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Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guys from across TD, many of whom you'll only see here. We are going to take you through with moving the markets answer your questions about investing.
Coming up on today show, healthcare stocks outperformed the S&P 500 in 2022, but will that a performance continue into this year? We are going to discuss that with Tarik Aeta from TD Asset Management.
In today's WebBroker education segment, TD Direct Investing's Caitlin Cormier will show us how you can research different fixed income options using the platform.
So here's how you get in touch with us, just email moneytalklive@td.com more fill out that viewer response box on the video player right here on WebBroker.
And before we get to our guest today, let's get you an update on the markets.
Our real attempt at their to build on Friday's rally.
Let's take a look at the TSX Composite Index, start here at home. Right now, you can see we are up a fairly decent 170 points, almost a full percent. We did see a nice boost for oil crude prices earlier this morning based on China's reopening.
Now crude is holding onto its gains, not as firm as they were earlier, but that had some money moving into energy name so let's take a look at Crescent Point Energy right now. It's up a solid 3%, at nine bucks and $0.25 per share. Checking in on Air Canada, making some gains as well, headlines over the holidays about fully booked heights but problems with the weather across the entire industry.
Air Canada up almost 2% at this hour at 20 bucks and $0.59 per share.
The S&P 500, the broader read of the American market building on the gains of Friday. It was a bit of a rough start to the trading year last week, but by Friday, there was some momentum to the upside. Holding onto it today, 3947 and 52 points, that's good for 1 1/3% gain.
Checking on the tech heavy NASDAQ, obviously a bit of risk appetite out there today. We are seeing some of those big mega cap names moving higher. It was a roughone for Amazon today.
That's your market update.
Healthcare stocks outperformed the S&P 500 last year, but will that outperformance continue to in 2023?
Joining us now to discuss his outlook for the sector, Tarik Aeta, global health care analyst with TD Asset Management.
Great to have you back on the program.
Let's start off by talking about that outperformance, let's look under the hood.
What were some of the winners of last year?
>> Yeah, there was quite a bit of divergence. The winners were the Pharma and biotech companies.
They were up in the low double digits,driven by a mid-single digit EPS growth but also valuation gains and really the strong pockets there were companies that had some sectors held behind them, so companies like Eli Lilly, operating in diabetes and obesity, names like Merck that are benefiting from growths of what's going to be the world's best-selling drug of this year, it's a cancer drug. Also beyond the Pharma and biotech companies, we saw a strong performance out of the health insurers, they grew earning 13% driven by continued growth of Medicare advantage, that's health insurance for those over 65, as well as growth in the services business, so you have companies like United Health. Going outside their traditional competency of insurance and growing their businesses over time as well.
In terms of the underperformers, those were largely medical device companies.
That was a mix of factors. On the volume side, we saw hospital staffing shortages that really way down on volumes. That hurt them. And the other thing also hurting them were margins. So you had a higher cost for shipping, for commodities, for labour.
That weighed on margin.
At the same time, they are stuck under multiyear contracts with hospitals, so they were pressured. Last but not least, life science companies were pressured.
Their earnings are expect it to be down 4% once we get the Q4 results. And there, their core based businesses are performing well but on the other side, they still headwinds from COVID testing volumes declining and in demand for vaccine testing equipment declined as well.
> That was the story 2022.
That was a nice nutshell for us. What about this year?
We are firmly down 2023. What's your outlook for the health sector? What are you taking a look at?
>> In terms of 2023, I don't think the healthcare sector will have the same level of outperformance that we saw in 2022. There's a couple of reasons for this.
First of all, earnings are expected to decline 3% this year driven by continued headwinds from vaccine demand continuing to demand, testing declining, and also as well, last year, we saw quite a bit of re-rating for healthcare. Healthcare went from trading very high and closing the year at trading to a premium.
That rereading versus the broader market is unlikely to happen again this year.
In terms of where the most attractive spots in healthcare, I look at it as a spectrum.
So in terms of the least attractive I was a are the health insurers.
They had a really good year in 2022, but looking to 2023, with hospital staffing shortages improving, we should see higher demand for elective surgery, higher volumes, that will drive higher claims and that will weigh on insurance profits.
Also at the same time we are entering into a presidential election cycle in the next two years in the US and that historically it weighs on valuation multiples with health insurers. We also have potential regularly risk for Medicaid and Medicare advantage so we have to watch that.
In the middle of the spectrum I would say the farm and biotech companies, ones that are more attractive here will be the ones that have sector growth tailwinds. The ones operating in oncology, cancer, the ones operating in diabetes, obesity, they have talent, and stay away from the ones that had a big COVID tale when the last couple of years.
And in terms of what can outperform this year, with commodity prices declining, shipping cost declining, trip short is is improving, that will improve the margins for the medical device companies. At the same time, hospitals doing more procedures means there will be more demand for all the products they sell ranging from heart valves to defibrillators and the rest of it.
So that will be the one group I would say do better next year.
>> What about the dreaded our word, recession?
you can have a chat with someone in the final months of last year without talking about the possibility.
If that comes to pass, which is a means the healthcare sector?
>> In terms of recession, the healthcare sector is fairly immune.
If you look at the healthcare sector in the US, half of that spending is driven by government programs like Medicare and Medicaid.
So whether the economy is doing well or the economy is doing poorly, that demand is going to be there, year in, year out.
Historically, in a recession, healthcare tends to also post negative returns along with the market but generally, returns it to outperform the market and healthcare valuation multiples would uphold them with the rest the market but at least that strong base of earnings growth driven by tailwinds like demographics and innovation allows the sector to do better than the market.
>> You mentioned COVID briefly off the top and how there is less demand for COVID products last year.
What's the situation with COVID right now?
It doesn't appear has gone away but what does it mean for the healthcare sector in the stocks?
>> If you look at the fall, we got this triple whammy of COVID, flu, RSV and we saw a wave. Looking to next year, I know people are talking about different variants at the moment and what potential headwinds those can cause, but in my view, really ever since last summer, we have transition from a pandemic stage for COVID to really and endemic stage.
So COVID is here with us, it is here to stay.
On a go forward basis, really the goal for vaccination and for antivirals is to protect those who are at highest risk. Even in Canada, every month, we have 100 or 200 Canadians who past due to COVID every month, so it's a real threat. But on a go forward basis, I don't like to see the big large waves caused by COVID as we've seen in the past.
>> You mentioned that outperformance the healthcare sector had against the S&P 500, the broader read of the American market. The number I believe it was 16%, no performance of 16% last year, the widest margin in several years.
What do we expect this year?
Is it still attractive at these levels?
>> It depends on your macro view.
If you are of the view that we enter into a recession, healthcare can continue to outperform going forward in the year.
If you are of the belief that we are in a soft landing and later in the year we start to see cyclical's and other areas of the market performed really well, healthcare probably would be left behind in the dust for the year.
That said, over a multiyear period, my view on the sector hasn't changed.
It's really the same to tailwinds that keep driving growth in the sector and that's demographics and continued innovation that drives growth and penetration of the products and services. Over a multiyear period, they should continue to drive healthcare performance but in the short term and whether healthcare outperforms or underperforms reflects what the broader market is doing.
In a bull market, healthcare tends to outperform a little bit less or performs a little bit and in bear markets, you get these bigger performances.
>> Exciting stuff in a great start to the show. We are going to get to your questions about the healthcare sector for Tarik Aeta in a moment time.
A reminder that you get in touch with us at any time.
Email moneytalklive@td.com or Philip the viewer response box under the video player here on WebBroker.
Right 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.
Shares of Canaccord Genuity are in the spotlight today, that on news that the firm's management group is looking to take the company private.
In a release, the group notes its bit of $11.25 per share also has the support of Canaccord's biggest outside shareholder.
Canaccord stock had lost almost half of its value compared to its November 2021 peak.
Lululemon warning investors that its profit margins were likely squeezed during the all-important holiday shopping season.
The athletic wear retailer says that expects gross margins for its most recent quarter to decline of 210 basis points.
While Lululemon did not give a specific reason for the expected decline, the retail sector has been dealing with higher costs and increased inventories.
The price of oil is getting a boost to start the trading week. That as investors weigh China's reopening of its bordersAnd, of course, what they could mean for global oil demand.
Apart from the China situation, the US dollar is weaker against a basket of global currencies, multi-month lows therefore the greenback, which is often supportive of commodities that are priced in US dollars.
A quick check in on the market, we will check in on the benchmark indices, starting here at home with the TSX Composite Index.
Pretty decent game to start the week of 161 points, and south of the border,the S&P 500 try to build on Fridays rally, up 1.2%.
We are back to your questions for Tarik Aeta about the healthcare sector.
With vaccine demand declining, how does that impact the outlook for vaccine makers like Pfizer and Moderna?
>> Yeah, so last year, Pfizer has been a very polarizing stock. They had been a cobeneficiary not once but twice, once with vaccines and the second time with their antiviral.
Going forward, a lot of the bears are saying that all of this vaccine demand is going to go away. I'm not of that belief. They're still going to be demand for vaccines amongst high-risk individuals, so if you look at the developed world, you assume similar penetration rate as flu shots, you assume $60 pricing per shot, Pfizer is talking about $100 US, that could be $20 billion vaccine market. So consensus estimates at the moment for vaccines in 2023 appear little bit high, but if you look at estimates and 24, 25, they seem a little bit more reasonable.
So those vaccine sales will continue to decline but there is going to be a decent residual base business there in the years ahead.
The other argument for investors is for them to understand what is Pfizer going to do with all the cash they generated? Are they going to be able to successfully reinvested back into the business? So far, they've been very conservative.
They been doing small tokens, reinvesting in pipeline initiatives, including an MNR a vaccine and various products they are working on.
I think they might be a ultimately successful in these pipeline initiatives and that will take time to pay up.
In the interim, the stock might be a bit lower try to work through some of the COVID headwinds.
>> Moderna was a vaccine player as well, always in the headlines. Last time you were on the show, we were talking about Moderna not in the COVID sense but there experiments with cancer vaccines.
What's happening in that space?
>> As you can imagine, Pfizer and Moderna are trying to capitalize on the success of mNRA and see if they can apply it elsewhere.
they will both face trials in the fall.
We should get data for that later in the spring. But the next thing that I'm really excited about is to hear more about their personalized cancer vaccine initiative at Moderna.
We did get the first inkling of data in December.
It was in melanoma, so skin cancer, it basically showed that by giving this personalized cancer vaccine, which are designed to target the unique protein markers on and individuals proteins cell, it reduced recurrence by 44%. We got that in December.
they were expanding trials across a variety of types of cancer.
it'll be interesting to see.
>> Forget off these names in the context of COVID, someone listening to our conversation just sent us question right now saying, if you did see a flareup in COVID globally, with this benefit some of these names?
>> Yeah, so if you did see a flareup in COVID, and especially if you got a flareup that was, a variant that was different enough that required a new vaccine and catalyze demand for an additional vaccine, though definitely benefit the Pfizer's and Moderna's of this world.
So definitely they are a hedge to potential COVID flareups.
>> Look at to another question now.
You are saying that they read that the FDA may soon approve Biogen's Alzheimer's drug. What's your view on this one?
>> Yeah, as life expectancies have gone longer, decade after decade, dementia is something that increasingly society has to deal with.
If you look at the stats, adults over 80, 30% of which are impacted by dementia and 20% of them eventually will get Alzheimer's.
So it is a big societal burden.
The FDA just approved Friday after the close bio Jens new Alzheimer's drug. It is a big deal because the drug slows down the progression of Alzheimer's by 27%, they measured this doing memory tests and various tests to see how well the drug works.
I guess the big question at this point is whether governments will reimburse it. The drug is not cheap, it's US$26,000 per year, and when you look at it from the perspective of a single-payer system like Canada, it's not only the cost of the drug, but if people are living longer, you could be spending more on a healthcare facility, more personal support workers.
There are a lot of extra costs. I do think ultimately though we will get more broader adoption globally. Just a matter of having a longer-term clinical data that shows that the drug does work not just over an 18 month. But over a multiyear period, that it gives a noticeable benefit, and as well, Eli Lilly is set to also post data this upcoming summer on their Alzheimer's drug so if they get good dated their combined with good data coming out of Biogen last year, that will catalyze more interest on the drug class amongst healthcare professionals and could help accelerate interest in the face.
>> Is that one of the risks here? If someone is trying to pick the name that is going to ultimately have the most effective drug, win the race, is at risk for investors trying to figure out who is going to advance and who will be left behind?
>> Yes. Alzheimer's was a race between Roche, Biogen and Eli Lilly.
Biogen had really good data.
27% reduction in pace of production. Roche was a loser so far last year. They only showed a 7% reduction in the pace of decline.
Now the question is how well does Eli Lilly perform in their clinical trials? We will get thatthis summer.
If they perform really well, they could take more market share from Biogen. If the results are as good, maybe Biogen takes more that market share.
There's definitely risk there.
Even if you have a really good drug, if someone comes up with a better drug, you might not sell as much of your drug as you had hoped.
> Got another question.
This was all we talked about in previous years when it came to healthcare companies.
The obesity question.
Do you still see opportunity for companies developing obesity drugs? How is the ruler progressing?
>> Yeah, in the last four months since we spoke, the obesity class has continued to grow. The drugs are called GLP-1's and basically what they do is they make you feel full, they make you eat less, and they allow an individual to lose weight on it. Initially, those drugs were developed for diabetes.
They notice people lost weight on it and they said well let's roll it out in the obesity setting as well.
The drug from… 17% weight loss.
The drug from Eli Lilly drives 21% weight loss, and then nova's next-generation drug is expected to drive 25% weight loss. These are really big weight loss numbers that are starting to approach bariatric surgery kind of levels.
So yeah, we are seeing a lot of demand.
Actually, the drugs are selling out and Nuova last year couldn't keep up with demand. At the end of December, they did announce that they are finally able to fully meet the US demand.. On top of the US sales, they are going to start rolling it out internationally.
Health Canada approved it in November, fairly recently.
So yeah, there's a big opportunity in the obesity class. We are still in the early stage.
A little bit like Alzheimer's, the big holdback here is reimbursement.
The drugs cost $10,000 US per year, so it's not a cheap drug, and keep the weight loss off, you have to stay on the drugs, so it's a big expense.
That said, historically, weight loss was considered more of an elective, optional thing for cosmetic purposes. But increasingly over the last decade, similar to mental health, people are accepting it more and more as a medical condition that should be treated and we are seeing its option grow.
we are seeing employers in the US willing to pay for it and we are seeing single-payer countries willing to pay for it as well.
Albeit they are starting with people who have really high BMIs to begin with but I think over time, if these drug pricing levels for these drugs can come down, we could see penetration increase to the broader subset of the violation.
>> Fascinating stuff. At home, as always, do your own research before making any investment decision. We'll get back to your questions were Tarik Aeta on the healthcare sector in a moment.
a reminder that you can get in touch with us at any time. Email moneytalklive@td.com.
Now, our educational segment.
If you are looking to research different fixed income options, WebBroker has tools to help you. Caitlin Cormier, client education Dr. TD Direct Investing, joins us now. Great to see you. Let's talk about the options investors have to diversify the bond parts of their portfolio.
>> absolutely. We have many options for diversification. It's a key part portfolio building.
It helps minimize risk overall, maximize return, minimize risk, that tends to be something that we want to think about as investors for sure.
When it comes to the fixed income portion of your portfolio, if you are actually going in and buyingindividual bonds within WebBroker, you can have a bit of a limited selection when we are talking about diversification.
So I just want to highlight that. I'm going to hop into WebBroker and show you where you can find what is available as far as individual bond investments. We are going to click on research, underinvestment, and we are going to go into fixed income. This is kind of our landing page for all of our fixed income products. We can see this is kind of a quick pick.
It shows here our agency bonds, corporate bonds, some of those short-term money market on the far right hand side, as well as we can see some different government bonds.
But as you can see here, they are all Canadian, you can see here Canadian bonds, provincial and municipal bonds. There are no US bonds. There are US corporate bonds in here as well but as far as diversification outside Canada, there isn't really a ton within individual bond election in a burger. You can do a more advanced search and there are US corporate bonds but not a lot as far as the US government side or kind of outside of that globally.
>> Okay, so investors then are looking at some ETFs or mutual funds that give them exposure. How can they do some research on that?
>> Exactly. So they want to put those types of products and their portfolio, which, again, a huge part of diversification is encompassing other countries, other different economies and being able to benefit from that as far as ups and downs in the market, then you are absolutely right.
They can look at something like an ETF or mutual fund.
The best way to find these type of projects is to go into our screener tool within WebBroker and we can actually take all of the different mutual funds and ETFs that are available on the market and kind of narrow them down based on specific criteria.
So under research, under tools, we are going to click on screeners.
And then again here, we are going to choose either mutual funds or ETFs. I'm going to click on ETFs for today. And again, we are going to click create custom screen here.
There are some future screens that are available that we can also use but today, let's just go into creating our own screen.
So again, just a reminder, the screener tool is a way to take all of those different ETFs and mutual funds that are available, but in exactly what you're looking for to narrow down the search and kind of find some different investments that you might want to research further.
For today, what I'm going to choose is fund category.
So we can see appear on the top right, it gives us an example, a way to identify ETFs according to investment goals and features. So I'm going to click to add criteria and I'm going to scroll down.
So I have actually picked a couple of options for us to put in here. So what I'm going to do, I'm going to look for some US government bonds and some global fixed income. To the things we noticed were maybe not as available obviously in the fixed income kind of individual investment side of things. So there are quite a few things to choose from. I'm not going to go slowly. I want to go ahead and choose these options here so we can move forward.
Let's choose global fixed income in Canada and then, as I said, we are going to choose intermediate government bonds. Just give me one set here to scroll down.
There we go.
Intermediate government bonds. So I can see here that I have 153 matches. Now this includes mutual funds and ETFs. Again, for today, I'm just going to on click and see only ETFs for the purpose of having fewer matches.
And them when I click the results, is going to bring me to this page here.
So this page is going to show me all of the ETFs that match the criteria that I put in. Now, 88 is a lots of chances are you're going to want to put some additional criteria in, so you can use things like management expense ratio, performance, distribution, all sorts of different things to narrow these results down and I would recommend you take a further look at the previous screen to make those options. But for today, we just want to see what the screen would look like. So we can see here, these are all the global fixed income options.
They are the ones that are showing up mostly first here.
I click on category, I can actually rearrange to see all of the intermediate government options here as well. So we can see there some US treasury and those sorts of things, so lots of different options available as far as diversifying outside of Canada goes within your fixed income portion. And again, this is just a jumping off point, it's a place to come find some different names, find some different things here. You can click through and see a lot of different information on these funds in terms of ratings, price information, MER, pay distributions.
A lot of information available here.
It just a jumping off point to find if you to peak your interest and then take your interest further than that on your own, so do your screen, add some extra criteria in there and then you have an option for a few different things to adhere potentially to your portfolio and see if they might make sense to diversify.
>> Great stuff as always, Caitlin.
Thanks that.
>> Oh, the one thing I always forget that usually remind me of is that you can always save your screen so you can come back and see it in the future.
>> I need that reminder because I was probably going to build some screens this afternoon. Thanks, Caitlin.
>> Okay, take care.
>> Caitlin Cormier, client education instructor at TD Direct Investing. Make sure to check out the Learning Center and WebBroker for more educational videos, live, interactive master classes and some upcoming openers.
Before we get back to your questions about the healthcare sector for Tarik Aeta, a reminder and how you get in touch with us.
Do you have a question aboutThe markets?
Argus are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker.
Just writing your question and hit send.
We will see if one of our guests can get you your answer right here at MoneyTalk Live.
We are back now in Tarik Aeta, we are taking your questions about the healthcare sector, we got lots here. Let's get back to them. What is the IPO and M&A outlook for the healthcare space?
>> So M&A is basically the lifeblood of the farm and biotech companies. On the one side of the spectrum, we have the 5000 small biotech companies with one idea, a few employees and limited cash to develop it. And then on the other end of the spectrum, we have these mega-cap Pharma companies that have all these drugs that are going to be expiring and.
.
.
we saw M&A activity slow down in 2020 and 2021.
A lot of that was because of really high valuation. A lot of these Pharma company said, forget, we are not going to buy anything out.
But yeah, as we look back at the last six, nine months, we seen a lot of these big Pharma companies come back to the M&A market and get more active in deals. So broader M&A was actually down last year for the broader equity market. We actually did see an increase in healthcare in terms of this number of deals as these Pharma companies have got more active and I think that trend will continue going into 2023 with key areas being oncology where there is a lot of growth .
>> Interesting stuff. Lots of questions.
Let's try to get through them. What's your view on the US health insurers, including UnitedHealth group? This is one of the winning camps of last year, wasn't it?
>> Yeah.
The health insurers, historically, have been filled with controversy but they've generated attractive returns for investors and that's because they benefit from sector demand growth of healthcare without having to take the risk of R&D or patents or all the other stuff.
In terms of names like United Health, over the long term, they're very attractive.
Given they have a big membership base of over 50 million members, gives a lot of bargaining power with hospitals and providers.
It gives them the means to reinvest back into the business, into new technology, sell services to their base.
Like I mentioned earlier, going 23, I think they will have a tougher time, just given that we are entering into this election cycle, generally, we see multiples under pressure for the health insurers during these periods. And also those people can access the healthcare system a bit more easily now post-COVID, claims are expected to increase. If you talked UnitedHealth and the other companies, they say that they've made reserves and price their policies for an uptick in claims going into 2023, but the risk is always claims come out higher-than-expected and pressure their earnings.
>> Interesting thoughts on that one.
Look at another question.
Someone wants to talk about biotech space and in particular Vertex Pharmaceuticals.
What's your take care?
>> Yeah, so biotech it is very diverse.
You can have companies that have good clinical results in 100% on the day, others that fail on trial and are down 50%.
I will say in general for an investor looking to approach the space, it's best to be in a diversified fund or ETF just given how much idiosyncrasy there can be, name to name.
That said, when I would do you look at Pharma and biotech names, it really is three key things that I look for in a high-quality name, and vertex does check most of those boxes.
When you look at Vertex, the first and you want to look for is a company that has commercial revenue stream currently, a long term stream associated with it. At Vertex's main drug is in cystic fibrosis extending all the way to 2037.
A long way to collect cash flows from that product.
Another one is multiple shots on goal in terms of pipeline. In Vertex's case, they have a couple of them.
David drug for single cell and beta thalassemia that is expected to get approved by the FDA this year.
They also are working on a non-opioid alternative pain relief medication.
That is going into phase 3 trials and we should get data for it this upcoming year.
Given how big the opioid epidemic is and how big of a need there is for alternatives, that could be a big product is successful.
And also, they are working for a cure for type I diabetes, so working on implantable cells. It's only phase I data, we only had dated for two patient so it's extremely early stage data, but the data so far is very promising.
So the pipeline there is very interesting at Vertex.
And lastly, inequality form and biotech name, your link for management team that has a track record of executing and in Vertex's case, it executed well on the existing's cystic fibrosis assets that they have as well as executing on the pipeline and discovering new areas of research and executing on those.
> That's the bouquets, so a name like Vertex is checking those boxes you look at and biotech. What's the big risk here? What is a big risk?
>> Yeah, the big risk here is on the clinical trial.
So a lot of their drugs, you could argue, having been… The drugs have more hair on it. The diabetes one is very early. It could fail in phase 2 or three. Given that it's so early-stage… On the non-opioid alternative they are working on, again, that's a phase 3 drug and it depends on how it shakes out. If the effectiveness is really close to opioid, maybe it's not going to be a big moneymaker given that maybe it won't sell as well.
That's a risk. Versus some other Pharma and biotech companies that might have later stage drugs that have passed phase 3 or have already been approved and is just a matter of commercializing it and getting the awareness out. That's the lower risk proposition where Vertex is a little bit earlier stage and the risks are bit bigger.
> Interesting stuff. Of course, at home, always do your own research before you make any investment decisions.
We are going to back your questions about the healthcare space for Tarik Aeta in just a moment time.
A reminder, of course, you can get in touch with us at any time.
Give a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com, or you can use the question box right below the screen here on WebBroker.
Just writing your question and hit send. We will see if one of our guest can get you the answer right here at MoneyTalk Live.
The Canadian labour market and 2022 on a strong note, the employment coming in much higher-than-expected.
Anthony Okolie has been digging and enjoins us out for more.
> Thank you. December job supporting Canada surprise sharply to the upside, continuing its upward trend.
Here in Canada, we added 104000 Jobs in December. That lifted the total employed to about 19,000, 19 million rather… Just under 20 million overall. Driving the majority of those gains, full-time positions. That accounted for about 81% of the total jobs added in December. Private jobs also surged during the month to about 112,000 as well.
Now this was the second over 100,000 new jobs added read in the last three months, again pointing to a lot of the strength left in the labour market.
TD Securities also noted that wage growth did pull back last month, while out of work remain sluggish in December. The next chart shows the unemployment rate slipped too. This was another drop. It left rates just above the record low of 4.
9% that we reached in June and July, as you can see in the chart.
That's also below the 5.7% be recorded back in February 2020, just before the unofficial start of the pandemic.
By sector, job growth rose in 10 of 16 sectors a month over month. It was led by construction, which was pretty much all the new jobs in the goods industries was came through the construction sector. Now, looking at the chart, on a year-over-year basis, 11/16 sectors saw gains, professional, scientific and tech services.
There is also more people working in accommodation and food as well as construction.
Bringing up the rear was wholesale and retail trade and manufacturing.
The big picture here is that TD Securities believes that all signs point to the Bank of Canada hiking interest rates and other 25 basis points on January 5, and this would bring the policy rate to 4.5%. TD Securities believes that the 4 1/2% will be the terminal rate and expect activity to cool down in the first quarter. If growth does proved more resilient, however, they expect another 25 Basis Points Hike in March, it's not out of the question.
The onus for Canada to cut rates until the first quarter of 2024. Again, that means rates will stay elevated throughout 2023. Greg?
>> Interesting read through there and what it means for the Bank of Canada, what it means for our borrowing costs. Of course, 2023 is still very young.
We are very early into the air.
When we entered into this year, there was all this fear about recession.
What's the read from TD Securities when it comes to GDP growth in the Canadian dollar?
>> As you mention, the labour market still remained strong. So TD Securities is forecasting a fourth-quarter growth print of above 1%. That's more than double the half percent growth that the Bank of Canada is expecting, but they do expect growth to slow in the first quarter of this year. As for the Canadian dollar, TD Securities is expecting the Canadian dollar to underperform in the first half of this year and they are looking for a markup of about $0.74 US which would act as a broad anchor for now, at least in the short term.
> Great stuff. Think that.
>> My pleasure.
>> MoneyTalk Anthony Okolie. A quick check in now on Bay Street, the main benchmark index, the TSX Composite Index. Some upward momentum, hundred and 37 points on the board, we are up almost 3/4 of percent.
We've got lots of questions for Tarik Aeta on global health care from TD Asset Management.
Next only got coming in, what would you say is the biggest risk to investing in the healthcare space?
>> Yeah, so if you look at healthcare and what the Achilles' heel would be, it would be the strong dependence the healthcare sector has on the US market.
So the US comprises a little bit under 5% of the world population, less than 25% of global GDP, but 40% of healthcare spending and 50% of global branded drug spending.
So yeah, the US government through programs like Medicare and Medicaid, which control half of healthcare spending in the US, does have a lot of sway on the sector.
So yeah, just following how these political developments and regulatory changes impact the sector in the US is very important.
>> Fascinating.
I hadn't thought about those numbers relative to the population. World's largest economy, but not the large population. Lots of questions here.
Let's get to them.
What's your view on companies like Thermo Fisher Scientific?
>> Yeah, so Thermo Fisher Scientific is the largest provider of life science tools in the world. They are headquartered right outside of Boston.
They basically make the picks and shovels to discover and manufacture drugs, everything from the Bunsen burner's and for pets in the lab that you used in high school all the way to electronic microscopes and everything in between.
And what makes the attractive is regardless of which company discovers the next big drug, we are talking earlier about Biogen, Roche and Eli Lilly, at the end of the day they are probably all buying Thermo Fisher equipment to make their drugs at the end of the day.
That's what makes Thermo Fisher attractive.
some of the other elements that make them attractive is that they are switching platforms. Think of it like Amazon.com but formedical companies. They should be products to more than 400,000 customers ranging from academia to formula and biotech companies. The one thing that's been weighing on Thermo Fisher the past year has been the fact that they were a big cobeneficiary with COVID testing. A lot of those sales have been rolling off in the past year. They've had some pretty tough quarters over the past year.
Looking forward, a lot of that COVID testing talent has come out of consensus numbers and the risk to numbers materially under shooting is low, but that said, with the upcoming quarter still will be tough.
They are a great business but you are probably going to have several more tough quarters ahead as they lose the COVID benefit.
>> Some risks on that one. We are coming close to the clock. Let's was in another question. What is Tarik's view on the medical device companies, and any specific thoughts on Medtronic and Stryker?
>> Yeah, so the medical device companies, like I mentioned earlier, they had a tough year last year given higher inflation, pressure on margins. At the same time, what they sell to hospitals is generally governed under multiyear contracts, so the pricing they receive is flat. At the same time, the costs are going up.
Accompanying like Medtronic is a lower quality name.
They've had trouble executing on the robotic surgery platform. They've had problems with their insulin pump business and issues with the FDA. It's on a name that I'm particularly interested in. Stryker, the other hand, they've executed much better. Their main business is implantable hips and knees and their secret sauce there is they have this thing called the… Surgical robot. So if you're a surgeon and you want to install hips and knees, there's a rebuff to help you do the surgery. There is a leader there and that's help them gain market share in that space over time.
In terms of the broader medical device space, I think 2023 will probably be a better year as those commodity headwinds, shipping cost headwinds, semiconductor shortages, all the small macro headwinds will reverse or stabilize and, at the same time, volumes at hospitals and hospital staffing will improve and it will improve the volumes that they sell. That should benefit the broader space.
That's one sector I would look at.
>> Great to have you here. Always a pleasure.
Looking forward to more in 2023.
>> Appreciated.
>> Is always at home, make your own research before making investment decisions. Our thanks to Tarik Aeta, global health care analyst at TD Asset Management, for being our guest today. Thanks to you, the audience, for joining us today, the first show 2023 with plenty more to come.
Stay tuned for tomorrow show. Michael O'Brien is going to join us, portfolio manager with TD Asset Management.
He will take your questions about Canadian stocks.
You don't have to wait until the show starts. Questions in.
Just email moneytalklive@td.
com. That's all the time we have today. Thanks for watching, and we'll see you tomorrow.
[music]
Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guys from across TD, many of whom you'll only see here. We are going to take you through with moving the markets answer your questions about investing.
Coming up on today show, healthcare stocks outperformed the S&P 500 in 2022, but will that a performance continue into this year? We are going to discuss that with Tarik Aeta from TD Asset Management.
In today's WebBroker education segment, TD Direct Investing's Caitlin Cormier will show us how you can research different fixed income options using the platform.
So here's how you get in touch with us, just email moneytalklive@td.com more fill out that viewer response box on the video player right here on WebBroker.
And before we get to our guest today, let's get you an update on the markets.
Our real attempt at their to build on Friday's rally.
Let's take a look at the TSX Composite Index, start here at home. Right now, you can see we are up a fairly decent 170 points, almost a full percent. We did see a nice boost for oil crude prices earlier this morning based on China's reopening.
Now crude is holding onto its gains, not as firm as they were earlier, but that had some money moving into energy name so let's take a look at Crescent Point Energy right now. It's up a solid 3%, at nine bucks and $0.25 per share. Checking in on Air Canada, making some gains as well, headlines over the holidays about fully booked heights but problems with the weather across the entire industry.
Air Canada up almost 2% at this hour at 20 bucks and $0.59 per share.
The S&P 500, the broader read of the American market building on the gains of Friday. It was a bit of a rough start to the trading year last week, but by Friday, there was some momentum to the upside. Holding onto it today, 3947 and 52 points, that's good for 1 1/3% gain.
Checking on the tech heavy NASDAQ, obviously a bit of risk appetite out there today. We are seeing some of those big mega cap names moving higher. It was a roughone for Amazon today.
That's your market update.
Healthcare stocks outperformed the S&P 500 last year, but will that outperformance continue to in 2023?
Joining us now to discuss his outlook for the sector, Tarik Aeta, global health care analyst with TD Asset Management.
Great to have you back on the program.
Let's start off by talking about that outperformance, let's look under the hood.
What were some of the winners of last year?
>> Yeah, there was quite a bit of divergence. The winners were the Pharma and biotech companies.
They were up in the low double digits,driven by a mid-single digit EPS growth but also valuation gains and really the strong pockets there were companies that had some sectors held behind them, so companies like Eli Lilly, operating in diabetes and obesity, names like Merck that are benefiting from growths of what's going to be the world's best-selling drug of this year, it's a cancer drug. Also beyond the Pharma and biotech companies, we saw a strong performance out of the health insurers, they grew earning 13% driven by continued growth of Medicare advantage, that's health insurance for those over 65, as well as growth in the services business, so you have companies like United Health. Going outside their traditional competency of insurance and growing their businesses over time as well.
In terms of the underperformers, those were largely medical device companies.
That was a mix of factors. On the volume side, we saw hospital staffing shortages that really way down on volumes. That hurt them. And the other thing also hurting them were margins. So you had a higher cost for shipping, for commodities, for labour.
That weighed on margin.
At the same time, they are stuck under multiyear contracts with hospitals, so they were pressured. Last but not least, life science companies were pressured.
Their earnings are expect it to be down 4% once we get the Q4 results. And there, their core based businesses are performing well but on the other side, they still headwinds from COVID testing volumes declining and in demand for vaccine testing equipment declined as well.
> That was the story 2022.
That was a nice nutshell for us. What about this year?
We are firmly down 2023. What's your outlook for the health sector? What are you taking a look at?
>> In terms of 2023, I don't think the healthcare sector will have the same level of outperformance that we saw in 2022. There's a couple of reasons for this.
First of all, earnings are expected to decline 3% this year driven by continued headwinds from vaccine demand continuing to demand, testing declining, and also as well, last year, we saw quite a bit of re-rating for healthcare. Healthcare went from trading very high and closing the year at trading to a premium.
That rereading versus the broader market is unlikely to happen again this year.
In terms of where the most attractive spots in healthcare, I look at it as a spectrum.
So in terms of the least attractive I was a are the health insurers.
They had a really good year in 2022, but looking to 2023, with hospital staffing shortages improving, we should see higher demand for elective surgery, higher volumes, that will drive higher claims and that will weigh on insurance profits.
Also at the same time we are entering into a presidential election cycle in the next two years in the US and that historically it weighs on valuation multiples with health insurers. We also have potential regularly risk for Medicaid and Medicare advantage so we have to watch that.
In the middle of the spectrum I would say the farm and biotech companies, ones that are more attractive here will be the ones that have sector growth tailwinds. The ones operating in oncology, cancer, the ones operating in diabetes, obesity, they have talent, and stay away from the ones that had a big COVID tale when the last couple of years.
And in terms of what can outperform this year, with commodity prices declining, shipping cost declining, trip short is is improving, that will improve the margins for the medical device companies. At the same time, hospitals doing more procedures means there will be more demand for all the products they sell ranging from heart valves to defibrillators and the rest of it.
So that will be the one group I would say do better next year.
>> What about the dreaded our word, recession?
you can have a chat with someone in the final months of last year without talking about the possibility.
If that comes to pass, which is a means the healthcare sector?
>> In terms of recession, the healthcare sector is fairly immune.
If you look at the healthcare sector in the US, half of that spending is driven by government programs like Medicare and Medicaid.
So whether the economy is doing well or the economy is doing poorly, that demand is going to be there, year in, year out.
Historically, in a recession, healthcare tends to also post negative returns along with the market but generally, returns it to outperform the market and healthcare valuation multiples would uphold them with the rest the market but at least that strong base of earnings growth driven by tailwinds like demographics and innovation allows the sector to do better than the market.
>> You mentioned COVID briefly off the top and how there is less demand for COVID products last year.
What's the situation with COVID right now?
It doesn't appear has gone away but what does it mean for the healthcare sector in the stocks?
>> If you look at the fall, we got this triple whammy of COVID, flu, RSV and we saw a wave. Looking to next year, I know people are talking about different variants at the moment and what potential headwinds those can cause, but in my view, really ever since last summer, we have transition from a pandemic stage for COVID to really and endemic stage.
So COVID is here with us, it is here to stay.
On a go forward basis, really the goal for vaccination and for antivirals is to protect those who are at highest risk. Even in Canada, every month, we have 100 or 200 Canadians who past due to COVID every month, so it's a real threat. But on a go forward basis, I don't like to see the big large waves caused by COVID as we've seen in the past.
>> You mentioned that outperformance the healthcare sector had against the S&P 500, the broader read of the American market. The number I believe it was 16%, no performance of 16% last year, the widest margin in several years.
What do we expect this year?
Is it still attractive at these levels?
>> It depends on your macro view.
If you are of the view that we enter into a recession, healthcare can continue to outperform going forward in the year.
If you are of the belief that we are in a soft landing and later in the year we start to see cyclical's and other areas of the market performed really well, healthcare probably would be left behind in the dust for the year.
That said, over a multiyear period, my view on the sector hasn't changed.
It's really the same to tailwinds that keep driving growth in the sector and that's demographics and continued innovation that drives growth and penetration of the products and services. Over a multiyear period, they should continue to drive healthcare performance but in the short term and whether healthcare outperforms or underperforms reflects what the broader market is doing.
In a bull market, healthcare tends to outperform a little bit less or performs a little bit and in bear markets, you get these bigger performances.
>> Exciting stuff in a great start to the show. We are going to get to your questions about the healthcare sector for Tarik Aeta in a moment time.
A reminder that you get in touch with us at any time.
Email moneytalklive@td.com or Philip the viewer response box under the video player here on WebBroker.
Right 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.
Shares of Canaccord Genuity are in the spotlight today, that on news that the firm's management group is looking to take the company private.
In a release, the group notes its bit of $11.25 per share also has the support of Canaccord's biggest outside shareholder.
Canaccord stock had lost almost half of its value compared to its November 2021 peak.
Lululemon warning investors that its profit margins were likely squeezed during the all-important holiday shopping season.
The athletic wear retailer says that expects gross margins for its most recent quarter to decline of 210 basis points.
While Lululemon did not give a specific reason for the expected decline, the retail sector has been dealing with higher costs and increased inventories.
The price of oil is getting a boost to start the trading week. That as investors weigh China's reopening of its bordersAnd, of course, what they could mean for global oil demand.
Apart from the China situation, the US dollar is weaker against a basket of global currencies, multi-month lows therefore the greenback, which is often supportive of commodities that are priced in US dollars.
A quick check in on the market, we will check in on the benchmark indices, starting here at home with the TSX Composite Index.
Pretty decent game to start the week of 161 points, and south of the border,the S&P 500 try to build on Fridays rally, up 1.2%.
We are back to your questions for Tarik Aeta about the healthcare sector.
With vaccine demand declining, how does that impact the outlook for vaccine makers like Pfizer and Moderna?
>> Yeah, so last year, Pfizer has been a very polarizing stock. They had been a cobeneficiary not once but twice, once with vaccines and the second time with their antiviral.
Going forward, a lot of the bears are saying that all of this vaccine demand is going to go away. I'm not of that belief. They're still going to be demand for vaccines amongst high-risk individuals, so if you look at the developed world, you assume similar penetration rate as flu shots, you assume $60 pricing per shot, Pfizer is talking about $100 US, that could be $20 billion vaccine market. So consensus estimates at the moment for vaccines in 2023 appear little bit high, but if you look at estimates and 24, 25, they seem a little bit more reasonable.
So those vaccine sales will continue to decline but there is going to be a decent residual base business there in the years ahead.
The other argument for investors is for them to understand what is Pfizer going to do with all the cash they generated? Are they going to be able to successfully reinvested back into the business? So far, they've been very conservative.
They been doing small tokens, reinvesting in pipeline initiatives, including an MNR a vaccine and various products they are working on.
I think they might be a ultimately successful in these pipeline initiatives and that will take time to pay up.
In the interim, the stock might be a bit lower try to work through some of the COVID headwinds.
>> Moderna was a vaccine player as well, always in the headlines. Last time you were on the show, we were talking about Moderna not in the COVID sense but there experiments with cancer vaccines.
What's happening in that space?
>> As you can imagine, Pfizer and Moderna are trying to capitalize on the success of mNRA and see if they can apply it elsewhere.
they will both face trials in the fall.
We should get data for that later in the spring. But the next thing that I'm really excited about is to hear more about their personalized cancer vaccine initiative at Moderna.
We did get the first inkling of data in December.
It was in melanoma, so skin cancer, it basically showed that by giving this personalized cancer vaccine, which are designed to target the unique protein markers on and individuals proteins cell, it reduced recurrence by 44%. We got that in December.
they were expanding trials across a variety of types of cancer.
it'll be interesting to see.
>> Forget off these names in the context of COVID, someone listening to our conversation just sent us question right now saying, if you did see a flareup in COVID globally, with this benefit some of these names?
>> Yeah, so if you did see a flareup in COVID, and especially if you got a flareup that was, a variant that was different enough that required a new vaccine and catalyze demand for an additional vaccine, though definitely benefit the Pfizer's and Moderna's of this world.
So definitely they are a hedge to potential COVID flareups.
>> Look at to another question now.
You are saying that they read that the FDA may soon approve Biogen's Alzheimer's drug. What's your view on this one?
>> Yeah, as life expectancies have gone longer, decade after decade, dementia is something that increasingly society has to deal with.
If you look at the stats, adults over 80, 30% of which are impacted by dementia and 20% of them eventually will get Alzheimer's.
So it is a big societal burden.
The FDA just approved Friday after the close bio Jens new Alzheimer's drug. It is a big deal because the drug slows down the progression of Alzheimer's by 27%, they measured this doing memory tests and various tests to see how well the drug works.
I guess the big question at this point is whether governments will reimburse it. The drug is not cheap, it's US$26,000 per year, and when you look at it from the perspective of a single-payer system like Canada, it's not only the cost of the drug, but if people are living longer, you could be spending more on a healthcare facility, more personal support workers.
There are a lot of extra costs. I do think ultimately though we will get more broader adoption globally. Just a matter of having a longer-term clinical data that shows that the drug does work not just over an 18 month. But over a multiyear period, that it gives a noticeable benefit, and as well, Eli Lilly is set to also post data this upcoming summer on their Alzheimer's drug so if they get good dated their combined with good data coming out of Biogen last year, that will catalyze more interest on the drug class amongst healthcare professionals and could help accelerate interest in the face.
>> Is that one of the risks here? If someone is trying to pick the name that is going to ultimately have the most effective drug, win the race, is at risk for investors trying to figure out who is going to advance and who will be left behind?
>> Yes. Alzheimer's was a race between Roche, Biogen and Eli Lilly.
Biogen had really good data.
27% reduction in pace of production. Roche was a loser so far last year. They only showed a 7% reduction in the pace of decline.
Now the question is how well does Eli Lilly perform in their clinical trials? We will get thatthis summer.
If they perform really well, they could take more market share from Biogen. If the results are as good, maybe Biogen takes more that market share.
There's definitely risk there.
Even if you have a really good drug, if someone comes up with a better drug, you might not sell as much of your drug as you had hoped.
> Got another question.
This was all we talked about in previous years when it came to healthcare companies.
The obesity question.
Do you still see opportunity for companies developing obesity drugs? How is the ruler progressing?
>> Yeah, in the last four months since we spoke, the obesity class has continued to grow. The drugs are called GLP-1's and basically what they do is they make you feel full, they make you eat less, and they allow an individual to lose weight on it. Initially, those drugs were developed for diabetes.
They notice people lost weight on it and they said well let's roll it out in the obesity setting as well.
The drug from… 17% weight loss.
The drug from Eli Lilly drives 21% weight loss, and then nova's next-generation drug is expected to drive 25% weight loss. These are really big weight loss numbers that are starting to approach bariatric surgery kind of levels.
So yeah, we are seeing a lot of demand.
Actually, the drugs are selling out and Nuova last year couldn't keep up with demand. At the end of December, they did announce that they are finally able to fully meet the US demand.. On top of the US sales, they are going to start rolling it out internationally.
Health Canada approved it in November, fairly recently.
So yeah, there's a big opportunity in the obesity class. We are still in the early stage.
A little bit like Alzheimer's, the big holdback here is reimbursement.
The drugs cost $10,000 US per year, so it's not a cheap drug, and keep the weight loss off, you have to stay on the drugs, so it's a big expense.
That said, historically, weight loss was considered more of an elective, optional thing for cosmetic purposes. But increasingly over the last decade, similar to mental health, people are accepting it more and more as a medical condition that should be treated and we are seeing its option grow.
we are seeing employers in the US willing to pay for it and we are seeing single-payer countries willing to pay for it as well.
Albeit they are starting with people who have really high BMIs to begin with but I think over time, if these drug pricing levels for these drugs can come down, we could see penetration increase to the broader subset of the violation.
>> Fascinating stuff. At home, as always, do your own research before making any investment decision. We'll get back to your questions were Tarik Aeta on the healthcare sector in a moment.
a reminder that you can get in touch with us at any time. Email moneytalklive@td.com.
Now, our educational segment.
If you are looking to research different fixed income options, WebBroker has tools to help you. Caitlin Cormier, client education Dr. TD Direct Investing, joins us now. Great to see you. Let's talk about the options investors have to diversify the bond parts of their portfolio.
>> absolutely. We have many options for diversification. It's a key part portfolio building.
It helps minimize risk overall, maximize return, minimize risk, that tends to be something that we want to think about as investors for sure.
When it comes to the fixed income portion of your portfolio, if you are actually going in and buyingindividual bonds within WebBroker, you can have a bit of a limited selection when we are talking about diversification.
So I just want to highlight that. I'm going to hop into WebBroker and show you where you can find what is available as far as individual bond investments. We are going to click on research, underinvestment, and we are going to go into fixed income. This is kind of our landing page for all of our fixed income products. We can see this is kind of a quick pick.
It shows here our agency bonds, corporate bonds, some of those short-term money market on the far right hand side, as well as we can see some different government bonds.
But as you can see here, they are all Canadian, you can see here Canadian bonds, provincial and municipal bonds. There are no US bonds. There are US corporate bonds in here as well but as far as diversification outside Canada, there isn't really a ton within individual bond election in a burger. You can do a more advanced search and there are US corporate bonds but not a lot as far as the US government side or kind of outside of that globally.
>> Okay, so investors then are looking at some ETFs or mutual funds that give them exposure. How can they do some research on that?
>> Exactly. So they want to put those types of products and their portfolio, which, again, a huge part of diversification is encompassing other countries, other different economies and being able to benefit from that as far as ups and downs in the market, then you are absolutely right.
They can look at something like an ETF or mutual fund.
The best way to find these type of projects is to go into our screener tool within WebBroker and we can actually take all of the different mutual funds and ETFs that are available on the market and kind of narrow them down based on specific criteria.
So under research, under tools, we are going to click on screeners.
And then again here, we are going to choose either mutual funds or ETFs. I'm going to click on ETFs for today. And again, we are going to click create custom screen here.
There are some future screens that are available that we can also use but today, let's just go into creating our own screen.
So again, just a reminder, the screener tool is a way to take all of those different ETFs and mutual funds that are available, but in exactly what you're looking for to narrow down the search and kind of find some different investments that you might want to research further.
For today, what I'm going to choose is fund category.
So we can see appear on the top right, it gives us an example, a way to identify ETFs according to investment goals and features. So I'm going to click to add criteria and I'm going to scroll down.
So I have actually picked a couple of options for us to put in here. So what I'm going to do, I'm going to look for some US government bonds and some global fixed income. To the things we noticed were maybe not as available obviously in the fixed income kind of individual investment side of things. So there are quite a few things to choose from. I'm not going to go slowly. I want to go ahead and choose these options here so we can move forward.
Let's choose global fixed income in Canada and then, as I said, we are going to choose intermediate government bonds. Just give me one set here to scroll down.
There we go.
Intermediate government bonds. So I can see here that I have 153 matches. Now this includes mutual funds and ETFs. Again, for today, I'm just going to on click and see only ETFs for the purpose of having fewer matches.
And them when I click the results, is going to bring me to this page here.
So this page is going to show me all of the ETFs that match the criteria that I put in. Now, 88 is a lots of chances are you're going to want to put some additional criteria in, so you can use things like management expense ratio, performance, distribution, all sorts of different things to narrow these results down and I would recommend you take a further look at the previous screen to make those options. But for today, we just want to see what the screen would look like. So we can see here, these are all the global fixed income options.
They are the ones that are showing up mostly first here.
I click on category, I can actually rearrange to see all of the intermediate government options here as well. So we can see there some US treasury and those sorts of things, so lots of different options available as far as diversifying outside of Canada goes within your fixed income portion. And again, this is just a jumping off point, it's a place to come find some different names, find some different things here. You can click through and see a lot of different information on these funds in terms of ratings, price information, MER, pay distributions.
A lot of information available here.
It just a jumping off point to find if you to peak your interest and then take your interest further than that on your own, so do your screen, add some extra criteria in there and then you have an option for a few different things to adhere potentially to your portfolio and see if they might make sense to diversify.
>> Great stuff as always, Caitlin.
Thanks that.
>> Oh, the one thing I always forget that usually remind me of is that you can always save your screen so you can come back and see it in the future.
>> I need that reminder because I was probably going to build some screens this afternoon. Thanks, Caitlin.
>> Okay, take care.
>> Caitlin Cormier, client education instructor at TD Direct Investing. Make sure to check out the Learning Center and WebBroker for more educational videos, live, interactive master classes and some upcoming openers.
Before we get back to your questions about the healthcare sector for Tarik Aeta, a reminder and how you get in touch with us.
Do you have a question aboutThe markets?
Argus 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.
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Just writing your question and hit send.
We will see if one of our guests can get you your answer right here at MoneyTalk Live.
We are back now in Tarik Aeta, we are taking your questions about the healthcare sector, we got lots here. Let's get back to them. What is the IPO and M&A outlook for the healthcare space?
>> So M&A is basically the lifeblood of the farm and biotech companies. On the one side of the spectrum, we have the 5000 small biotech companies with one idea, a few employees and limited cash to develop it. And then on the other end of the spectrum, we have these mega-cap Pharma companies that have all these drugs that are going to be expiring and.
.
.
we saw M&A activity slow down in 2020 and 2021.
A lot of that was because of really high valuation. A lot of these Pharma company said, forget, we are not going to buy anything out.
But yeah, as we look back at the last six, nine months, we seen a lot of these big Pharma companies come back to the M&A market and get more active in deals. So broader M&A was actually down last year for the broader equity market. We actually did see an increase in healthcare in terms of this number of deals as these Pharma companies have got more active and I think that trend will continue going into 2023 with key areas being oncology where there is a lot of growth .
>> Interesting stuff. Lots of questions.
Let's try to get through them. What's your view on the US health insurers, including UnitedHealth group? This is one of the winning camps of last year, wasn't it?
>> Yeah.
The health insurers, historically, have been filled with controversy but they've generated attractive returns for investors and that's because they benefit from sector demand growth of healthcare without having to take the risk of R&D or patents or all the other stuff.
In terms of names like United Health, over the long term, they're very attractive.
Given they have a big membership base of over 50 million members, gives a lot of bargaining power with hospitals and providers.
It gives them the means to reinvest back into the business, into new technology, sell services to their base.
Like I mentioned earlier, going 23, I think they will have a tougher time, just given that we are entering into this election cycle, generally, we see multiples under pressure for the health insurers during these periods. And also those people can access the healthcare system a bit more easily now post-COVID, claims are expected to increase. If you talked UnitedHealth and the other companies, they say that they've made reserves and price their policies for an uptick in claims going into 2023, but the risk is always claims come out higher-than-expected and pressure their earnings.
>> Interesting thoughts on that one.
Look at another question.
Someone wants to talk about biotech space and in particular Vertex Pharmaceuticals.
What's your take care?
>> Yeah, so biotech it is very diverse.
You can have companies that have good clinical results in 100% on the day, others that fail on trial and are down 50%.
I will say in general for an investor looking to approach the space, it's best to be in a diversified fund or ETF just given how much idiosyncrasy there can be, name to name.
That said, when I would do you look at Pharma and biotech names, it really is three key things that I look for in a high-quality name, and vertex does check most of those boxes.
When you look at Vertex, the first and you want to look for is a company that has commercial revenue stream currently, a long term stream associated with it. At Vertex's main drug is in cystic fibrosis extending all the way to 2037.
A long way to collect cash flows from that product.
Another one is multiple shots on goal in terms of pipeline. In Vertex's case, they have a couple of them.
David drug for single cell and beta thalassemia that is expected to get approved by the FDA this year.
They also are working on a non-opioid alternative pain relief medication.
That is going into phase 3 trials and we should get data for it this upcoming year.
Given how big the opioid epidemic is and how big of a need there is for alternatives, that could be a big product is successful.
And also, they are working for a cure for type I diabetes, so working on implantable cells. It's only phase I data, we only had dated for two patient so it's extremely early stage data, but the data so far is very promising.
So the pipeline there is very interesting at Vertex.
And lastly, inequality form and biotech name, your link for management team that has a track record of executing and in Vertex's case, it executed well on the existing's cystic fibrosis assets that they have as well as executing on the pipeline and discovering new areas of research and executing on those.
> That's the bouquets, so a name like Vertex is checking those boxes you look at and biotech. What's the big risk here? What is a big risk?
>> Yeah, the big risk here is on the clinical trial.
So a lot of their drugs, you could argue, having been… The drugs have more hair on it. The diabetes one is very early. It could fail in phase 2 or three. Given that it's so early-stage… On the non-opioid alternative they are working on, again, that's a phase 3 drug and it depends on how it shakes out. If the effectiveness is really close to opioid, maybe it's not going to be a big moneymaker given that maybe it won't sell as well.
That's a risk. Versus some other Pharma and biotech companies that might have later stage drugs that have passed phase 3 or have already been approved and is just a matter of commercializing it and getting the awareness out. That's the lower risk proposition where Vertex is a little bit earlier stage and the risks are bit bigger.
> Interesting stuff. Of course, at home, always do your own research before you make any investment decisions.
We are going to back your questions about the healthcare space for Tarik Aeta in just a moment time.
A reminder, of course, you can get in touch with us at any time.
Give 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.
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Just writing your question and hit send. We will see if one of our guest can get you the answer right here at MoneyTalk Live.
The Canadian labour market and 2022 on a strong note, the employment coming in much higher-than-expected.
Anthony Okolie has been digging and enjoins us out for more.
> Thank you. December job supporting Canada surprise sharply to the upside, continuing its upward trend.
Here in Canada, we added 104000 Jobs in December. That lifted the total employed to about 19,000, 19 million rather… Just under 20 million overall. Driving the majority of those gains, full-time positions. That accounted for about 81% of the total jobs added in December. Private jobs also surged during the month to about 112,000 as well.
Now this was the second over 100,000 new jobs added read in the last three months, again pointing to a lot of the strength left in the labour market.
TD Securities also noted that wage growth did pull back last month, while out of work remain sluggish in December. The next chart shows the unemployment rate slipped too. This was another drop. It left rates just above the record low of 4.
9% that we reached in June and July, as you can see in the chart.
That's also below the 5.7% be recorded back in February 2020, just before the unofficial start of the pandemic.
By sector, job growth rose in 10 of 16 sectors a month over month. It was led by construction, which was pretty much all the new jobs in the goods industries was came through the construction sector. Now, looking at the chart, on a year-over-year basis, 11/16 sectors saw gains, professional, scientific and tech services.
There is also more people working in accommodation and food as well as construction.
Bringing up the rear was wholesale and retail trade and manufacturing.
The big picture here is that TD Securities believes that all signs point to the Bank of Canada hiking interest rates and other 25 basis points on January 5, and this would bring the policy rate to 4.5%. TD Securities believes that the 4 1/2% will be the terminal rate and expect activity to cool down in the first quarter. If growth does proved more resilient, however, they expect another 25 Basis Points Hike in March, it's not out of the question.
The onus for Canada to cut rates until the first quarter of 2024. Again, that means rates will stay elevated throughout 2023. Greg?
>> Interesting read through there and what it means for the Bank of Canada, what it means for our borrowing costs. Of course, 2023 is still very young.
We are very early into the air.
When we entered into this year, there was all this fear about recession.
What's the read from TD Securities when it comes to GDP growth in the Canadian dollar?
>> As you mention, the labour market still remained strong. So TD Securities is forecasting a fourth-quarter growth print of above 1%. That's more than double the half percent growth that the Bank of Canada is expecting, but they do expect growth to slow in the first quarter of this year. As for the Canadian dollar, TD Securities is expecting the Canadian dollar to underperform in the first half of this year and they are looking for a markup of about $0.74 US which would act as a broad anchor for now, at least in the short term.
> Great stuff. Think that.
>> My pleasure.
>> MoneyTalk Anthony Okolie. A quick check in now on Bay Street, the main benchmark index, the TSX Composite Index. Some upward momentum, hundred and 37 points on the board, we are up almost 3/4 of percent.
We've got lots of questions for Tarik Aeta on global health care from TD Asset Management.
Next only got coming in, what would you say is the biggest risk to investing in the healthcare space?
>> Yeah, so if you look at healthcare and what the Achilles' heel would be, it would be the strong dependence the healthcare sector has on the US market.
So the US comprises a little bit under 5% of the world population, less than 25% of global GDP, but 40% of healthcare spending and 50% of global branded drug spending.
So yeah, the US government through programs like Medicare and Medicaid, which control half of healthcare spending in the US, does have a lot of sway on the sector.
So yeah, just following how these political developments and regulatory changes impact the sector in the US is very important.
>> Fascinating.
I hadn't thought about those numbers relative to the population. World's largest economy, but not the large population. Lots of questions here.
Let's get to them.
What's your view on companies like Thermo Fisher Scientific?
>> Yeah, so Thermo Fisher Scientific is the largest provider of life science tools in the world. They are headquartered right outside of Boston.
They basically make the picks and shovels to discover and manufacture drugs, everything from the Bunsen burner's and for pets in the lab that you used in high school all the way to electronic microscopes and everything in between.
And what makes the attractive is regardless of which company discovers the next big drug, we are talking earlier about Biogen, Roche and Eli Lilly, at the end of the day they are probably all buying Thermo Fisher equipment to make their drugs at the end of the day.
That's what makes Thermo Fisher attractive.
some of the other elements that make them attractive is that they are switching platforms. Think of it like Amazon.com but formedical companies. They should be products to more than 400,000 customers ranging from academia to formula and biotech companies. The one thing that's been weighing on Thermo Fisher the past year has been the fact that they were a big cobeneficiary with COVID testing. A lot of those sales have been rolling off in the past year. They've had some pretty tough quarters over the past year.
Looking forward, a lot of that COVID testing talent has come out of consensus numbers and the risk to numbers materially under shooting is low, but that said, with the upcoming quarter still will be tough.
They are a great business but you are probably going to have several more tough quarters ahead as they lose the COVID benefit.
>> Some risks on that one. We are coming close to the clock. Let's was in another question. What is Tarik's view on the medical device companies, and any specific thoughts on Medtronic and Stryker?
>> Yeah, so the medical device companies, like I mentioned earlier, they had a tough year last year given higher inflation, pressure on margins. At the same time, what they sell to hospitals is generally governed under multiyear contracts, so the pricing they receive is flat. At the same time, the costs are going up.
Accompanying like Medtronic is a lower quality name.
They've had trouble executing on the robotic surgery platform. They've had problems with their insulin pump business and issues with the FDA. It's on a name that I'm particularly interested in. Stryker, the other hand, they've executed much better. Their main business is implantable hips and knees and their secret sauce there is they have this thing called the… Surgical robot. So if you're a surgeon and you want to install hips and knees, there's a rebuff to help you do the surgery. There is a leader there and that's help them gain market share in that space over time.
In terms of the broader medical device space, I think 2023 will probably be a better year as those commodity headwinds, shipping cost headwinds, semiconductor shortages, all the small macro headwinds will reverse or stabilize and, at the same time, volumes at hospitals and hospital staffing will improve and it will improve the volumes that they sell. That should benefit the broader space.
That's one sector I would look at.
>> Great to have you here. Always a pleasure.
Looking forward to more in 2023.
>> Appreciated.
>> Is always at home, make your own research before making investment decisions. Our thanks to Tarik Aeta, global health care analyst at TD Asset Management, for being our guest today. Thanks to you, the audience, for joining us today, the first show 2023 with plenty more to come.
Stay tuned for tomorrow show. Michael O'Brien is going to join us, portfolio manager with TD Asset Management.
He will take your questions about Canadian stocks.
You don't have to wait until the show starts. Questions in.
Just email moneytalklive@td.
com. That's all the time we have today. Thanks for watching, and we'll see you tomorrow.
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