Making sense of the markets this week: October 26
Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.
The pandemic holiday season is near
This will be our first “global pandemic holiday season.”
That phrase does not have a nice festive ring to it, I know. And it might not be full of good cheer. As per what has become the most used pandemic phrase for my wife and me: ”It is what it is.” The holiday season is coming, and the pandemic ain’t going away.
Still, North Americans are sure to shop. But how will they shop? Will Canadians and Americans finally fill the malls again? Or will we stay at home and use that iPad and Amazon to cross everything off that holiday list?
Deloitte has conducted their 35th holiday shopping survey in an attempt to discover how this season might shape up. We can look to the U.S. study and see many of these behaviours translate to Canada. After all, share many of the same attitudes and fears as our American neighbour, and both countries are experiencing that second wave of the pandemic.
The U.S. 2020 Deloitte holiday retail survey shows that four types or segments of shoppers spend between $1,000 and $1,600 US each in the holiday season. Survey respondents offered that they expect to spend 7% less in the pandemic holiday season. And 38% of respondents intend to spend less this year. That’s a level of decline not seen since the financial crisis in 2008 and 2009.
From the Deloitte Canadian study:
“… one in three (35%) plan to cut back on their holiday spending, especially on travel and dining out, but expect to spend more on groceries and cannabis. Overall, Canadians plan to spend an average of $1,405 over the holidays, compared to $1,706 in 2019.”
And it looks as if the shopping malls will largely be avoided by many on both sides of the border. Here are some key insights from the U.S. survey.
- Nearly 51% of holiday shoppers feel anxious about shopping in-store.
- Contactless shopping experiences are in demand with 73% planning to have items delivered vs. 62% in 2019; preference for curbside pickup more than doubled YoY.
- Online retailers (62%) and mass merchants (50%) are the top holiday destinations as shoppers pull back from browsing formats.
Amazon might see an additional boost in the holidays, with 66% of Canadians saying they will use Amazon to buy gifts this season. Those mass retailers such as Walmart and Costco appear to be destinations of choice. And once again, with those REITs with exposure to malls might not get the seasonal boost they’re hoping for.
The survey also showed that clothing and accessories (shoes, jewelry) are set to see the biggest uptick in demand in the U.S. That would be some good news for those clothing stores who have suffered mightily in the work-from-home economy.
The survey offered that most intend to stay close to home and increase their spending on groceries. Those grocers such as Loblaw, Metro and Sobeys have benefited greatly in the pandemic. It looks like they’ll be the recipient of further holiday cheer. The grocers still look like solid investments.
In Canada, we may also see a boost in grocery sales. And with alcohol and cannabis sales holding steady year over year.
To spike your portfolio, you might look to global alcohol giants such as Diageo and Constellation Brands. In Canada, you might the wine conglomerate Peller Estates (Andrew Peller Limited). When Peller reported financial results in August, sales were up 3.4% year over year, and net earnings increased 27% year over year.
This will certainly be a unique holiday season with many of the pandemic trends shaping the holiday spirit.
’Tis the season for earnings in Canada
While U.S. stock markets get the most attention and make the most noise, it’s time to look at Canadian companies and their earnings. We can check in on the performance of Canadian companies and the state and pace of our economic recovery.
In this Globe and Mail article, David Berman offered…
“Canadian corporate profits will show a big improvement as the third quarter reporting season picks up momentum over the next couple of weeks, according to analysts and portfolio managers. But don’t expect miracles. Profits generated by companies in the S&P/TSX Composite Index will decline 18.7% in the third quarter, from last year, according to the latest earnings lookahead from Refinitiv.”
Refinitiv is a global technology company that focuses on financial data collection, evaluation and analysis.
The hope is that the worst is behind us. Profits for the composite index constituents fell 41.7% in the previous (second) quarter, year over year. That quarter included the full extent of lockdowns, while this quarter of reporting will reflect the re-opening of the economy. Of course, many businesses are not yet operating at full capacity and the economy has not returned to 2019 levels.
The railways are known as a strong economic barometer. After all, they ship many of the goods in demand across the country. Last week we saw that Canada’s two rails made the exclusive list of Canada-wide moat stocks.
CN Rail and Canadian Pacific Rail offered a tale of two rails. For CN Rail, revenue in the third quarter was down 11% compared to a year ago. Earnings were down 16.9% year over year.
Canadian Pacific beat analyst expectations for revenues and profits. Revenues were down 6.1%. Canadian Pacific earned $4.12 per share in the third quarter (in Canadian dollars). That’s down just 1% from the third quarter of 2019.
All said, there are good signs of solid recovery. A true measure is the volume of goods shipped. From the CN financial report…
“Volumes, in terms of revenue ton miles (RTMs), improved sequentially in each month of the third quarter of 2020 and September volumes increased on a year-over-year basis, reflecting demand for certain commodities in-line with 2019 levels.”
For now, it appears our economic recovery is on track.
Stock market tweet of the week
And on the U.S. stock markets making the most noise, here’s Liz Ann Sonders, chief investment strategist, Charles Schwab & Co.…
Sports viewing in Canada is a home run!
One sector taking a big hit in the pandemic is the entertainment industry. Musical acts and bands are not performing. Performing arts centres and movie theatres are largely closed, and even major professional sports were on pause.
All of the major sports got back in action with modified seasons and schedules. There were no fans in the stands but the major sports have been back (if temporarily) on TV and streaming devices. Did viewers tune in?
Turns out that in Canada, we are glued to the TV sets and devices with popcorn and beer in hand. This is great news for a very large industry and it relates back to our previous story on the Canadian telco performance. Both Bell and Rogers have considerable media divisions.
This Canadian sports-watching-behaviour is a big surprise to me, as NBA basketball viewership was down by 50% or so. Viewership in the first 3 NBA championship games was -43%, -52% and -56% compared to the 2019 finals.
That Globe and Mail article noted that for the Canadian market…
“But when games returned in the summer—with the MLB regular season, as well as the National Basketball Association and the NHL playoffs—so did the money. In August and September, ad revenue on Rogers networks jumped 92% over the same period in 2019.”
That article also noted that Bell is experiencing the same positive trend.
“Bell Media’s TSN also saw a comforting reversal of fortune. After falling 80% in March–July from the same period in 2019, ad revenue on that network was up 36% in August–September from the same period in 2019.”
That’s great news for the ad industry, and those telcos, and everyone who works for all the associated companies in the media and sports industries.
Rogers stock scores
Rogers reported earnings on Thursday and beat all expectations. The stock was up 11.5% on Thursday after announcing results. It was a win-win on revenues and earnings: Rogers beat analyst expectations on both counts.
Revenue for the quarter was down just 2.2% year over year. Adjusted earnings were down 11% from the same quarter of last year. On its media division, the Rogers quarterly report offered…
“Media revenue increased by 1% primarily as a result of higher revenue associated with the resumption of NHL hockey, partially offset by lower revenue at the Toronto Blue Jays due to COVID-19.”
Generous wireless customer additions and the popularity of their unlimited data plans (up 60%) are likely also driving that investor enthusiasm.
We’ll find out when Bell and Telus report, if this is a telco trend or if Rogers is executing better than their competition.
On Thursday they were the winner.
Bitcoin breaks a barrier: it’s on PayPal
Digital currencies broke a major barrier this week. PayPal is launching its own cryptocurrency service, allowing people to buy, hold and sell digital currency on its site and applications.This is a major milestone and another feather in the digital cap for cryptocurrencies.
Cryptocurrency is digital money exchanged without fees between two parties online, with no involvement from traditional banks and no regulatory oversight by national governments. And cryptocurrencies are a threat to traditional money—the fiat currencies created by and backed by central banks, which go by the name of US Dollar, Canadian Dollar or Euro, as a few examples.
Bitcoin and other digital currencies have been on a good run over the few months. In fact bitcoin has even outperformed U.S. stocks over the last year. The price of bitcoin rose over 5% on Wednesday thanks to the PayPal news release.
Many feel that the trend to digital currencies will only accelerate. From this CNN Business post…
“The efficiency, speed and resilience of cryptocurrencies give people financial inclusion and access advantages, said PayPal President and CEO Dan Schulman, who described the eventual shift from physical to digital currencies as ‘inevitable’.”
And here’s a tweet from Hunter Horsley, the CEO of BitswiseInvest…
PayPal is introducing the ability to buy, hold and sell select cryptocurrencies, initially featuring Bitcoin, Ethereum, Bitcoin Cash and Litecoin, directly within the PayPal digital wallet. The service will be available to PayPal account holders in the U.S. in the coming weeks.
Look for this service to be available to Canadians in early 2021.
Investors might also consider or hold cryptocurrencies as a portfolio asset class that allows for greater diversification; we might think of it as digital gold. For the record, I hold some bitcoin by way of this fund from 3iQ.
I am also planning to add Bitcoin that I will hold directly within my own digital wallet. I will keep you posted on what service I use to increase my direct Bitcoin exposure. From my observations, cryptocurrencies continue to march toward greater acceptance around the globe. The PayPal story is a giant leap.
Of course, before you hold or invest in cryptocurrencies, do your own research and understand the risks.
Dale Roberts is a proponent of low-fee investing who blogs at cutthecrapinvesting.com.
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