Peter Hodson

[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing. Every day, I will be joined by guests from across TD, many of whom you will only see here. We will take you through what's moving the markets and answer your questions about investing. Coming up on today show, we will be joined by Peter Hodson from 5i Research to discuss why he doesn't think we are headed for a 2008 style market turmoil situation. In today's WebBroker education segment, Nugwa Haruna is going to take us to the tools and WebBroker to potentially help you navigate increased volatility. here's how you can get in touch with us with your questions and comments. Email moneytalklive@td.com where you can follow that your response boxright under the video player on WebBroker. Before you get to our guests of the day, let's get you an update on the markets. After last week's big rally, bit of a mixed result out there. The TSX is down hundred nine points, hovering around the 20,000 level. It Air Canada was on the move higher recently and earlier. Let's check in on the name. 1899 per share, up about have a buck or a little more than 2 1/2%. Canadian Tire disappointed with his earnings last week. Let's check out that name. They are down more than 4%. Let's check out the S&P 500. Little bit of pressure to the downside. We had some fed speakers over the weekend reiterating what Jerome Powell said, it's not about the pace but where you end up with rates. Now the… Has gone out that it may be appropriate to move to a slower pace of rate hikes. Not really at all with one another but we are always digging through the nuances of what the Fed has to say. Down around 6 1/2 points or .16%. Let's check out the NASDAQ, the tech heavy in his see. It is down 70 points, little more than half a percent. Got some unconfirmed reports out there that Amazon is going to be joining the ranks of some of the big tech companies that have laid off workers. Nothing confirmed from the company, but we are seeing some unconfirmed reports that it could be as many as 10,000 employees starting this week. We will stay on top of that for you. Also check in on a name called Oatly. You might not be familiar with it. It's taking a substantial step back today to the tune of 14%, a larger than expected quarterly loss for the maker of oat-based rings. That's your market update. It's been a rough ride for the markets through this year with rising fears about a possible recession, but our feature guest today saysDespite the negativity, he doesn't think we are headed for a 2008 style market turmoil situation. Joining us now for more is Peter Hodson, founder and head of research at 5i Research. Great to have you here. >> Thank you very much. Great to be here. >> Every time that we get these times of turbulence, we think of times before that were tougher investors. You say don't look to 2008 is some kind of example of where we might be out right now. >> I think if we have a recession, it will be a normal type of recession which typically means it shallow and short. The average recession is about 11 months these days. Everyone is concerned about 08 and if you were sleeping for 20 years and you came out and look at the stock market today you would say oh my gosh, we are in so much trouble, the stock market is horrible. But in 08, I couldn't wake up in the morning without a bank going out of business or an auto manufacturer going out of business or a house collapsing, credits collapsing everywhere. Credit seized up, earnings were horrible and the US was losing 400,000 jobs a month. Now, we've got a situation where the worse thing that happens right now is your company, instead of growing at 20% is growing at 10% or 15%. Investors are going, that's horrible! Sell everything! You've got 200,000 jobs being created each month instead of losing job so is just one of the situations where you had the selling that fed upon itself, fear of interest rate hikes, fear of inflation, but if you look at almost every cycle in the past, higher interest rates are not that bad for the market. And the reason for that is higher interest rates come with a strong economy. Here we are, strong economy, higher interest rates. It's economics 101. It really is, but for some reason this year, people have gone into full panic mode and the world ended. It's all going to end. Don't know when this pain is going to end. Last week was great but today's doesn't make a trend. But what I think what will happen is people will start relaxing and they will start focusing on earnings again instead of everything else. It's been a tough year for managers because corporate earnings don't matter. It's all about the Fed and what the macro picture has been. We'll get back to basics one of these days. >> Getting back to basics would lead me to believe that we have been spoiled as investors, spoiled as consumers, really, for a long time because the cost of funds, borrowing was so very low. But you get back to a point, could we get back to a point where we're just sort of like, well, this is what it cost to borrow money, this is normal and the economy can handle that kind of higher cost. >> This is where the job picture matters. in 2008, people were losing their jobs and their houses, they would hand back east to the bank, bank had excess supply and prices will collapse. If you have a job right now, you are going to keep paying your mortgage. You're going to have $1000 less per month, but you will keep paying. Cost money to borrow money and we had it easy and that's why we had a huge ramp-upand now it's getting back to normal. A lot of companies that were trading at 50 to 60 time sales, they are not going to be around. Companies that have negative cash flow, watch out for those. When you got companies with lots of cash and cash flow and cheap valuations, you really just have to buy stocks that are going to be here in two years because it's going to be changed in two years. We might be back to normal and maybe we will have a bull market one of these days. It nobody expects that, but you know what? Nothing last forever. >> It speaks to I think of not only removing a motion to a certain degree, this is been a very emotional year, emotional couple of years given everything that's going on in the world, but also having a longer-term thesis. And if you have a longer-term thesis, you standby. Day-to-day, I fall. It is too, you get emotional that was happening and realize you need to step back and ask why you did these things in the first place and with the end goal. >> I think it helps a little bit if each day, if you own a profitable company, then your company has more money today than it did yesterday. Most companies are operating 24 seven. Even on the weekends, you've got three days more money today than you had on Friday. if the stock is going down, your risk return ratio just keeps getting better and better. You've got a cheaper stock price and you got more cash. Eventually, people will realize that the world is okay for most companies. Sure. As always, some companies can be in trouble. But as always, some companies are gonna knock it out of the park. >> The short and the medium-term have seen a lot more volatility. Over the weekend, we heard from Mr. Waller, he had this to say about Fed policy. Vice chair Brainard came out today… We are still on a reading the tea leaves kind of thing, wait for every inflation report and jobs report, we could see some wild swings still in the future. >> Absolutely. It's not completely clear sailing right now but if I could go back over the past decade when I was a portfolio manager, I can't remember looking at inflation for 15 years. I didn't care. Nobody cared. They cared about jobs and corporate profits. So now, we've got a new… Something you to worry about. But as that sort of settles in, we aren't going to get into a Venezuelan, million percent type of inflation. I think we'll get back to a normal situation, maybe not 9% inflation, six or five, rates go down, the economy and everybody just to that. Certainly, there are volatile days ahead but historically, you have to be there on the good days. You have to be… Last Thursday, you have to be there to get long-term performance. If you miss the best 20 days in the market over 10 years, you almost lose money. You have to be there on those 20 days. >> We have an engaged audience listening to our conversation. We have of you are basically saying, okay, you are talking about a strong economy. It feels like we have a natural inflation, the global pandemic change the world. Are the normal rules gone given what we live through since the spring of 2020? >> Is a lot of talk about how globalization is gonna fade away because of what happened with supply chains, and that may cause some additional inflationary pressures in house. Absolutely, there was a labour shortage when everybody was sick. It you had production, semiconductors, closing factories. Obviously, there was a short-term impact and the question is, as will get back to normal, how does that change? And this is where maybe the Fed and central banks aren't doing it properly. They are trying to stop demand whereas reality, you need to improve supply. Again, basic economics 101. As long as gun supply issue, you can have pressure on prices. But again, read is a great solution because companies will realize this, they will ramp up domestic capacity and prices will go down is that ramps up because they don't want to have the issue with globalization causing problems like it did in the pandemic and with the war. So there's gonna be a lot of changes, but it doesn't necessarily mean things are gonna be bad. As a company increases production to meet demand, they'll do pretty well and the prices will naturally it level off. >> If a mild recession, which seems to be everybody's forecast, becomes a deep recession, how much longer could it be before we play out this thesis of getting the world back to normal, getting the economy back to normal? >> Yeah, I think it's one of those situations where the deeper the recession is, the faster it will change. From the stock market point of view, I think investors are expecting not that bad a recession. Hard to say because the marketing so bad. But I think the common theme isinflation will get under control eventually. Race will peak eventually. Corporate profits will dip but not that much. So that adds the big variable. Right now, most analysts expect profits to rise year-over-year. That could change and that could be maybe a year of stock market volatility. But as you know, the market looks forward so maybe if it's a year, you might sort of say, okay, it's time to bind six months. So we might have six months more pain, maybe nine months if things get really bad, but again, if you are a long-term investor, would you should be, nine months is nothing. In five years, 10 years, this will be a blip we talk about down the road. I'm really convinced that in five years, a lot of investors will say, wow, look at how cheap that stock was and they'll say, why didn't I buy more of that at the time? But it's hard, it's hard to fight that emotion, the trend and the negative momentum is, you know, keeps feeding upon itself. So we have to go through that. >> Great start to the show. We are going to affect your questions on mid-cap stocks for Peter Hodson in a moment. You can get in touch with us anytime. Email moneytalklive@td.com or fellow that your response box right under the video player here on WebBroker. Now let's get you updated on some of the top stories in the world of business and take a look at how the markets are trading. OPEC is once again cutting its forecast for oil demand, citing China's oil restrictions and a weaker global economic outlook. Cartelestimates it needs to reduce the amount of crude produces this quarter by some 520,000 barrels a day. OPEC's recent supply cuts have drawn criticism from the Biden administration as it seeks to lower energy prices for Americans. Well, it's a big week for US retail earnings. Several big names on deck to report in the coming days. Investors will be watching carefully for signs of consumers shifting their buying habits as inflation hits household budgets. Among the names scheduled to report this week are Walmart, Target, Lowes and Home Depot. Canadians will get a fresh read on consumer Price pressures this week. Stats Can is scheduled to deliver the October inflation report on Wednesday. While the headline number has been easing in recent months, it still well above the Bank of Canada's target. Our central banks next rate announcement is scheduled for December 7. Let's check in on Bay Street and Wall Street. We will start here at home with the TSX Composite Index. You can see right now we are down a little 500 points, about half a percent. Bit of caution heading into this trading week after the big rallies of last week and said to the border, the S&P 500, as we continue to hear from had speakers about where we may be headed and how long is gonna take to get there and all that kind of stuff that we pay says careful attention to, got some pretty modest weakness right now in the S&P 500, down just shy of two points, which is 5 ticks. We are back now with Peter Hodson, we are taking your questions about mid-cap stocks and let's get to them. Interesting names here,Including a Canadian retailer. Can we get your guests view on Aritzia? They seem to have done well throughout the pandemic. >> I don't want to say they do everything right because nobody does, but in terms of managing fashion trends, they hit it out of the park in terms of into spending what consumers want. They also did a good job in terms of the pandemic. They had an online presence and they ramp that up, sales 170, 80% higher than they were before the pandemic, but a lot ofretailers missed the shift back to normalcy. A lot of retailers are saying that business is down because they didn't expect traffic back at their stores because they didn't have the prices or inventory. But Aritzia made that shift again perfectly. There retail stores did really, really well the last quarter. so now you've got a growth stock which is up on the year which is pretty rare in this market. their balance sheet is improving. It's a bit leverage but in terms of expected growth,20, 25% going forward, they are adding stores, managing their inventory and their debt is actually declining because their cash flow is going up with such good results. So it's one of those ones where it reminds me a bit of Lululemon where I'm not sure if they are going to have the global presence that Lulu has, but when Lulu came public, everyone was, oh, just a fad, nobody's gonna care, and here they are 15 years later just a massive global monster and so I think that's what Aritzia is trying to follow, that game plan, and so far so good. The $5 billion company and things are going well right now. On the downside, if they miss one of those fashion trends, than their premium valuation… >> I was gonna say, those stocks we talk about being price to perfection, if they miss. . . >> in my history, it's always better to pay more for a great company than less for an okay company. That's one of the risks. If they totally messed up on the fashion trends, there can have a bad year, but I would expect them to recover eventually but the stock will take a hit. you have to watch the debt level. If they ramp up too fast, that's going to increase. Right now, it's about three times the cash flow. That's okay but not great if we have recession. Management has to be there. Right now, we think they are great but they could always say, hey, I've done so well with the stock, I'm gonna retire, get pulled away from the company. Nothing is risk-free but so far we like the trend of earnings. We like the momentum of the stock, and we like the prospects for future growth. >> As I was saying, on the newscast, retailers on deck this week, one of the themes they are in US retail, also Canadian retail, groceries are chewing up more household budget, energy, cars. Is this a big risk for retail space overall? >> Overall, I think it is for sure but that particular company is really good at creating experiences and events so it's a situation where, yes, it's discretionary, but people love the experience. Again, that's hard to duplicate and you have to maintain it but their numbers speak for themselves because during this inflationary period of 22, it's hardly been noticeable at all to them. >> An interesting name there. At home, always make sure to do your own research before you make any investment decisions. Let's keep taking your questions. Next on the list: it what's your take on BRP? This one seems to have it taken advantage of the conditions of the pandemic to increase its presence. >> Yeah, so this one's really interesting because the parent company spun off of Bombardier many years ago. Bombardier has been a pretty big basket case but BRP has done well in terms of positioning themselves in the market. But the thing I really like about it is it's a very cheap stock, it's about eight times earnings right now and the growth rate, they've gone from 4 billion in sales to about 7 now. You don't buy for the dividend coming by for the growth. Much like Aritzia, their presentation and marketing, they are not trying to sell you a machine,they are trying to sell you an experience. As the population ages, they want to stay young, active and outdoors and you can debate all you want about a big gas guzzling machine whipping through the woods, but that's what people want to do and they are selling like hot cakes. The other thing we like about them is this year in March, they bought back $250 million of the stock in one piece and so they may be right, they may be wrong, but they were willing to put up1/4 billion dollars to buy back their own stock so is the stock at smaller and smaller, then in a recovery, their earnings leverage gets bigger and bigger. Absolutely, there are risks here because of inflation, interest rates, fickleness, but we think that's priced in it eight times earnings now. you can buy it now for less than what the people of the company paid for it in March. It's one of those names where I think it's a Canadian leader. They have a global brand and global sales and BRP, no one knows what that is. We like the simple. It's a little bit of a sleeper because people say, yeah, nobody's going to buy an ATV during the recession. >> Consumer fickleness, right, BRP, part of their story was saying, during lockdown, people would want a CD or ski do, but they are expensive. I don't own one. I have too many guitars in my house. At some point you have too many, you just have to stop. At some point, do consumers say, and got what they need from them? > In North America, yes, but that's where their global presence starts. There was that whole theme that went away during the pandemic about global growth. The rest of the world, sort of hitting the middle class, they want to have things that are fun like this. The pandemic sort of threw that off and the strong US dollar has really thrown that off recently but again that will come back as people become more wealthy. They will seek out these types of toys. Again, it's one of those companies that has to be here for the next cycle, but they are strong enough, they are big enough and their brand is strong enough that they will be there when people are coming back at it. The demographics is a play, but they make up for it in international potential. >> Let's take another question right now. To the tech names in Toronto, in Canadian technology, how does Shopify stack up against Lightspeed? >> This is always tough because they are different businesses but lightspeed was always called the next Shopify what was going from $10 to 160. and they really kind of screwed that up a little bit. It's partially their fall and part of the markets fall. Everyone loved it never was buying the stock because they thought it was the next Shopify. Shopify was going up the same time so they went up in tandem. then, lightspeed ran into some issues. They missed some numbers. The world changed in terms of inflation and interest rates and all companies had a change in valuation. They had management turnover, there was uncertainty about who was running the show and things like that, and then more competitors showed up. A company called toast went public and they were doing a little bit better and some other company started coming through, and then the pandemic hit and lightspeed is really into their retail, restaurant and hotel world and that sent them for a loop as well. Meanwhile, Shopify has their own issues, but probably the main difference, there are two real differences right now. Shopify is more expensive on a valuation basis, it's about seven-time sales and lightspeed's at about 3 1/2. But Shopify has $5 billion approximately right now and lightspeed has about 800 million, which is fine. It's better to have cash than debt, but the real difference in Shopify remains in a bit of a legal situation with Amazon. They've spent a lot of money on fulfilment and warehousing, they basically want to be like Amazon and it's going to cost them a lot to be there. Investors are going to be unhappy about that. But Amazon want Shopify to be around. If they don't have Shopify around, they are going to have all kinds of problems with antitrust and so on. We took a lot of heat on Shopify because you been recommending it down here and people are all, oh, down 70% so are you recommending it? It could do very well when the world changes in the market decides to pivot. We are comfortable with where it is right now. Lightspeed, we were very disappointed with their last quarter earnings in the manager turnover. We really think the lightspeed position should go into a Shopify position. Both are risky, both are not cheap versus something that's eight times earnings versus seven-time sales, there is always a risk but on a market to bit it starts looking really good. These were multiples. they are both still growing. >> Nothing is without risk. As always, do your own research before you makeinvestment decision. We'll go back to your question for Peter Hodson on mid-cap stocks in a moment. You get in touch anytime. Email moneytalklive@td.com. Delegate our educational segment of the day. volatile market conditions may be challenging for investors to navigate as emotions run high and asset prices could change pretty quickly. there are some possible ways to help navigate volatile times. Here to share some of them with us is Nugwa Haruna, Senior client education instructor at TD Direct Investing. What tools do we have available to us if we are concerned about some of this volatility that we are seeing? >> Hi, Greg. It's always a pleasure being here. Yes, so yourself and Peter have been discussing how conditions and markets are very different today than they were a few years ago. We know that last week, markets were off about five, 6%. Today, we are seeing markets are down again. So investors are seeing a lot of swings in prices and so that's what we see in times volatility. We might see choppy performance on the day-to-day. There might be a large volume of trades happening those people change positions. So investors who want to have some control when it comes to managing their portfolio during volatile times may consider using different kinds of orders to do so. So one of them that we will talk about today is a limit order. So for an investor who is looking to place a limit order in WebBroker, they are able to do this by clicking on the buy and sell button. So once you do that, we are just going to pull up an ETF that trades on the US exchange here. Investors looking to purchase may be able to take advantage of the dips in the markets and so for that reason, they may be looking to purchase the securities at a lower price, in terms of selling, an investor may be looking to sell their investment at a higher price. For example, say I want to buy 100 of the security and knowing that in the last month, the security has dropped in price by over $20, I want to take advantage of that. I can change my Price type from a market type, I can change that over to a limit price and once I do that, I get to set the terms, so the price that I'm willing to pay, and in this instance, I will say maybe $380, as opposed to the current market price of 398. This way, I get control and if the price of the security drops to $380 or less, I'm willing to purchase 100 of the security. Please keep in mind, I will decide how long I am willing to wait. There is a chance that the price of this security will not drop to this price during that time, but this is some security that an investor could have. >> this is a great way to start managing some of the risks out there. when the trading day is open, how can investors trade outside of standard investment hours using the platform? >> Right, so a lot of times, companies may have major announcements that happen before or after market hours. The reason they do this is because investors can react emotionally and that can lead to huge swings in the prices of the security. So if investors want to participate in pre-or post market hours, as you mentioned, market hours are 930 to 4 PM, they can do this as well. So instead of using the day when they placed the trade, they may consider using day plus extended markets. So the extended market gives investors an opportunity and especially TD Direct Investing investors are able to trade US-based securities, so US on US exchanges, and they get access to the market from 8 AM Eastern time two 920 and then from 4 to 7 PM. So for instance, if I place this order in the system at 8 AM on a Tuesday, it means that my limit price will stay in the system from 8 AM until 7 PM that day. So all day. If the tray does not go through, this will be cancelled at no charge to me. So I will mention some considerations for extended markets. There are lower liquidity since there are fewer people participating. Investors want to be aware that that means there is a higher spread, see may be dealing with higher volatility there and your order may not go through. So once again, investors get access to the extended market hours as long as there are trading day… As long as their security trades on a US exchange and as long as they use a limit order and select the day plus extended market. >> Great stuff as always. Thanks for that. >> Thanks for having me. >> Nugwa Haruna, Senior client education instructor at TD Direct Investing. Check at the learning centre on WebBroker for more educational videos, live interactive master classes and upcoming webinars. Before you back your questions about mid-cap stocks for Peter Hodson, a reminder of how you get in touch with us. Give a question about investing or about what's driving the market? 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@moneytalklive@td.com or you can use the question box right here underthe video player on my broker. It just type it in and hit send. We will see one of our guest can get you your answer right here at MoneyTalk Live. we are back now with Peter Hodson taking your questions about mid-cap stocks. He loves coming off the platform. Let's get to them. We have of you are wondering,Once we see the next bull market, whenever that happens, what will be leaving? >>I think tech and industrial. They've been hit hard in the downturn but on average versus other sectors, they are cheap and have lots of cash and still have lots of growth. So whenever investors decide the growth is worth paying for, I think those sectors will start to react well. I would be more cautious on some of the other sectors, utilities, consumer staples and even banks. Maybe not so much banks but there are certain sectors that people have gone to because they are safe and they are perceived to be not a problem and because of that, their valuations have takes up a little bit above historical averages. So you may get a bit of a shift and I think technology is not going away, is going to be driving the future. Some companies that have gone from 50% growth to 30% growth will start looking pretty good of everything else starts going down. You can get a premium valuation again. If you want to have growth, industrials. The world is not going to change that much. Industrialskeep producing things. I think engineering, auto and technology companies are worth looking into. >>the timing of the markets, if you have a thesis you believe in, it takes an Honda player. >> Absolutely, and I would never try to pick two or three sectors and load up a portfolio there. I mean, there's 11 sectors and I think investors should have at least nine of them. You can skip a couple of them if you want to and you could tell one of the other if you think things are going to go your way, but by no means, don't have it to soccer to industry portfolio. >> Let's get to another question. We are getting a lot of them. Canadian Natural Resources, what is your take on C and Q? >> The energy sector has been really interesting. In March 2020, it wasn't great but now it's better. She and Q is cheap, well run, the dividend is growing and there is room for growth. It's somewhat innovative. They have diverse operations, diverse businesses, exposure and a lot of different areas. So I think it's one of those easy one for you can park it, not worry about it a whole lot. It's a cyclical industry. Oil goes up and down. If oil goes up, the stock will go down, but it's one of those once it's been around forever. It's a done a good job mostly forever and the dividends there are good so it's pretty attractive as a stock if you can handle the cyclicality. >> Let's talk with the cyclicality because of course we are worried about a recession, whether it's mild or something deeper, there is concern about the energy space and how those stocks, that sector would react to a recession. >> This is where it gets interesting because, I guess again here, Europe is really can have a worse recession. America doesn't have the war problem, it's got a strong economy, the US dollar doesn't hurt the US, it hurts the international operations. I think the Canadian North American energy sector should hold up better than the rest of the world. But,if we get a global oil price in the 40s, the sector is going to get hit pretty hard. Companies have not been spending money on supply. Whether you got a huge demand drop is one thing but you have to have a replacement of supply. So it should be mild. The cyclicality should be mild the cycle, but this is from a sector that went -37 a couple of years ago, so who knows? >> Yeah, that was a very interesting time in the spring of 2020 for sure. As at home, make sure to do your own research before you make any investment decisions. Let's get us more of your questions right now. Reads, real estate investment trusts. Riocan, if you're looking for income, you look in a space like this? >> I think you do but with a caveat. These are very attuned to the economy. They are very attuned to occupancy rates and interest rates. They do not have a high growth profile at all because under the tax laws, they have to pay most of the money out his distributions. So Canadian Apartment read, it's one of the best in the business for sure, but it's at 19 times cash flow in the dividend, that is to reason is less than 3%. So you're paying up for quality. RioCan was a shopping REIT and during the pandemic and that was a bad sector to be in, shopping, what they turn that around and they were commenting last week about how occupancy is increasing now. Their occupancy has gone up to 98, 99% and there are trading up at… They weren't doing very well for many years, but they seem to have turned this thing around a little bit. but these are income stocks, don't expect growth, expect your distribution. Sometimes you get distributions cut in a bad economy and in 2020,there were a lot of distributions. On the other hand, there have been a lot of interestingtakeovers in the industrial REIT space. There is attractiveness for long-term investors who want that cash flow. They are great for income investors as well, if you are willing to accept the fact that you are never going to get huge capital gains here because of the structure. >> Some interesting risk and rewards and caveats on that one. I've got another question here about Canadian mid-cap oil and gas stocks overall and perhaps over the next two years. We touched on a bit of this before, but the space in general, obviously comes down to seeing demand in recession. >> Yes, but there's a bit of a difference. You don't want to say it's different this time but from a fundamental point of view, it absently is. When we went into 2020, the mid-cap oil and gas companies went into pure survival mode. They had no idea what was going to happen. They had too much debt. They had no cash flow, the oil prices and gas prices that we were seeing, they went in to hunker down, we have to survive. That's an interesting mindset for the space because typically when things are good, they spend more money and then when things are bad, they got a lot of debt and it rolls over. Tonight got a situation where the mid-cap start trading at four or five times earnings, which is not that atypical. They tend to not get huge multiples, but their balance sheets have changed so much. An average company, trying to average a bunch of companies that we follow, has gone from 400 million net debt to maybe 50 million net debt. It's gone from no dividend to a 3% dividend. It's gone from not buying back stocks to buying back their own stock. So there's dozens of names out there that are historically very cheap but fundamentally very strong. So I think it's a pretty good sector right now because it's already pricing $60 oil and every day that it's about $60 oil is a bonus. And because if they can maintain that financial discipline and not add debt, go on an acquisition spree, then your company should be around for the next cycle, even if things get bad. You just wait a couple years and it will still be there. But that's still the key. >> We talked about recession risk when it comes to the spaces but what about China risk? Will they lift their COVID strict rules, use them up in the spring? This seems to move some of the commodities. >> Absolutely, this has a big effect on things like iron ore, copper, any of the industrial metals, steel. It's a little bit less impactful on energy again because the captured market that people have, sure, we can ship our oil out to China but it's easier to use it in North America, but certainly copper is at a rule over. Iron ore bounces up and down like a yo-yo and there's a big variable there for China, but I think people are kind of writing off China and so every piece of positive news should be incorrectly good, but again, if the world goes into a recession, all commodities are going to struggle for sure. > We will get back to your questions for Peter Hodson on mid-cap stocks and just moments time. As always at home, make sure you do your own research before you make any investment decisions and reminder, you get in touch with us at any time. Give a question about investing or with 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 any time@moneytalklive@td.com where you can use the question box right below the screen here on WebBroker. Just writing your question and it sent. We will see if one of our guest can get you your answer right here at MoneyTalk Live. let's check in on the markets on the first trading day of the week, we saw big gains last week and a pretty strong rally. Today, it's a bit mixed. A little bit of pressure down, more muted, nothing too dramatic. 20,038, the TSX down 72 points, about 1/3 of a percent. Some of the names included are Brookfield asset management, that name down about 1.8%. Baytex energy, let's take a look at that name, down about 2.8%, seven bucks and $0.21 per share. American benchmark crew was under some modest pressure. Right now it is down about 3 1/2%, so the pressure is intensifying as the day wears on on the price of American benchmark crew. The broader read of the American market, the S&P 500, let's check in on that one. A modestly to the upside, so it's a bit of a cautious sort of mixed day, 3997 and, of 4 1/2 points, little more than a 10th of a percent. Let's check in on the NASDAQ as well, the tech heavy in the sea is down 71 points, a little more than half of a percent. And Biogen, let's check in on this one, it is up 5%. What's going on here? It's rival, Roche, has fallen short of their studies and is lifting the names of its rivals like Biogen and Eli Lilly which also have treatments in the pipeline as well. We are back now with Peter Hodson from 5i Research take your questions on mid-cap stocks. Algonquin power, we have of you are concerned about them maintaining the dividend. > One of our services is answering questions and this has kept us up all weekend, answering a million questions about Algonquin. The stock was drifting lower. People were worried about the dividend and financing. They came out with numbers last week which were pretty horrible and a horrible forecast. So the stock dropped a lot, the yield went out, and people are saying, what happens now? To the dividend? Is it ever going to come back? Granted, some of the problems they had weren't really their fault. They had some rate decisions and delays, things like that, their guidance wasn't great and their execution… Most companies should set the bar low so they don't miss it. They haven't done a good job without all. So the conference call, they talked about the dividend, they talked about the cost of capital but also their stock price as well. If they cut their dividend, the stock price will likely take a big hit and they could potentially be vulnerable to a takeover. I feel did the same thing a couple of years ago. They are not existing as a public company anymore. You have to be careful. The payout ratio is okay. It's not really in jeopardy. I think dividend is secure for now. But if you get a declining trend over a couple of quarters, then everything is on the table. The other thing, of course, is whether they are going to need capital. This year, it was in everybody's model, they needed $300 million in capital but they sold some assets to raise that so they didn't have to raise any equity capital. Next year is a different story. They have to meet the growth rate and whether they will issue next year is the big question. I think the dividend is secure, safe is never a word we like to use because any dividend can stop at any time. But the company is so in the doghouse right now, is in the penalty box, investors don't care, they just want to move on. it's been too painful for investors. >>so this is one to keep your eye on because things could change with the name. Another question here about the senior home companies and some of them reporting recently including Siena, extended care and Chartwell. What should we make of these names? We hear about long-term demographics, but what does it mean if these names? > What the demographics play is, investors are assuming these are going to be a high occupancy. They are never going to have a shortage of customers as people get older. They are going to have to move into homes. I don't think that's changed that much. The demographic trend is sort of sweeping its way through the economy. There have been some changes largely related to COVID. Government regulations have increased dramatically. As you know, with COVID, the senior homes were a very big problem. So the regulations have changed. they have less flex ability but probably the more important for investors, they have higher costs and so the margins have slipped a little bit as well. The other thing, and this becomes a question of the economy and demographics as well and also the affluence of people. Most people do not want to put their parents in a home and if they can afford it, they are going to do something against that. So this is where the cost of the homes is that goes up, the cost of replacement or alternative solutions starts to get closer to matching that. They are like the REITs. they don't grow. Some of them are expensive because of that demographically. It's one of the ones where things have changed a bit. I think the long term is still there but the short term, people are sayinglower margins, higher expenses, higher interest rates, maybe this is not so much fun right now and it's not quite the easy game it was in the past years. >> Peter, some interesting stuff there and great insights. Good to have you. Look forward to next time. >> It was a pleasure, thank you. >> Peter Hodson, founder and head of research at 5i Research. We thank you for joining us today. At home, always do your own research before you make any investment decisions. Stay tuned for tomorrow show. Michael O'Brien, portfolio manager at TD Asset Management is going to be on our program taking your questions about Canadian stocks. Of course, you can get a head start with your questions anytime. Just email moneytalklive@td.com. That's all the time we have for today. Thanks for watching, and we will see you tomorrow. [music]