. So is the housing market poised to rebound in the second half of this year or is there still some weakness on the horizon? Our Anthony Okolie has been digging into a new TD Economics report on the provincial housing market Outlook.
What's in there?
>> TD Economics is forecasting that sales gains through 2023 was stronger growth expected in the second half of this year. Underpinning this forecast is their view that sales will likely undershot levels consistent with fundamentals. They point to the fact that income and availability of the housing supply are now closing the gap.
Now also in the near term, a tight labour market should drive continued income gains, even as the economy and hiring slows. That being said, the weak start to the year will likely drive a steep annual average sales decline in 2023, according to TD Economics. A tough affordability to environment will limit the strength of the housing recovery and TD Economics expect sales to remain below peak pandemic levels through 2024.
In contrast to sales, Canadian average home prices past a modest downside left and they expect it to bottom in the second half of 2023.
For the peak to trough average home prices are expected to drop by about 21%.
Now I brought along a chart that kind of takes a look at the housing markets across region. Keep in mind, the numbers are negative because of the weak start to the year that will drive steep annual average declines in 2023.
Out of the gate, Ontario and BC are set to report their strongest Gourley sales growth this year, but that shouldn't be taken a sign of strength. In fact, 2023 likely will be the softest sales year since the early 2000's in both provinces, according to TD Economics.
Now, when it comes to home prices though, the weakened quarterly price growth will be in Ontario and BC. Also lagging will be the Atlantic regions like Nova Scotia.
Again, driving that weakness is a slowdown into provincial migration and a moderation in home prices from the outsized pandemic area gains that we saw previously.
However, prices are expected to hold up better in provinces like Québec and the Prairie provinces like Saskatchewan. TD Economics expects these patterns to hold up in 2024 because of more favourable affordability in the prairies versus Ontario, BC and the Atlantic region.
Greg?
>> Alright, so that the outlook there.
What are the risks to that outlook?
>> I think the key risks include some regulatory changes by the banking regulator around tightening the rules around lending conditions and stress testing.
There's also the potential for more financial market volatility and instability, also weaker than expected economic growth.
If that happens, we can see expected job losses. That would hurt housing demand and that could hurt the cost of selling in the market.
They also point to the fact that not all risks are to the downside. For example, they could see sales catching up faster than expected which could provide a lift to average home prices across Canada.
> Interesting stuff as always.
Thanks.
>> My pleasure.
>> Money talks Anthony Okolie.
Let's chicken and on the markets now. We seem to be weakening as the session wears on.
It right now you're down about 41 points or 50% in the TSX Composite Index after the big jump in the price of crude yesterday.
Let's check in on Hudbay Minerals right now, she was happening in the Commodity space. It's down to the tune of about 6%.
let's check in on sent Terra gold.
It's a bit of a mixed picture among the minors.
Gold still getting a bid at nine bucks and $0.13 per share, sent Terra is up a little more than 3%.
South of the border, we continue to weaken through the lunchtime trading session. The S&P 500 right now is down a little shy of 30 points, almost 3/4 of a percent.
A quick check in on the tech heavy NASDAQ, we will see how it standing up against the broader market.
It's right in step with her, down 89 points or three quarters of a percent. Bank of America, one of the financials, we should do regional off the top of the show.
How is Bank of America faring in this environment?
At 2771 right now, you've got Banc of America down a little bit more than 3%.
We are back now with Michael O'Brien from TD Asset Management talking Canadian stocks. Here's another big one.
What does your guest think of Alimentation Couche-Tard considering the transition to EV?
You got gas bars, convenience stores and drivers moving to a lecture.
How does that all play out?
>> This is actually a really interesting situation where Couche-Tard, whether this was brilliant foresight or a fortuitous accident, a number of years ago they made a major acquisition of a number of Scandinavian fuel sites.
They bought a chain from Statoil, particularly in Norway.
The significance of that is that in recent years, Norway has been one of the fastest and strongest adopters of electric vehicles.
If you look at the penetration curve in terms of electric vehicle ownership in Norway, vastly ahead of what we see in North America.
And so it's happened is essentially, Couche-Tard's had a real-world laboratory to try to see firsthand and understand what adjustments will need to be made in order to transition from your traditional service station filling up a gasoline powered car tale what's going to be the evolution of a service station that's catering more to electric vehicles.
And so the good news to report from a shareholder perspective is despite this massive increasein electric vehicle penetration in Norway, their business has done just fine, thank you very much.
So they found ways to adjust. Simple things. For example, takes longer to charge electric vehicle than it does to fill a gasoline powered car, so it leaves you more time to go in and wander the store.
>> I need more than just one Twinkie. Two Twinkies.
>> Or a hotdog.
So these real-world learnings are going to set them up very well for the transition here in North America as they take what they've learned in Scandinavia, implement out to their store base here in North America. I think it puts them ahead of the competition in terms of making that adjustment.
>> We have run out of time for viewer question. Before I let you go, let's go back to the top of the show, the conversation we had. A lot of big things happening at there.
Central bank issues, OPEC surprises us with a cut, volatility in US regional banks. If an investor sets back and try to take their breath and stock of all this, which they have in mind?
>> I think it's always important for us to not get too carried away.
And it's funny, despite all the negative headlines we've seen in the last one, two, three months, the NASDAQ south of the border had its best quarter in years.
So I think on the one hand, you don't want to get carried away with pessimism.
On the other hand, we shouldn't fool ourselves.
This is going to be a difficult period of timefor the economy.
The economy can be a little bit distinct from what the stock market does but clearly here in North America and I think in a number of other markets, certainly Western Europe, the impact of all the central bank tightening's will be felt in the economy.
Unemployment will rise.
Bankruptcies will go up. All these things will happen.
And so what we've always go to ask ourselves is how much of that is reflected in today's share prices and how much is still to come?
I think, if I can predict anything, the next few months are going to be very volatile.
I think there's a lot of uncertainty in the market.
But I think this too shall pass. When we come out of it, the world is going to keep spinning and we just have to eat constantly reassessing. Are we being paid to take the risk?
Are these risks adequately reflected in the stocks?
When the case is yes, you step in and buy.
When the case is no, you stand back and be patient.
It's really the same it's it's always been, just with all the headlines today, it's easy to get overwhelmed.
As always a pleasure having you, Michael.
>> Absolutely.
>> Our thanks to Michael O'Brien, portfolio manager at TD Asset Management.
Stay tuned. On tomorrow's show, Peter Hodson, founder and head of research at 5i Research will be our guest, take your questions about mid-cap stocks.
A reminder that you get a head start with those questions. Just email moneytalklive@td.com. That's all the time you have for the show today.
Thanks for watching, and we will see you tomorrow.
[music]
