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[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss why the TSX has underperformed the S&P 500 and whether that is set to change with TD Asset Management Michael O'Brien.
MoneyTalk's Anthony Okolie is going to have a look at what the slow down in EV sales has meant for the auto parts companies, and in today's WebBroker education segment, Caitlin Cormier will show us how you can sift through all the different stocks out there with the platform's screening tools.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets. We will start here at home with the TSX Composite Index.
We got about 94, we will round up to 95 points on the screen, good for almost half a percent. We see a firming and the price of crude today. Among some of the notable movers before we get to oil and gas names is blackberry.
There was a beat on the sales line, strong demand for cybersecurity offerings behind all that. It blackberry at $3.45 per share, up more than 13%. With the firming of crude prices, watching the Middle East tensions, we are seeing energy names for points on the table. Baytex at $4.71, you are up 1.7%.
South of the border, the S&P 500 is we have been talking about making record runs through this year, today it's a little bit flat to the downside, about five points.
Nothing too dramatic. In the morning, we are going to get the PCI, that is the fed preferred gauge of inflation, perhaps caution ahead of them. The tech heavy NASDAQ, how is it trying against the broader market right now? Pretty much the same.
Down 26 points, a little more than 1/10 of a percent. And Levi, I will tell you more about this later in the show, not a great day for the name. The fashionistas tell us that denim is all the rage, but that has not been helping Levi Strauss. And that's your market update.
While US markets have been hitting new highs this year, the TSX compensates modest gains have look sleepy by comparison.
Joining us now to discuss all this is Michael O'Brien, managing Dir. and head of the core Canadian equity team with TD Asset Management. Great to have you back.
>> Great to be here.
>> We were talking ahead of the show and all you need to do is pull up a chart we look at the S&P 500 and the rally it is had and then you overlay the TSX Composite Index and I think the term you used to sleepy. What's going on?
>> Well, I think the first thing to say is the TSX isn't having a bad year, it's having an average year. We are at almost the halfway point. I guess tomorrow, total return, TSX is about 5%.
That's kind of a normal year. The problem is we are being compared to the super starting story, it's kind of like the high school quarterback, everybody looks at me and then everybody looks in the other field and it's Tom Brady throwing spirals.
It's hard to compete.
The question is almost not what's wrong with Canada, it's, holy smokes, everything seems to be going right in the states.
Even there, it's not a wide, broad market.
It's just a number of very impressive, very large companies have just captured people's imaginations. That's the first thing.
Canada actually isn't having a terrible year, we are having an average year, it's just the comparison is tough. In terms of why we are not doing better, that is a good question because we did get, the Bank of Canada is the first G-7 central bank to cut rates. One would of hope that that would have little bit of a fire under the stocks.
Looking at any conventional valuation markets, it's not an extensive market, dividend yields attractive, most more prominent sectors are trading at reasonable valuation's. One would hope there would be a fire lit under them.
The two things I would point to, one is simply the sentiment issue where I think the fascination around the Magnificent Seven, the NASDAQ, AI hype, it's just sucking all the oxygen out of the room.
It's not just Canada, a lot of the other markets too. It's hard to grab attention when everyone so captivated by this phenomenon.
The other part of it which falls more into the self-help part is the Canadian economy is in a soft patch here.
We shouldn't expect people to be really fired up about Canada if economic growth is subpar, if earnings growth isn't going to be terribly exciting in the short term and, let's be honest, the overall business climate, investors are not really wild by what they are hearing about Canada these days.
It's not the most investor fairly corner of the world at the moment. So I think all of those things are holding us back.
We can talk about why some or all of those things will change over time.
>> This would be the next step.
>> In the here and now, that's the issue.
The neighbour to the south is sucking all the oxygen out of the room.
>> We talk about being outperformed by the Americans, not having a terrible year, but overshadowed. What could lead us to perhaps even outperformance in the years ahead?
>> In the short term, valuations don't always, they are not always your best friend in terms of timing and when I should buy or sell a stock market.
Over the long term, valuation is almost all that matters and so from that perspective, what we've got going for us in Canada, it's the glass half full view of this, we have a market where expectations aren't over exuberant and so, over time, if the Canadian economy resumes its growth, if the population continues to grow, if the central bank can bring rates down over the next number of years, I think there are reasons for optimism.
But it's just in the here and now that we have to work through these things. The first step forward has been the central bank rate cut I think is very significant.
Was only 25 basis points.
>> We need to see more.
>> Going from 5% to 475, that's not going to change the investment decisions of a lot of businesses. That's not can make or break a lot of households when it comes to whether or not they can make the next mortgage payment.
What you need is follow-through. If we get another two, three, four rate cuts over the balance of the year into early 2025, that will go a long way towards at least putting a floor under the economy if not actually beginning the process of turning this around.
In hand with that, I think the single biggest stocks on the TSX, the Canadian banks, right now, we are in a period where bank earnings growth is subpar because, largely, we are going to a credit cycle where PCL's or provisions for credit losses have been steadily rising quarter after quarter after quarter. The underlying business is, there is some cause for optimism, you know, this last earnings season, the trends are improving, however, the loan losses are kind of overwhelming that at the top of the house.
We need to see that rule over which one would expect if the economy means to stabilize and improve.
And then beyond that, I think there are a number of pockets that we can get to where we think some self-help is needed, where they needed to do some internal repairs, but if they can do that, then there is a good case to be made that over the next three, five years, they will be performers.
>> You talked about the financial heavyweights on the TSX Composite Index but energy, materials rounding out the top three, we keep hearing about the world's going to need more uranium, more oil.
Canadians are asking, don't we have these things? Why aren't we benefiting?
>> Look, that is the one bright spot. Not the one bright spot, but the single biggest bright spot both of the Canadian economy and the Canadian market today is the resource economy is very healthy.
And pretty much pick your commodities, they are either solid or outright strong.
Oil is doing well, WTI producers are doing well, natural gas hasn't had great price action in the here and now but everybody could see with LNG Canada hopefully coming on by year end much better days ahead for natural gas there's a lot of optimism there, a lot of excitement around metals like copper and what rule they would play in electrification buildout of data centres, so there's a lot of positivity towards copper. Gold, it's hard to be negative on gold it has a good outlook.
You mentioned uranium, Canada is one of the very top uranium producers.
Those are all disproportionately out West two, citing this is a good time to be a Western Canadian when you're thinking about the resource-based economy.
That has been the least of our problems.
It's actually been a bright spot.
Looking at the energy and materials lose, they have been solid performers, generally speaking, your today.
>> Longer-term, how should we think about the Canadian market?
>> Longer-term, the Canadian market, look, at the end of the day, the stock market is largely a reflection of the economy and the operating environment for all of these companies. If one thinks as I do over time to Canada broadly speaking is going to make the right decisions. We don't have an expensive market. A lot of the traditional cyclical industries, they are either starting to come out or come around. I think if we can get a bit better tone around the business climate here and if we can sort of see some proof of concept that the rate cuts that have begun and hopefully will continue to come will lead to a re-acceleration of the economy sometime in 2025. I think the Canadian economy, the Canadian market as a whole looks very solid.
Particularly, when you think about some of the big sectors, they have been punching below their wait for some time, Canadian banks have not done much for investors over the last four or five years which is very unusual. I think that's a great example of once we turn the corner, if one has belief and faith that we are going to turn the corner, then we are all set.
>> We are going to get your questions about equities for Michael O'Brien in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
It appears to be a case of AI hype at meeting AI reality. Semiconductor firm Micron handed in topline sales that were in line with estimates, but the street doesn't appear to be too impressed by that. Micron down right now about 7%. Of course, the chipmaker had seen its stock more than double in the past year amid this boom in artificial intelligence demand and the promise of what is ahead.
Perhaps meeting expectations is not enough today for Micron. Alright, I promise you the story on Levi Strauss so here it is.
We know that Denham is back in favour among the fashionistas, but that doesn't appear to be helping Levi, though.
The retailer beat earnings expectations on the bottom line and raised its dividend, as is the problem? Topline sales coming in a bit later than expected amid this whole frenzy over Denham. The magazine say head to toe Denham as the seasons looked, but Levi says it's customers have been generally causes and aren't spending a lot on discretionary items.
Could we believe, fashion magazines or the people selling the Denham?
The street seems to be believing the people who sell the Denham, down 16.5%.
We've also got shares of Walgreens under significant pressure today. The pharmacy chain is cutting its full-year profit forecast after delivering disappointing portly results. Walgreens says consumers are struggling with the high cost of living and that's making for a challenging retail environment for them.
The street is not voting in confidence with this one. Walgreens is pulling back 25%, 1/4 of its value, in one session.
A quick check in on the market, we will start to run Bay Street with the TSX Composite Index. We are up about 95 points, a little shy of half a percent.
South of the border, as we await the PCE report tomorrow morning, the Fed's preferred gauge of inflation, a little bit of caution. You're down one point, basically flat to the downside, 36.
We are back with Michael O'Brien, take your questions about Canadian equities.
Let's get to the first one here. What is your outlook for BCE and the telcos?
Talking about underperformance.
>> It's been a challenging sector.
Obviously, a lot of people are hoping that rate cuts and lower interest rates will help this very rate sensitive sector start to recover.
I think that's part of the story.
Obviously, it's not sufficient. What's the term, necessary but not sufficient?
Clearly, 125 basis point cut is not going to turn around the dividend yield. But I think the bigger story for BCE and the rest of the big telcos is the competitive environment. Investors are, I don't know if you would say frustrated, concerned, pick your active, but the competitive intensity, both on the wireless and wireline sides of the businesses much more significant than most investors would've hoped a year ago. Obviously, the catalyst for this, Rogers acquiring Shaw Communications and then spinning off Shaw's freedom mobile business to Quebecor, it introduced a lot more competition, both in the traditional cable wireline side of the business and especially in the wireless side.
I think investors are frustrated with all these companies, you know, can you all learned to live with each other and pass our dividends? That hasn't happened yet.
Investors are sitting this out to see how long the Salinas Lass I guess would be… >> When this dynamic first hit, I thought, okay, this can be some price competition but is not going to last forever. But it lasted a little longer than perhaps a lot of people thought it would.
>> Yes, it is lasted longer than people thought it would. If you talk to the executives at these companies, they are all convinced that the current level of pricing is not sustainable and that it must change, and yet none of them seemed to be moving to do a thing about it in the short term.
So I think that's the single biggest thing that's pressuring these companies.
>> Interesting stuff on that front.
For turning things around, at some point, obviously they can collude to do this, but the pressures gets them and they move their prices higher, does the industry follow suit?
>> If more rational competition prevails, it's about who has the best customer service, the best network. There will be transition to that at some point.
The other part of this is Canada almost uniquely among the developed countries has a decent population tailwind behind it, even with pending changes to the immigration quotas. The Canadian population is growing much stronger than the rest of most of the other Western nations.
That should be a tailwind for these companies over time. So the building blocks are there but one, you need to see more rational competition, and the second part of this too, frankly, is these companies have pushed pretty hard on the dividend lever for a long time because they know investors expect that. Nobody wants to back off the dividend growth target if that's your main selling point.
But we've arrived at a point, especially with the more challenging industry dynamics, I would say they are out ahead of their skis here where the dividend payout ratios, dividend as a percentage of your earnings or your free cash flow, has gone to levels that are uncomfortably high and if you look at the amount of debt that these companies are carrying, again, higher than one would want so there needs to be a bit of a I guess I would call it a sustainability push in terms of growing back into those dividends in bringing the debt leverage down. Those things are needed to get the sector going. Part of that is within the sector's control, but it sounds like that's going to take a little while to play out. I guess the glass half full is you are getting paid to wait.
Telus is yield is 7 1/2%, BC eases nine.
So if one believes that rationality will return to the industry, if one believes that the companies can take actions to put their dividend payouts on a more sustainable path, you're kind of getting paid to wait, which is one perspective.
>> Interesting stuff on the telcos. We have of you are wondering what the future looks like for the Canadian banks? We touched a little bit on the banks in the opening. Pretty reflective of the economy's operations.
>> Absolutely.
I would offer a much more constructive outlook than I just gave for the wireline and wireless players. I think there will be better growth over time in the banking names.
I think this is really a function of, as you say, the Canadian economy as a soft patch. Demand isn't strong north or south of the border for companies like TD and Bank of Montréal, which have significant US operations, but it's really this credit cycle that we are working through, the economy has so often, low losses have risen, that has overshadowed the earning potential of these companies.
When we hit that quarter, whether it's next quarter or two quarters out, when we finally arrive at that spot where, collectively, investors can say, the worst is behind us now, we are coming down the credit mountain now, that will usher in a period of accelerated earnings growth, much more confidence around the sustainability of dividends and all those good things.
But again, you're kind of getting paid to wait that out if one believes that the loan books are solid, if one believes that the Canadian US economies are not going to get a significantly worse economic outcome than most of us are expecting today. It's kind of a matter of waiting it out.
To get back to our earlier point about comparing yourself to the Joneses, were kind of giving this message for a lot of the Canadian sectors: be patient, it will take a little time, be patient. When all this excitement is happening south of the border. So a lot of investors will say, why should I wait? Why not just go there?
But slow and steady wins the race in this business so I think that's kind of one of the things we are preaching is just be patient, focus on the longer-term fundamentals, focus on long-term value that's there and it will arrive.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Michael O'Brien on Canadian equities in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get our educational segment of the day. If you are looking to narrow down your search for possible investments, what broker has tools which can help.
Caitlin Cormier, Senior client education instructor with TD Direct Investing joins us now with more. You're looking at some of the different screener tools available on what broker.
>> When we are going through investing, we hear a lot about the top names that are most actively traded but there are a lot of other stocks out there, so you might want to do a little bit of research into different areas Then we are going to scroll all the way over to tools and write down to screeners.
Now, we do have this tool for stocks, technical events, mutual funds and ETFs.
You can check on our social media as well as our learning centre to find out more on those other ones but today we are going to focus on the stock side of things.
The first I'm going to look at is just scrolling through here, you can see that there are themes.
If there something in particular that you were looking for, a certain type of stock, a certain area of the market to get invested in, these are pre-created screens that have criteria in place to filter down companies that are specific to this area of the market.
To go into what we are talking about today, on the Canadian side of the stocks, we have the Canadian dividend ETF screener. This was going to show a list of Canadian ETFs. There is some criteria, liquidity and those sorts of things. So far would click on this for example, I'm gonna get matches and I have 23 different ETFs to kind of look through a potentially do additional research on and see if they might be a good fit for my portfolio. So really taking information on the market.
Here we've got some specific stuff we are looking at, we look at the price performance as well as the stock price, and just giving some specific names of companies that we may want to do additional research on, see if we want to add them to our portfolio.
>> That's a great place for people to start. Can you walk us through a how people can start building custom screens?
>> Absolutely. Sometimes there something in particular that you are looking for, maybe it's a specific dividend yield, maybe there is some different fundamental information that you would like to look for other companies that are in that area so you can certainly build your own custom screen as well. We will hop back into what broker but this time I'm just going to click on screening instead of discover and, sorry, let's go back to stocks, and there we go.
Screening. And this is going to bring us to create our own custom screen.
You can see there are obviously quite a few stocks that we have based on our filters. We can clear all filters and start from scratch and put in what we want to see.
For example, if I wanted to choose just Canadian stocks, maybe I wanted to also choose for example a share type, maybe I just want common shares, maybe I'm looking for a particular dividend yield so I can click dividend yield.
Maybe I'm looking for at least 4%.
Sometimes if things look too good to be true, they are.
If I click on the more criteria button, it will show me the different categories I can choose.
I can choose sector and industry, again, the financials, you've had different ratios and financial numbers available.
We can also look at things for example if we want to look at dividend yield, we can also look at the dividend growth rate. For example, the five year average. Maybe we are looking for a positive growth rate so we want to look for a minimum of 5% growth rate to filter down a little further.
You can see I am down to 46 matches in this case.
And then as I scroll down, I can see the names of the companies. I can see their growth rate, dividend yield, type of share and I can go ahead and rearrange the results based on whatever I like. So felt the highest dividend growth, I can go ahead and click there and it will show me what's the lowest.
There you go from highest to lowest. And if I want to know more about the company, I just go ahead and click and this can bring up an information box with the company's website along with what they do and why they are ranked the way they are.
Quite a bit to dive into depending on what it is you are looking for in different investments or what type of research you want to do.
There is also different criteria you can input and find out what's out there.
>> Great stuff as always. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, Senior client education instructor with TD Direct Investing.
And a reminder that June is Options Education Month.
[music] And for more information, you can use this QR code to navigate to the Options Education Month homepage.
Okay, we are back with Michael O'Brien, taking your questions about Canadian equities. What is your outlook on TC Energy?
>> Yes.
TC Energy, interesting, I'd mentioned, was some of the big communication services stocks, how they got note a bit ahead of their skis in terms of elevated debt levels and elevated dividend payout ratios which has caused a lot of troubles, TC Energy is a similar story.
We are again, investors kind of look at the dividend payout ratio and say I don't know if this is going to keep coming the weight used to and similarly the credit rating agencies have expressed some concerns are on their balance sheet.
However, about a year or so ago, they I would say embarked on a self-help journey with tightening their belts, selling some non-core assets, they have made some progress there so I think in that respect, investors will slowly find confidence.
They are addressing concerns that a lot of investors have. Similar to the communication services stocks, they also have the big, fat, juicy dividend yields north of 7%. Again, if we continue to get rate cuts, that should help those types of stocks.
The third thing I think investors can look forward to in a positive light, unlike Enbridge, which is very heavy into transporting oil, oil pipelines, TC Energy is predominantly a natural gas pipeline company. And if you look forward in terms of the 5 to 10 year outlook for natural gas demand, as a cleaner burning alternative to traditional power services like coal, for example, and a tremendous expansion in North America of LNG export capacity coming, I think investors are quite optimistic about the longer-term fundamentals for natural gas in North America, of which TC Energy stands to be a beneficiary.
But like I said, the job is not finished yet in terms of rightsizing their balance sheet, demonstrating or convincing investors that, yes, we are on a stable path. At this point, moving in the right direction but clearly still some hair on the name.
>> Interesting stuff there on TC Energy.
Another question now with the energy patch. How is the Canadian energy sector looking since the transmountain expansion was completed?
>> I think this has been a, let's state the obvious, this is a huge step forward for not just the Canadian oil patch but for Canada's economy. After years and years and years of Canadian crude being bottlenecked in Western Canada, the Trans Mountain Pipeline expansion which adds an extra 600,000 barrels a day of export capacity, which is over 10% of what the Canadian oil producers produce in total so this is very material as a number.
It's already having an effect on the differentials between heavy oil, which a lot of viewers would be familiar with, and I think is the pipeline ramps up in some of the teething pains are worked out over the next quarter or two, this stands to be a big win for the industry, not just short-term but long-term.
So unequivocally, TMX has been positive.
That said, what is the outlook today?
I think that the oil patch, the big Canadian producers I would say, fundamentally, they are in as good shape as I have seen them in my career in terms of the debt levels, cost structures, so the things that they can control doing a good job of. From an investor perspective, they are also showing a lot of discipline around capital spending, operating costs which are some of the things that really dogged the Canadian and American producers. They think that that sort of last decade, a lot of criticism around spending so much to grow production and you have no free cash flow to send to your shareholders, they have been holding to the pledge of being more disciplined and returning more cash to shareholders. Those are all legitimate positives.
The oil market itself right now, it looks a little bit squishy. The oil prices fine, $80 WTI is a very healthy price. I think there are some concerns out there that may be demand hasn't been quite a strong seer as one would have expected, so I think there's a little I would describe it as nervousness around the oil market but, broadly speaking, oil stays in this range of $70-$90. That is a very healthy price for these companies.
>> That's oil. Someone wants to get your take on the utilities sector. What do you think?
>> Well, for my entire investment career, utilities are always that sleepy, regulated sector.
Now they've rightly or wrongly not linked to the AI buzz and there will be a need to build huge data centres that will consume a lot of electricity, so it sounds like I'm making light of it and that shouldn't be the point I'm making.
It's a legitimate step up in electricity rolling forward so I think we are, I think in North America, the past decades, electricity demand probably grew 0 to 2% a year, something in that ballpark.
It seems highly likely that the next 10, 20 years will be significantly higher than that.
So there is a renewed optimism around the space. I would just caution, be careful as an investor in terms of your expectations because you take a name like Nvidia, the rapidity of their revenue growth, the margin expansion, the semiconductors, we have this enormous acceleration in the earnings potential. Most of the investable universe, for example in Canada, they tend to be highly regulated which means the regulator is not going to let them see their profits quadruple or quintuple in five years just because electricity demand improves.
They will get the return on equity, they will get their return on the base rate and the rest will be returned to the customers.
So I just caution: don't get too excited from that angle. It's a legitimate tailwind but just keep in mind that there are limits to it. Going back to our previous discussion, just like the communication services companies, just like pipelines, another sector with big dividend yields, relatively safer than a lot of other industries because of the regulated nature of the business.
And so if we do enter into a period where we have a series of interest rate cuts and not just 25 basis point cut, but a series of cuts that might come over the next year, that should be a nice tailwind for these stocks.
>> Interesting stuff there on the utility sector. We will get back your questions for Michael O'Brien on Canadian equities in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Shares of auto suppliers remain under pressure. Our Anthony Okolie joins us now for the latest TD Cowen report on what's going on in the space. What are we seeing here?
>> I will start with those May numbers which beat expectations.
In May, US vehicle sales were up 2.4% year-over-year.
That's roughly 16 million annualized units and those sales were driven by more affordable vehicles being built by car manufacturers. A notable trend that we see is that buyers are becoming more price-sensitive to hard prices. In addition to that, in May, we saw more aggressive dealmaking and incentives to attract more buyers to the showrooms at dealerships.
Also, we saw, with regards to production, production was down and that was largely due to plant shutdowns and program changes in Stellantis. We saw challenges in management at OEMs, the original equipment manufacturers. TD Cowen says the second quarter is tracking to an increase of production by about 3.5% year-over-year.
Despite the overall good numbers in May, the share prices for auto suppliers remain under pressure.
Now, the names under the TD Cowen coverage fell roughly 4%. That is slightly and outperformance of the here group average which is down 5.5%. There are factors driving the weakness in share price. One is that investors are concerned about the macro outlook.
They are worried about if things slow down, what impact will that have on automakers going forward? We are also seeing rising inventory level as well.
That's also helping to tamp down on prices as well.
Inventory was sitting at 51 in April compared to 48 in March, so we are seeing inventory levels change as well. There is also growing concern over a slower adoption rate of EVs. We hear about this quite a bit in the news. We have heard from Tesla and other EV startups like Rivian, they all posted lower sales year-over-year. Ford and GM have scaled back their EV production because of less than expected demand for electric vehicles. In addition to that, automakers are shifting their focus elsewhere.
Finally, the higher for longer rate outlook is providing less outlook for when the Fed will cut rates.
TD Cowen expects price volatility to continue going forward. The using production volumes are resilient and are pointing at >> Were the risks?
>> Some of the risks to the price target that they noted in the report, they see significant deterioration in the economic conditions, also deterioration in the financial health of customers, potential competition, loss of market share, as well as disruptive technologies and increased regulations.
>> Thanks for that.
MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Let's get into the heat map, and I see you at the market movers. We will start with the TSX 60, we are screening by price and volume.
Looks like we got the biggest golf between two names in the materials basket. You have First Quantum which has been making gains in recent sessions giving back a bit today, pulling back a little shy of 3%, but Kinross Gold up to the tune of about 4%. Across energy complex, it's a little bit mixed. CNQ, Cenovus up about 1% roughly and the financials, a bit of a mixed picture here, but Manulife has a gain of a little more than 1%. South of the border, it feels like the markets are cautious as we get ready to close the books on the first half of the year after tomorrow's trading session, but in the morning, we will get the PCE, that is the Fed's preferred gauge of inflation.
Investors are wondering how it's all going to plant.
Nvidia has been a success story throughout the past year and 1/2 now, captivating the market.
It's pulling back in recent sessions, it's down about 4%. Amazon is up 3%. I think they set a new high yesterday at the close and a few other parts of the screen, is CVS down to the tune of about 4%, not a good day for everyone.
We are back now with Michael O'Brien from TD Asset Management.
Do any areas of the Canadian mining sector look interesting?
>> Pretty much all of them. It's a nice change. I remember my younger days. I do remember the commodity super cycle of 2000 to 2008, the heydays for the Canadian material space, the mining companies.
It's been a long, dark winter since then but I would say the last year or so, things are really starting to pick up in the sector and so I think, on the cool side of it in terms of the gold miners, obviously we can go through a whole laundry list of reasons why gold is what it is but at $2300 an ounce, it's a very healthy level so I think lots of optimism around the gold producers, and then when you go to the more traditional base metals, again, a lot of optimism around copper as we are looking sort of to the 5 to 10 year period, I think I have not found a person negative on copper with a 5 to 10 year period.
There was some pretty dramatic price action on copper itself over the last month where all of a sudden it shot up from like four dollars to five dollars a pound in a heartbeat and now it's kind of giving most of that back. It's around 434, 435 a.
Again, very healthy levels.
Like I said, underpinned… Here and now, copper prices are very solid. All these copper producers should make good money and they should generate enough cash flow to build out next generation mines which a lot of them are trying to do.
I think what provides a bit of a support underneath the stocks in terms of those pullbacks, 435 today could easily be $3.95 a month from now. Copper is pretty volatile these days.
But I think there's probably going to be a support level for the stocks where investors with a longer term view looking out to that three, five, seven year horizon. We are optimistic about the prospects for copper when you look at supply and demand and the implications of if this trend of electrification and data centre build out and power consumption around artificial intelligence plays out.
There is an obvious need for more copper, so I think that something that-- these are very cyclical stocks, they can go up a lot very fast, they can go down just as fast and just as much but I think that is one sort of longer-term support that might help the stock hold up whenever we you hit those bumps.
>> We are out of time for your questions.
It just struck me because tomorrow we are going to be showing best of clips, you are our last live guests to for the first half of this year. What do investors have to think about regarding Canadian equity is for the rest of the year?
>> I have a lot of faith at the Canadian economy will come out of what's been a very slow patch for the last year or two.
But really, if the Canadian economy continues to grow, the market eventually will go with it. We have a lot of stocks and sectors within the Canadian market that have fairly modest expectations and reasonable valuations, so patient.
>> Patients indeed. Always great to have you. I look forward to the next time.
>> Thank you.
>> Thanks to Michael O'Brien, managing Dir. and head of the core Canadian equity team at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we didn't have time to get your questions today, we will aim to get them into future shows. Stay tuned. We will be back tomorrow, not with a live guest but we will have a conversation at the top of the show about the PCE. There is also a presidential debate tonight.
I don't know what were going to hear. It will come out this evening.
Then we are going to be closing the books on the first half of the 2024 trading year. So there's a lot going on. You don't want to miss it.
As far as today's show is concerned, that's all the time we have. Thanks for watching and you will see you tomorrow.
[theme music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss why the TSX has underperformed the S&P 500 and whether that is set to change with TD Asset Management Michael O'Brien.
MoneyTalk's Anthony Okolie is going to have a look at what the slow down in EV sales has meant for the auto parts companies, and in today's WebBroker education segment, Caitlin Cormier will show us how you can sift through all the different stocks out there with the platform's screening tools.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets. We will start here at home with the TSX Composite Index.
We got about 94, we will round up to 95 points on the screen, good for almost half a percent. We see a firming and the price of crude today. Among some of the notable movers before we get to oil and gas names is blackberry.
There was a beat on the sales line, strong demand for cybersecurity offerings behind all that. It blackberry at $3.45 per share, up more than 13%. With the firming of crude prices, watching the Middle East tensions, we are seeing energy names for points on the table. Baytex at $4.71, you are up 1.7%.
South of the border, the S&P 500 is we have been talking about making record runs through this year, today it's a little bit flat to the downside, about five points.
Nothing too dramatic. In the morning, we are going to get the PCI, that is the fed preferred gauge of inflation, perhaps caution ahead of them. The tech heavy NASDAQ, how is it trying against the broader market right now? Pretty much the same.
Down 26 points, a little more than 1/10 of a percent. And Levi, I will tell you more about this later in the show, not a great day for the name. The fashionistas tell us that denim is all the rage, but that has not been helping Levi Strauss. And that's your market update.
While US markets have been hitting new highs this year, the TSX compensates modest gains have look sleepy by comparison.
Joining us now to discuss all this is Michael O'Brien, managing Dir. and head of the core Canadian equity team with TD Asset Management. Great to have you back.
>> Great to be here.
>> We were talking ahead of the show and all you need to do is pull up a chart we look at the S&P 500 and the rally it is had and then you overlay the TSX Composite Index and I think the term you used to sleepy. What's going on?
>> Well, I think the first thing to say is the TSX isn't having a bad year, it's having an average year. We are at almost the halfway point. I guess tomorrow, total return, TSX is about 5%.
That's kind of a normal year. The problem is we are being compared to the super starting story, it's kind of like the high school quarterback, everybody looks at me and then everybody looks in the other field and it's Tom Brady throwing spirals.
It's hard to compete.
The question is almost not what's wrong with Canada, it's, holy smokes, everything seems to be going right in the states.
Even there, it's not a wide, broad market.
It's just a number of very impressive, very large companies have just captured people's imaginations. That's the first thing.
Canada actually isn't having a terrible year, we are having an average year, it's just the comparison is tough. In terms of why we are not doing better, that is a good question because we did get, the Bank of Canada is the first G-7 central bank to cut rates. One would of hope that that would have little bit of a fire under the stocks.
Looking at any conventional valuation markets, it's not an extensive market, dividend yields attractive, most more prominent sectors are trading at reasonable valuation's. One would hope there would be a fire lit under them.
The two things I would point to, one is simply the sentiment issue where I think the fascination around the Magnificent Seven, the NASDAQ, AI hype, it's just sucking all the oxygen out of the room.
It's not just Canada, a lot of the other markets too. It's hard to grab attention when everyone so captivated by this phenomenon.
The other part of it which falls more into the self-help part is the Canadian economy is in a soft patch here.
We shouldn't expect people to be really fired up about Canada if economic growth is subpar, if earnings growth isn't going to be terribly exciting in the short term and, let's be honest, the overall business climate, investors are not really wild by what they are hearing about Canada these days.
It's not the most investor fairly corner of the world at the moment. So I think all of those things are holding us back.
We can talk about why some or all of those things will change over time.
>> This would be the next step.
>> In the here and now, that's the issue.
The neighbour to the south is sucking all the oxygen out of the room.
>> We talk about being outperformed by the Americans, not having a terrible year, but overshadowed. What could lead us to perhaps even outperformance in the years ahead?
>> In the short term, valuations don't always, they are not always your best friend in terms of timing and when I should buy or sell a stock market.
Over the long term, valuation is almost all that matters and so from that perspective, what we've got going for us in Canada, it's the glass half full view of this, we have a market where expectations aren't over exuberant and so, over time, if the Canadian economy resumes its growth, if the population continues to grow, if the central bank can bring rates down over the next number of years, I think there are reasons for optimism.
But it's just in the here and now that we have to work through these things. The first step forward has been the central bank rate cut I think is very significant.
Was only 25 basis points.
>> We need to see more.
>> Going from 5% to 475, that's not going to change the investment decisions of a lot of businesses. That's not can make or break a lot of households when it comes to whether or not they can make the next mortgage payment.
What you need is follow-through. If we get another two, three, four rate cuts over the balance of the year into early 2025, that will go a long way towards at least putting a floor under the economy if not actually beginning the process of turning this around.
In hand with that, I think the single biggest stocks on the TSX, the Canadian banks, right now, we are in a period where bank earnings growth is subpar because, largely, we are going to a credit cycle where PCL's or provisions for credit losses have been steadily rising quarter after quarter after quarter. The underlying business is, there is some cause for optimism, you know, this last earnings season, the trends are improving, however, the loan losses are kind of overwhelming that at the top of the house.
We need to see that rule over which one would expect if the economy means to stabilize and improve.
And then beyond that, I think there are a number of pockets that we can get to where we think some self-help is needed, where they needed to do some internal repairs, but if they can do that, then there is a good case to be made that over the next three, five years, they will be performers.
>> You talked about the financial heavyweights on the TSX Composite Index but energy, materials rounding out the top three, we keep hearing about the world's going to need more uranium, more oil.
Canadians are asking, don't we have these things? Why aren't we benefiting?
>> Look, that is the one bright spot. Not the one bright spot, but the single biggest bright spot both of the Canadian economy and the Canadian market today is the resource economy is very healthy.
And pretty much pick your commodities, they are either solid or outright strong.
Oil is doing well, WTI producers are doing well, natural gas hasn't had great price action in the here and now but everybody could see with LNG Canada hopefully coming on by year end much better days ahead for natural gas there's a lot of optimism there, a lot of excitement around metals like copper and what rule they would play in electrification buildout of data centres, so there's a lot of positivity towards copper. Gold, it's hard to be negative on gold it has a good outlook.
You mentioned uranium, Canada is one of the very top uranium producers.
Those are all disproportionately out West two, citing this is a good time to be a Western Canadian when you're thinking about the resource-based economy.
That has been the least of our problems.
It's actually been a bright spot.
Looking at the energy and materials lose, they have been solid performers, generally speaking, your today.
>> Longer-term, how should we think about the Canadian market?
>> Longer-term, the Canadian market, look, at the end of the day, the stock market is largely a reflection of the economy and the operating environment for all of these companies. If one thinks as I do over time to Canada broadly speaking is going to make the right decisions. We don't have an expensive market. A lot of the traditional cyclical industries, they are either starting to come out or come around. I think if we can get a bit better tone around the business climate here and if we can sort of see some proof of concept that the rate cuts that have begun and hopefully will continue to come will lead to a re-acceleration of the economy sometime in 2025. I think the Canadian economy, the Canadian market as a whole looks very solid.
Particularly, when you think about some of the big sectors, they have been punching below their wait for some time, Canadian banks have not done much for investors over the last four or five years which is very unusual. I think that's a great example of once we turn the corner, if one has belief and faith that we are going to turn the corner, then we are all set.
>> We are going to get your questions about equities for Michael O'Brien in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
It appears to be a case of AI hype at meeting AI reality. Semiconductor firm Micron handed in topline sales that were in line with estimates, but the street doesn't appear to be too impressed by that. Micron down right now about 7%. Of course, the chipmaker had seen its stock more than double in the past year amid this boom in artificial intelligence demand and the promise of what is ahead.
Perhaps meeting expectations is not enough today for Micron. Alright, I promise you the story on Levi Strauss so here it is.
We know that Denham is back in favour among the fashionistas, but that doesn't appear to be helping Levi, though.
The retailer beat earnings expectations on the bottom line and raised its dividend, as is the problem? Topline sales coming in a bit later than expected amid this whole frenzy over Denham. The magazine say head to toe Denham as the seasons looked, but Levi says it's customers have been generally causes and aren't spending a lot on discretionary items.
Could we believe, fashion magazines or the people selling the Denham?
The street seems to be believing the people who sell the Denham, down 16.5%.
We've also got shares of Walgreens under significant pressure today. The pharmacy chain is cutting its full-year profit forecast after delivering disappointing portly results. Walgreens says consumers are struggling with the high cost of living and that's making for a challenging retail environment for them.
The street is not voting in confidence with this one. Walgreens is pulling back 25%, 1/4 of its value, in one session.
A quick check in on the market, we will start to run Bay Street with the TSX Composite Index. We are up about 95 points, a little shy of half a percent.
South of the border, as we await the PCE report tomorrow morning, the Fed's preferred gauge of inflation, a little bit of caution. You're down one point, basically flat to the downside, 36.
We are back with Michael O'Brien, take your questions about Canadian equities.
Let's get to the first one here. What is your outlook for BCE and the telcos?
Talking about underperformance.
>> It's been a challenging sector.
Obviously, a lot of people are hoping that rate cuts and lower interest rates will help this very rate sensitive sector start to recover.
I think that's part of the story.
Obviously, it's not sufficient. What's the term, necessary but not sufficient?
Clearly, 125 basis point cut is not going to turn around the dividend yield. But I think the bigger story for BCE and the rest of the big telcos is the competitive environment. Investors are, I don't know if you would say frustrated, concerned, pick your active, but the competitive intensity, both on the wireless and wireline sides of the businesses much more significant than most investors would've hoped a year ago. Obviously, the catalyst for this, Rogers acquiring Shaw Communications and then spinning off Shaw's freedom mobile business to Quebecor, it introduced a lot more competition, both in the traditional cable wireline side of the business and especially in the wireless side.
I think investors are frustrated with all these companies, you know, can you all learned to live with each other and pass our dividends? That hasn't happened yet.
Investors are sitting this out to see how long the Salinas Lass I guess would be… >> When this dynamic first hit, I thought, okay, this can be some price competition but is not going to last forever. But it lasted a little longer than perhaps a lot of people thought it would.
>> Yes, it is lasted longer than people thought it would. If you talk to the executives at these companies, they are all convinced that the current level of pricing is not sustainable and that it must change, and yet none of them seemed to be moving to do a thing about it in the short term.
So I think that's the single biggest thing that's pressuring these companies.
>> Interesting stuff on that front.
For turning things around, at some point, obviously they can collude to do this, but the pressures gets them and they move their prices higher, does the industry follow suit?
>> If more rational competition prevails, it's about who has the best customer service, the best network. There will be transition to that at some point.
The other part of this is Canada almost uniquely among the developed countries has a decent population tailwind behind it, even with pending changes to the immigration quotas. The Canadian population is growing much stronger than the rest of most of the other Western nations.
That should be a tailwind for these companies over time. So the building blocks are there but one, you need to see more rational competition, and the second part of this too, frankly, is these companies have pushed pretty hard on the dividend lever for a long time because they know investors expect that. Nobody wants to back off the dividend growth target if that's your main selling point.
But we've arrived at a point, especially with the more challenging industry dynamics, I would say they are out ahead of their skis here where the dividend payout ratios, dividend as a percentage of your earnings or your free cash flow, has gone to levels that are uncomfortably high and if you look at the amount of debt that these companies are carrying, again, higher than one would want so there needs to be a bit of a I guess I would call it a sustainability push in terms of growing back into those dividends in bringing the debt leverage down. Those things are needed to get the sector going. Part of that is within the sector's control, but it sounds like that's going to take a little while to play out. I guess the glass half full is you are getting paid to wait.
Telus is yield is 7 1/2%, BC eases nine.
So if one believes that rationality will return to the industry, if one believes that the companies can take actions to put their dividend payouts on a more sustainable path, you're kind of getting paid to wait, which is one perspective.
>> Interesting stuff on the telcos. We have of you are wondering what the future looks like for the Canadian banks? We touched a little bit on the banks in the opening. Pretty reflective of the economy's operations.
>> Absolutely.
I would offer a much more constructive outlook than I just gave for the wireline and wireless players. I think there will be better growth over time in the banking names.
I think this is really a function of, as you say, the Canadian economy as a soft patch. Demand isn't strong north or south of the border for companies like TD and Bank of Montréal, which have significant US operations, but it's really this credit cycle that we are working through, the economy has so often, low losses have risen, that has overshadowed the earning potential of these companies.
When we hit that quarter, whether it's next quarter or two quarters out, when we finally arrive at that spot where, collectively, investors can say, the worst is behind us now, we are coming down the credit mountain now, that will usher in a period of accelerated earnings growth, much more confidence around the sustainability of dividends and all those good things.
But again, you're kind of getting paid to wait that out if one believes that the loan books are solid, if one believes that the Canadian US economies are not going to get a significantly worse economic outcome than most of us are expecting today. It's kind of a matter of waiting it out.
To get back to our earlier point about comparing yourself to the Joneses, were kind of giving this message for a lot of the Canadian sectors: be patient, it will take a little time, be patient. When all this excitement is happening south of the border. So a lot of investors will say, why should I wait? Why not just go there?
But slow and steady wins the race in this business so I think that's kind of one of the things we are preaching is just be patient, focus on the longer-term fundamentals, focus on long-term value that's there and it will arrive.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Michael O'Brien on Canadian equities in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get our educational segment of the day. If you are looking to narrow down your search for possible investments, what broker has tools which can help.
Caitlin Cormier, Senior client education instructor with TD Direct Investing joins us now with more. You're looking at some of the different screener tools available on what broker.
>> When we are going through investing, we hear a lot about the top names that are most actively traded but there are a lot of other stocks out there, so you might want to do a little bit of research into different areas Then we are going to scroll all the way over to tools and write down to screeners.
Now, we do have this tool for stocks, technical events, mutual funds and ETFs.
You can check on our social media as well as our learning centre to find out more on those other ones but today we are going to focus on the stock side of things.
The first I'm going to look at is just scrolling through here, you can see that there are themes.
If there something in particular that you were looking for, a certain type of stock, a certain area of the market to get invested in, these are pre-created screens that have criteria in place to filter down companies that are specific to this area of the market.
To go into what we are talking about today, on the Canadian side of the stocks, we have the Canadian dividend ETF screener. This was going to show a list of Canadian ETFs. There is some criteria, liquidity and those sorts of things. So far would click on this for example, I'm gonna get matches and I have 23 different ETFs to kind of look through a potentially do additional research on and see if they might be a good fit for my portfolio. So really taking information on the market.
Here we've got some specific stuff we are looking at, we look at the price performance as well as the stock price, and just giving some specific names of companies that we may want to do additional research on, see if we want to add them to our portfolio.
>> That's a great place for people to start. Can you walk us through a how people can start building custom screens?
>> Absolutely. Sometimes there something in particular that you are looking for, maybe it's a specific dividend yield, maybe there is some different fundamental information that you would like to look for other companies that are in that area so you can certainly build your own custom screen as well. We will hop back into what broker but this time I'm just going to click on screening instead of discover and, sorry, let's go back to stocks, and there we go.
Screening. And this is going to bring us to create our own custom screen.
You can see there are obviously quite a few stocks that we have based on our filters. We can clear all filters and start from scratch and put in what we want to see.
For example, if I wanted to choose just Canadian stocks, maybe I wanted to also choose for example a share type, maybe I just want common shares, maybe I'm looking for a particular dividend yield so I can click dividend yield.
Maybe I'm looking for at least 4%.
Sometimes if things look too good to be true, they are.
If I click on the more criteria button, it will show me the different categories I can choose.
I can choose sector and industry, again, the financials, you've had different ratios and financial numbers available.
We can also look at things for example if we want to look at dividend yield, we can also look at the dividend growth rate. For example, the five year average. Maybe we are looking for a positive growth rate so we want to look for a minimum of 5% growth rate to filter down a little further.
You can see I am down to 46 matches in this case.
And then as I scroll down, I can see the names of the companies. I can see their growth rate, dividend yield, type of share and I can go ahead and rearrange the results based on whatever I like. So felt the highest dividend growth, I can go ahead and click there and it will show me what's the lowest.
There you go from highest to lowest. And if I want to know more about the company, I just go ahead and click and this can bring up an information box with the company's website along with what they do and why they are ranked the way they are.
Quite a bit to dive into depending on what it is you are looking for in different investments or what type of research you want to do.
There is also different criteria you can input and find out what's out there.
>> Great stuff as always. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, Senior client education instructor with TD Direct Investing.
And a reminder that June is Options Education Month.
[music] And for more information, you can use this QR code to navigate to the Options Education Month homepage.
Okay, we are back with Michael O'Brien, taking your questions about Canadian equities. What is your outlook on TC Energy?
>> Yes.
TC Energy, interesting, I'd mentioned, was some of the big communication services stocks, how they got note a bit ahead of their skis in terms of elevated debt levels and elevated dividend payout ratios which has caused a lot of troubles, TC Energy is a similar story.
We are again, investors kind of look at the dividend payout ratio and say I don't know if this is going to keep coming the weight used to and similarly the credit rating agencies have expressed some concerns are on their balance sheet.
However, about a year or so ago, they I would say embarked on a self-help journey with tightening their belts, selling some non-core assets, they have made some progress there so I think in that respect, investors will slowly find confidence.
They are addressing concerns that a lot of investors have. Similar to the communication services stocks, they also have the big, fat, juicy dividend yields north of 7%. Again, if we continue to get rate cuts, that should help those types of stocks.
The third thing I think investors can look forward to in a positive light, unlike Enbridge, which is very heavy into transporting oil, oil pipelines, TC Energy is predominantly a natural gas pipeline company. And if you look forward in terms of the 5 to 10 year outlook for natural gas demand, as a cleaner burning alternative to traditional power services like coal, for example, and a tremendous expansion in North America of LNG export capacity coming, I think investors are quite optimistic about the longer-term fundamentals for natural gas in North America, of which TC Energy stands to be a beneficiary.
But like I said, the job is not finished yet in terms of rightsizing their balance sheet, demonstrating or convincing investors that, yes, we are on a stable path. At this point, moving in the right direction but clearly still some hair on the name.
>> Interesting stuff there on TC Energy.
Another question now with the energy patch. How is the Canadian energy sector looking since the transmountain expansion was completed?
>> I think this has been a, let's state the obvious, this is a huge step forward for not just the Canadian oil patch but for Canada's economy. After years and years and years of Canadian crude being bottlenecked in Western Canada, the Trans Mountain Pipeline expansion which adds an extra 600,000 barrels a day of export capacity, which is over 10% of what the Canadian oil producers produce in total so this is very material as a number.
It's already having an effect on the differentials between heavy oil, which a lot of viewers would be familiar with, and I think is the pipeline ramps up in some of the teething pains are worked out over the next quarter or two, this stands to be a big win for the industry, not just short-term but long-term.
So unequivocally, TMX has been positive.
That said, what is the outlook today?
I think that the oil patch, the big Canadian producers I would say, fundamentally, they are in as good shape as I have seen them in my career in terms of the debt levels, cost structures, so the things that they can control doing a good job of. From an investor perspective, they are also showing a lot of discipline around capital spending, operating costs which are some of the things that really dogged the Canadian and American producers. They think that that sort of last decade, a lot of criticism around spending so much to grow production and you have no free cash flow to send to your shareholders, they have been holding to the pledge of being more disciplined and returning more cash to shareholders. Those are all legitimate positives.
The oil market itself right now, it looks a little bit squishy. The oil prices fine, $80 WTI is a very healthy price. I think there are some concerns out there that may be demand hasn't been quite a strong seer as one would have expected, so I think there's a little I would describe it as nervousness around the oil market but, broadly speaking, oil stays in this range of $70-$90. That is a very healthy price for these companies.
>> That's oil. Someone wants to get your take on the utilities sector. What do you think?
>> Well, for my entire investment career, utilities are always that sleepy, regulated sector.
Now they've rightly or wrongly not linked to the AI buzz and there will be a need to build huge data centres that will consume a lot of electricity, so it sounds like I'm making light of it and that shouldn't be the point I'm making.
It's a legitimate step up in electricity rolling forward so I think we are, I think in North America, the past decades, electricity demand probably grew 0 to 2% a year, something in that ballpark.
It seems highly likely that the next 10, 20 years will be significantly higher than that.
So there is a renewed optimism around the space. I would just caution, be careful as an investor in terms of your expectations because you take a name like Nvidia, the rapidity of their revenue growth, the margin expansion, the semiconductors, we have this enormous acceleration in the earnings potential. Most of the investable universe, for example in Canada, they tend to be highly regulated which means the regulator is not going to let them see their profits quadruple or quintuple in five years just because electricity demand improves.
They will get the return on equity, they will get their return on the base rate and the rest will be returned to the customers.
So I just caution: don't get too excited from that angle. It's a legitimate tailwind but just keep in mind that there are limits to it. Going back to our previous discussion, just like the communication services companies, just like pipelines, another sector with big dividend yields, relatively safer than a lot of other industries because of the regulated nature of the business.
And so if we do enter into a period where we have a series of interest rate cuts and not just 25 basis point cut, but a series of cuts that might come over the next year, that should be a nice tailwind for these stocks.
>> Interesting stuff there on the utility sector. We will get back your questions for Michael O'Brien on Canadian equities in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Shares of auto suppliers remain under pressure. Our Anthony Okolie joins us now for the latest TD Cowen report on what's going on in the space. What are we seeing here?
>> I will start with those May numbers which beat expectations.
In May, US vehicle sales were up 2.4% year-over-year.
That's roughly 16 million annualized units and those sales were driven by more affordable vehicles being built by car manufacturers. A notable trend that we see is that buyers are becoming more price-sensitive to hard prices. In addition to that, in May, we saw more aggressive dealmaking and incentives to attract more buyers to the showrooms at dealerships.
Also, we saw, with regards to production, production was down and that was largely due to plant shutdowns and program changes in Stellantis. We saw challenges in management at OEMs, the original equipment manufacturers. TD Cowen says the second quarter is tracking to an increase of production by about 3.5% year-over-year.
Despite the overall good numbers in May, the share prices for auto suppliers remain under pressure.
Now, the names under the TD Cowen coverage fell roughly 4%. That is slightly and outperformance of the here group average which is down 5.5%. There are factors driving the weakness in share price. One is that investors are concerned about the macro outlook.
They are worried about if things slow down, what impact will that have on automakers going forward? We are also seeing rising inventory level as well.
That's also helping to tamp down on prices as well.
Inventory was sitting at 51 in April compared to 48 in March, so we are seeing inventory levels change as well. There is also growing concern over a slower adoption rate of EVs. We hear about this quite a bit in the news. We have heard from Tesla and other EV startups like Rivian, they all posted lower sales year-over-year. Ford and GM have scaled back their EV production because of less than expected demand for electric vehicles. In addition to that, automakers are shifting their focus elsewhere.
Finally, the higher for longer rate outlook is providing less outlook for when the Fed will cut rates.
TD Cowen expects price volatility to continue going forward. The using production volumes are resilient and are pointing at >> Were the risks?
>> Some of the risks to the price target that they noted in the report, they see significant deterioration in the economic conditions, also deterioration in the financial health of customers, potential competition, loss of market share, as well as disruptive technologies and increased regulations.
>> Thanks for that.
MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Let's get into the heat map, and I see you at the market movers. We will start with the TSX 60, we are screening by price and volume.
Looks like we got the biggest golf between two names in the materials basket. You have First Quantum which has been making gains in recent sessions giving back a bit today, pulling back a little shy of 3%, but Kinross Gold up to the tune of about 4%. Across energy complex, it's a little bit mixed. CNQ, Cenovus up about 1% roughly and the financials, a bit of a mixed picture here, but Manulife has a gain of a little more than 1%. South of the border, it feels like the markets are cautious as we get ready to close the books on the first half of the year after tomorrow's trading session, but in the morning, we will get the PCE, that is the Fed's preferred gauge of inflation.
Investors are wondering how it's all going to plant.
Nvidia has been a success story throughout the past year and 1/2 now, captivating the market.
It's pulling back in recent sessions, it's down about 4%. Amazon is up 3%. I think they set a new high yesterday at the close and a few other parts of the screen, is CVS down to the tune of about 4%, not a good day for everyone.
We are back now with Michael O'Brien from TD Asset Management.
Do any areas of the Canadian mining sector look interesting?
>> Pretty much all of them. It's a nice change. I remember my younger days. I do remember the commodity super cycle of 2000 to 2008, the heydays for the Canadian material space, the mining companies.
It's been a long, dark winter since then but I would say the last year or so, things are really starting to pick up in the sector and so I think, on the cool side of it in terms of the gold miners, obviously we can go through a whole laundry list of reasons why gold is what it is but at $2300 an ounce, it's a very healthy level so I think lots of optimism around the gold producers, and then when you go to the more traditional base metals, again, a lot of optimism around copper as we are looking sort of to the 5 to 10 year period, I think I have not found a person negative on copper with a 5 to 10 year period.
There was some pretty dramatic price action on copper itself over the last month where all of a sudden it shot up from like four dollars to five dollars a pound in a heartbeat and now it's kind of giving most of that back. It's around 434, 435 a.
Again, very healthy levels.
Like I said, underpinned… Here and now, copper prices are very solid. All these copper producers should make good money and they should generate enough cash flow to build out next generation mines which a lot of them are trying to do.
I think what provides a bit of a support underneath the stocks in terms of those pullbacks, 435 today could easily be $3.95 a month from now. Copper is pretty volatile these days.
But I think there's probably going to be a support level for the stocks where investors with a longer term view looking out to that three, five, seven year horizon. We are optimistic about the prospects for copper when you look at supply and demand and the implications of if this trend of electrification and data centre build out and power consumption around artificial intelligence plays out.
There is an obvious need for more copper, so I think that something that-- these are very cyclical stocks, they can go up a lot very fast, they can go down just as fast and just as much but I think that is one sort of longer-term support that might help the stock hold up whenever we you hit those bumps.
>> We are out of time for your questions.
It just struck me because tomorrow we are going to be showing best of clips, you are our last live guests to for the first half of this year. What do investors have to think about regarding Canadian equity is for the rest of the year?
>> I have a lot of faith at the Canadian economy will come out of what's been a very slow patch for the last year or two.
But really, if the Canadian economy continues to grow, the market eventually will go with it. We have a lot of stocks and sectors within the Canadian market that have fairly modest expectations and reasonable valuations, so patient.
>> Patients indeed. Always great to have you. I look forward to the next time.
>> Thank you.
>> Thanks to Michael O'Brien, managing Dir. and head of the core Canadian equity team at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we didn't have time to get your questions today, we will aim to get them into future shows. Stay tuned. We will be back tomorrow, not with a live guest but we will have a conversation at the top of the show about the PCE. There is also a presidential debate tonight.
I don't know what were going to hear. It will come out this evening.
Then we are going to be closing the books on the first half of the 2024 trading year. So there's a lot going on. You don't want to miss it.
As far as today's show is concerned, that's all the time we have. Thanks for watching and you will see you tomorrow.
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