Why mining investors need to pay attention to electric vehicle sales, three Canadian stocks Barclays likes, and the decade of TSX bank dominance

Global mining giant Glencore PLC estimates that each electric vehicle will require 84 kilograms of copper, 30 kilograms of nickel, and eight kilograms of cobalt. Demand for battery powered cars then is not only of interest to oil patch investors concerned about future demand, but also investors and potential investors in Canada’s base metal miners.

We will find out a lot about future demand for electric vehicles in 2019. On one hand, consumer excitement about Tesla Inc. cars is expected to wane significantly. In a report published Tuesday, Morgan Stanley analyst Adam Jonas wrote, “We see TSLA hitting an air pocket in demand that is coming earlier than we expected.” Mr. Jonas also cut his stock price target for Tesla to US$260 from US$283.

Volkswagen AG, however, is betting heavily on a big upswing in electric vehicle sales. According to Bloomberg, “VW is spending 44 billion euros (US$49-billion) through 2023 on electric and connected cars… [the company] now plans to build 22 million battery-powered vehicles over the next 10 years, compared with an earlier goal of 15 million.” General Motors Co., by comparison, expects to sell one million electric vehicles annually by 2026.

Volkswagen has one all-electric vehicle for sale now, the e-Golf, and is developing four new models for 2020. The design for the new cars is decidedly futuristic, even if the I.D. Buzz is a rolling homage to the 1960s icon, the Volkswagen Bus.

It’s definitely not sales of the e-Golf that have Volkswagen so bullish about the sector’s future. The Cleantechnica website reports that 1,354 e-Golfs were sold in the U.S. in 2018 compared with an estimated 140,000 Tesla 3 models.

In the very short term, there’s not much going on in the electric vehicle sector beyond some puzzling behaviour from Tesla’s billionaire founder Elon Musk. Cleantechnica notes that outside of Tesla’s Model 3, sales have been mixed at best with numerous companies experiencing year-over-year sales slowdowns in 2018 .

When we approach the fourth quarter of 2019, the hype for Volkswagen’s new electric cars will start to ramp up. The extent of consumer interest – positive or negative – will have market effects well beyond the auto sector. This will be particularly true for Canadians invested in energy and metals stocks.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Intertape Polymer Group Inc. (ITP-T). This is a dividend stock that analysts believe will continue to recover from a downtrend that had been in place throughout all of 2018. Consequently, this dividend stock has become a value play, trading at a discount relative to its historical averages. For patient investors, the upside potential may outweigh the downside risk. The stock has five buy recommendations and two hold calls with an anticipated one-year price return of 25 per cent along with a 4 per cent dividend yield. With headquarters in Montreal and Sarasota, Fla., Intertape develops and manufactures products, such as carton sealing tapes and industrial and specialty tapes and fabrics, used in industrial, automotive, and aerospace applications. Jennifer Dowty reports (for subscribers).

The Rundown

Barclays lists three Canadian stocks among top picks for Americas

When it comes to natural resources, the Canadian market is still home to some of the continent’s top stock picks, according to Barclays. While the oil patch is still operating under mandatory production curtailments, and there is no resolution in sight to the pipeline dilemma, the Canadian energy sector is undoubtedly in a much better place than it was a few months ago. The pipeline bottleneck has eased and the discount on Canadian crude has gone back to normal levels. Valuations, on the other hand, are stuck in the doldrums. Cenovus Energy Inc.’s stock, for example, trades at about a 40-per-cent discount to net asset value, Barclays analyst Paul Cheng said in a report. That’s one reason Mr. Cheng named Cenovus as the top pick among North American integrated oil companies. Tim Shufelt reports (for subscribers).

Consider the Moneyball approach to smarter investing

If you’re a baseball fan, especially one who has read the bestseller Moneyball, you know big data has reshaped how teams evaluate players. More and more, scouts rely on specific numbers and statistical comparisons rather than subjective impressions of a kid’s talent. The same trend is evident in the investing world, where number crunchers have spent years attempting to distill the factors that identify attractive stocks. This effort, known as factor investing, has encountered a mixed reception. Many investors would prefer to do things the way they have always done them – by looking at individual stocks and attempting to project their futures based on conjecture. Even the most diehard traditionalist, though, has to acknowledge that factor investing is a growing force. BlackRock, the giant money manager, estimates there is US$1.9-trillion invested in factor-based strategies and expects that to rise to US$3.4-trillion by 2022. Yes, that is trillion with a “t”. Ian McGugan reports (for subscribers).

In battle to fight slowing growth, governments are running out of ammunition

A decade after Wall Street hit its maximum level of pessimism, the global economy is once again feeling a cold breeze on its neck. The Organization for Economic Co-operation and Development cut its outlook for growth on Wednesday, pointing to “major risks,” particularly in Europe. Also on Wednesday, the Bank of Canada acknowledged the current weak patch is likely to last longer than expected. Meanwhile, the Trump boom is fading. Economic growth in the United States is now limping along at an annual pace below 1 per cent, according to the latest Nowcast estimates from the Federal Reserve Bank of New York. The flurry of downbeat readings comes exactly a decade after the S&P 500 hit its lowest level during the financial crisis, on March 6, 2009. That is just a coincidence, of course. But it does underline the ways in which today’s market could wind up being just as treacherous for investors as the one a decade ago. Ian McGugan reports (for subscribers).

Shopify and Brookfield Infrastructure to join TSX 60 index, two more pot stocks added to Composite

Software company Shopify Inc. and Brookfield Infrastructure Partners LP are set to join the big club of corporate Canada – the S&P/TSX 60 Index – while Hudson’s Bay Co. managed to keep its place in the broader index of Canadian equities. S&P Dow Jones Indices, manager of those two major Canadian stock indexes, announced its quarterly changes to their memberships late Friday. The additions and deletions will go into effect on March 18, before trading opens. David Milstead reports (for subscribers).

Fed up with all the market volatility? This ETF may be the solution

Stocks went into a deep plunge in December. Then they staged a strong rally in January and February. But March has started off on the downside again. Fed up with all the volatility? There is a way to smooth out these wild swings. Many companies are now offering low-volatility exchange-traded funds (ETFs) and mutual funds that are specifically designed to minimize the effect of market turbulence. They have different names: low-volatility, minimum-volatility, low-risk. But they all have the same mandate – a portfolio consisting of stocks with a history of price movements that are less than those of the broad market. In theory, these low-volatility stocks should be less risky and, based on the research Gordon Pape has done, that does generally seem to be the case. There are many of these funds available, with wide geographic coverage. Here’s one that stood out in his research. (For subscribers)

Fresh optimism on gold, thanks to 'triple bubble in stocks, bonds and real estate’

For many wealthy people, gold’s shine comes from its coveted, safe-haven status amid uncertain times. While its price has been in the doldrums since hitting a record high of nearly US$2,000 an ounce in 2011, the metal regained some lustre last fall when it outperformed U.S. stocks during the sharp market downturn. And, despite its unpredictable roller-coaster ride, some brokerages forecast prices to rise this year. Shirley Won reports.

10-year anniversary of the bull market:

How the search for the market bottom 10 years ago proved elusive for even the top minds of investing

A headline on the front page of Report on Business in November 2008 amid the stock market crash sounds hopeless: “Cheap stocks that nobody wants.” The S&P/TSX Composite Index tumbled 9 per cent the previous day, on Nov. 20, the second-biggest one-day loss in the index’s history, and the S&P 500 closed at 11-year lows. Also in the day’s grim news, Teck-Cominco Ltd. (now Teck Resources Ltd.) suspended its dividend, Toronto-Dominion Bank’s chief executive discussed the bank’s surge in credit losses, JPMorgan Chase & Co. planned to lay off 10 per cent of its investment bankers and the financial aid from the International Monetary Fund and European nations to Iceland increased to more than US$10-billion. And in recognition that Berkshire Hathaway Inc.’s share price had fallen 50 per cent over the prior 12 months, an article deeper into the paper wondered whether the company’s CEO, Warren Buffett, had “lost his Midas touch.” But as we mark 10 years since the S&P 500 and the TSX began to recover from their lows, it’s interesting that this bleak backdrop coincided with one of the best buying opportunities in decades. Some observers were suggesting this. But many were not. David Berman reports (for subscribers).

The 10-year bull market: Even Warren Buffett couldn’t match the returns of Canada’s Big Five banks

On Day 1 of the recovery from the worst bear market since the Great Depression, the big Canadian banks led the charge on the Toronto Stock Exchange. Royal Bank of Canada’s shares rose 14 per cent on March 10, 2009, as investors stormed back into the much-maligned financials sector. RBC’s fellow Big Five incumbents all posted double-digit gains of their own. That day would prove to be the inflection point that separated the global financial crisis and devastating recession from one of the best bull markets in history. It would also usher in a decade of bank dominance in the Canadian stock market, displacing resources as the main driver of domestic equities. Tim Shufelt reports (for subscribers).

Cashless Society series:

The emerging threat to personal finances in a cashless world: Paying with plastic doesn’t feel as painful as cash

As a graduate student, Avni Shah used to buy her coffee with her debit card. One day she forgot it at home so she paid for her daily coffee with cash, but she noted two peculiar things about the experience. It felt more painful to hand over physical cash than it did to pay with plastic. And the coffee tasted better. Fast forward to today. Dr. Shah is now an assistant professor of marketing and a research fellow with the Behavioural Economics in Action at Rotman (BEAR) research cluster at University of Toronto. She is also one of the world’s leading experts in how the pain of paying for things influences how much we spend and how we feel about what we’ve bought. Preet Banerjee reports.

Others (for subscribers)

U.S. stocks with unsustainable dividends

Canadian yield curve ‘close to the danger zone’: BMO

The world’s top performing investment themes

Reader queries about John Heinzl’s dividend portfolio answered

Bullish on Algonquin Power & Utilities

Tuesday’s Insider Report: Chairman invests over $300,000 in this beaten-down dividend stock

Tuesday’s analyst upgrades and downgrades

Tuesday’s small-cap stocks to watch

Monday’s Insider Report: Chairman buys on the dip, investing nearly $300,000 in this dividend stock

Monday’s analyst upgrades and downgrades

Others (for everyone)

The Globe’s stars and dogs for last week

Ask Globe Investor

Question: My husband and I just retired. We have no debt and have a reasonably good income. We have $50,000 to invest and have not taken advantage of the tax-free savings accounts (TFSAs) yet. We are also planning to invest more into our registered retirement savings plans (RRSPs) this year. Trouble is, where to invest?

My husband’s investments in U.S. mutual funds have done extremely well, whereas my Canadian investments have performed moderately. With so much global uncertainty around trade, we’re puzzled. What would you suggest?

Answer: You’re asking the wrong question. Your first priority should to decide what you want to achieve. Growth of capital? Income? Safety? Once you have determined your objectives, that narrows the field of appropriate securities considerably.

Since you are both retired, I would think that a combination of cash flow and safety of principal would be at the top of your list. That would suggest you should focus on high-quality dividend paying stocks or exchange-traded funds (ETFs). You should also include some bond funds as a cushion against a possible stock market retreat.

By all means, open TFSAs for both of you. Depending on your income level in retirement, they may be a better choice than adding to an RRSP.

--Gordon Pape

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What’s up in the days ahead

Expensive housing and the availability of TFSAs have led to the greying of RRSPs. Rob Carrick will explain.

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Compiled by Gillian Livingston