It was an unpredictable and volatile year, one where a good internet meme could drive a stock’s climb just as easily as a good analyst’s report. Some companies that seemed well positioned to thrive in these strange times instead floundered (apparently, internet-connected exercise bikes and meal kits aren’t for everyone). And some decidedly old-school firms made strong showings (have you driven a Ford lately, Elon?).
With so many twists and turns along the way, it’s hard to remember everything that happened. So John Heinzl and Tim Shufelt are here to take a look at the companies that caught our eye, for better or worse, in 2021.
When the pandemic struck, the outlook for Canada’s banks seemed about as positive as Frosty the Snowman’s chances in a raging wildfire. With businesses closing and unemployment soaring, banks prepared for the worst by setting aside billions of dollars for potential loan losses. Then something unexpected happened: Not only did the world not end, but bank profits soared. With the economy snapping back faster and stronger than many people expected, the Big Six raked in collective earnings of $57.7-billion in fiscal 2021, up 40 per cent from a year earlier. Strong mortgage growth, solid wealth management and capital markets earnings and – perhaps most important – reversals of the banks’ hefty loan-loss provisions all contributed to their bulging bottom lines. After losing a third of their value at the pandemic’s outset, bank stocks were soon roaring to record highs in 2021. When the banking regulator finally lifted its prohibition on dividend increases this fall, the banks promptly hiked their payouts by double-digit amounts. That’s why you never bet against the banks, kids.
As people who have studied these things will tell you, COVID-19 vaccines are a plot by Bill Gates to implant everyone with microchips and usher in a global surveillance system. Well, duh! Another thing they’ll tell you is that the pandemic was created with the express purpose of making billions of dollars in profits for Big Pharma. Again, duh! Consider Moderna. Driven by global demand for its COVID-19 vaccine that uses novel mRNA technology, the company posted earnings of US$7.33-billion for the nine months ended Sept. 30, up from a loss of US$474-million a year earlier. And we’re supposed to believe that COVID-19 just happened to come along, and Moderna just happened to rapidly develop a highly effective vaccine that made its investors rich? And now that Omicron is spreading fast, Moderna just happens to be preparing a vaccine to target the highly transmissible COVID-19 variant, which will doubtless bring in billions more. Sure, and men landed on the moon. -JH
Consider the themes and trends that tend to ignite the passions of investors these days: The latest IPO. Crytocurrency. Green energy. Non-fungible tokens. You know what’s the opposite of all of those things? Steel. First you carve iron ore and coal out of the earth, heat it with the fires of hell, send the fumes into the sky, and bam, you’ve got a can, or a washing machine, or a bridge. Stelco itself was originally formed more than a century ago, its name a no-nonsense amalgam of “steel company.” Long purged from investors’ minds and portfolios, Stelco found new relevance in the pandemic. Households flush with cash and unable to spend it on experiences such as travel, instead poured money into durable goods – and there’s nothing more durable than steel. New homes needed new appliances. Garages needed new cars. That spike in demand combined with supply constraints pushed steel futures to an all-time high of US$1,945 a tonne – more than triple the prepandemic price. No news yet if there is a similar run shaping up on digital steel in the metaverse, but there’s bound to be an ETF tracking just that in the not-too-distant future.
Have you ever been caught in the middle of a family squabble and you’re just kind of sitting back, hoping things calm down so dinner can be served? At that point, an agitated uncle points at you and says, “This guy knows what I’m talking about, right?” Such was the mess Shaw Communications chief executive Brad Shaw found himself in when the Rogers family imploded over control of one of the country’s largest telecom companies. Chairman Edward Rogers’s campaign to replace the company’s leadership pitted him against his own siblings and mother, as well as Rogers’s independent directors, who tried to claim the Shaw CEO as an ally. They said the chaos sowed by the family rift threatened the proposed takeover of Shaw, adding that Mr. Shaw had requested no more changes to Rogers’s board or management. To which Mr. Shaw had no choice but to assert his aggressive neutrality, saying he wouldn’t take sides “out of respect for the Rogers family.” Respect for the $26-billion deal that vaulted Shaw’s stock to a record high was also implied. -TS
Between all the shuttered retail stores, empty restaurants and vacant office towers, commercial real estate was the last place many investors wanted to be at the start of the pandemic. As vacancies rose and tenants stopped paying rents, unit prices of real estate investment trusts plunged and many REITs slashed their distributions. How bad was it? Well, so bad that anyone who invested in REITs at the point of maximum fear would have made a small fortune. Thanks to vaccines, masks and government support, life began to return to normal and REIT unit prices shot higher. With the explosion of online shopping during the pandemic, industrial REITs that own distribution and logistics properties were among the biggest winners. In August, WPT Industrial REIT was acquired by Blackstone Real Estate Income Trust in a deal valued at US$3.1-billion or US$22 a unit – about three times WPT’s pandemic low in March, 2020. Be greedy when others are fearful, indeed. -JH
Bombardier’s inclusion on this vaunted list requires many caveats. Granted, it was a Top 5 performer in the S&P/TSX Composite Index this year. But that’s coming off an extremely low base, after spending most of the prior year in penny-stock purgatory. And the stock only rejoined the Canadian benchmark index in September after having been cast out a little more than a year before. It was a well-earned exile. After unloading the C Series airliner program that nearly bankrupted the company, and selling off the train division days later, Bombardier emerged as a pure-play business jet operation in early 2020 – just in time for the pandemic. By November of last year, the stock was trading as low as 28 cents a share. Then the pandemic receded, and Bombardier started building a backlog of orders. Still, many investors remain uncomfortable with Bombardier for any number of reasons – its track record, its debt level or simply the mercurial market for private jets. So perhaps it’s better to describe Bombardier not as a star, but as an asterisk. -TS
It’s time you admit that you have no idea what semi-conductors are or what they do. What is the thing they’re conducting, and why do they conduct it only part way? Are they like batteries? If so, why can’t I buy them at Best Buy? And if they start as sand, why is there a global shortage? Sand is everywhere. Only Nvidia knows the answers to these questions, and it’s not telling. “The acceleration in hyperscale and cloud comes from the transition of the cloud service providers in taking their AI applications, which are now heavily deep learning-driven, into production,” the company’s CEO Jensen Huang said on an earnings call in August. What does that even mean? Well, it doesn’t matter because the company is projected to rake in more than US$11-billion in earnings before interest, taxes, depreciation and amortization this fiscal year, which nearly doubles last year’s showing. Whatever Nvidia does to make everything you own work properly, it seems to do it very well. -TS
As Benjamin Graham, the father of value investing, once said: “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” If Mr. Graham were alive in 2021, however, he would probably describe the market as a “meme machine.” Driven by day traders hyping heavily shorted companies in online forums such as Reddit’s WallStreetBets, shares of GameStop, AMC Entertainment and other “meme stocks” posted astronomical gains, often followed by massive drops. Some of the biggest losers in this social media-enabled trading circus were hedge funds who bet against struggling companies, only to be caught in a short squeeze when widespread retail buying pushed share prices higher. When the shorts had to buy back shares to cover their positions, the demand pushed prices even higher, forcing more covering, and so on. That was precisely the goal of the self-described “degenerates” and “apes” of WallStreetBets, some of whom may be very nice people. -JH
The fact that 2021 has been the best year for oil stocks in a decade suggests the universe has a twisted sense of humour. After all, this was the year that big business was said to have finally acknowledged the existential threat posed by climate change, as the urgency around decarbonization and the transition to green energy gained momentum, and as divestment from fossil fuels was embraced by some of the world’s largest investors and pension funds. And yet, U.S. crude oil rose as high as US$85 a barrel this year – the highest price since 2014 – sparking a surge in cash flow in the energy sector. There wasn’t a single oil and gas stock in the S&P/TSX Composite Index in negative territory this year, with the average return among them coming in at about 135 per cent. Why? As investment in oil production and exploration wanes, there is a real chance of a perilous global supply crunch materializing before green alternatives have had a chance to take over. So, in a way, oil and gas shareholders have the ESG movement to thank for those tidy profits, which is enough to make Greta Thunberg tear out her braids. -TS
Quick: Which vehicle maker posted the higher return in 2021: electric car pioneer Tesla or 118-year-old dinosaur Ford? Hint: It starts with an F. And it wasn’t even close. Shares of the company had gained about 125 per cent through mid-December, more than triple Tesla’s return. Not only has Ford surpassed General Motors as the largest U.S.-based automaker, but in November the company outsold all other global car manufacturers in the U.S. market for the third consecutive month, a feat it hasn’t achieved since 1974. The gains were driven by new products, including the electric Mustang Mach-E crossover and hybrid F-150 pickup, and by record sales of redesigned Bronco SUVs. Looking to the future, Ford announced its biggest investment yet: a US$11.4-billion plan to build a “mega campus” in Tennessee that will turn out electric pickups and advanced batteries, and a pair of battery plants in Kentucky. Watch your back, Elon. -JH
When your prototype electric vehicle catches fire and is engulfed in flames just 10 minutes into its maiden test drive, that’s generally not a good sign. For Lordstown Motors – whose Endurance pickup suffered that exact fate in January minutes after an occupant noticed the car was “driving weird” – it was a very bad omen indeed. With the burning smell still wafting over its business, Lordstown suffered another hit to its credibility when the U.S. Justice Department and U.S. Securities and Exchange Commission opened investigations into its merger with a special-purpose acquisition company and began probing allegations Lordstown had inflated preorders for its truck. With its stock price plunging, the company’s CEO and chief financial officer both resigned in June. Months later, Lordstown announced the sale of its plant in Lordstown, Ohio, to Taiwan’s Foxconn Technology for US$230-million in a deal that would also see Foxconn oversee production of the Endurance. Originally scheduled to launch this past September, the truck’s commercial production has been pushed back to the third quarter of 2022. Order now and get a free fire extinguisher!
At first glance, Beyond Meat’s stock looked like the real thing. It had the same texture and consistency of a growth stock – lots of hype, flashy IPO, crazy valuation, the occasional piece of financial gristle. But investors looked a little closer and something just seemed … off. This year, consumer interest in the plant-based protein space appeared to hit a peak, at least in U.S. markets, and analysts saw signs that Beyond Meat’s market saturation was arriving quicker than expected after a stretch of blistering growth in its earlier days as a public company. Signs of waning growth throughout the year – partly a result of supply chain issues and the pandemic’s impact on demand – culminated with an ugly third-quarter result reported in November. U.S. net sales declined by 14 per cent year over year, while the company lowered its fourth-quarter revenue guidance to between US$85-million and US$110-million, well off the Street’s forecast at the time of US$131-million. Jefferies analyst Rob Dickerson called it “the quarter that likely broke the camel’s back.” Within a few weeks, Beyond’s shares hit a 20-month low, turning the once-growth darling into a potential contrarian play. To paraphrase Baron Rothschild, “the time to buy is when there’s simulated blood in the streets.”
How was this not your year to shine, gold? All the ingredients seemed to be there. Ultralow interest rates? Check. Commodity bull market? Highest inflation readings in decades? Dystopian chaos enveloping the globe and robbing from us all that we used to cherish about our day-to-day lives? Check, check and double-check. And still, gold stunk it up, no matter how you measure it. In a year in which the Bank of Canada commodity price index rose by more than 30 per cent, touching its highest level in more than seven years, gold bullion declined in price by more than 5 per cent. Gold miners did worse. Of the 26 gold names in the S&P/TSX Composite Index, just three posted a positive return on the year, while the average for the group was minus 17 per cent. What gives? One theory that gained traction through the year was that cryptocurrencies have begun to take the place of gold as a hedge against inflation. As an alternative to fiat currency, perhaps crypto is the better option for the digital age – it’s certainly easier to transport. If that’s true, and the world’s most malleable metal, the store of value since ancient times, is being supplanted by the likes of Dogecoin, well, that’s a new low of an entirely different sort. - TS
Remember a few years ago when everyone thought they were going to get rich investing in cannabis stocks? Well, here’s a buzz kill: If you’d invested $10,000 in Canopy Growth on Oct. 17, 2018 – the day recreational cannabis became legal in Canada – your shares would be worth about $1,900 today. That’s a lot of money to have gone up in, well, smoke. In 2021, things only got worse for the industry and Canopy in particular. With hundreds of licensed producers and a still-thriving black market competing for consumers who show little brand loyalty, retail cannabis prices in many markets fell below the cost of production, leading to losses across the industry. In November, two weeks after Canopy reported yet another quarter of red ink and falling sales, the company shook up its senior management, replacing both its chief financial officer and chief product officer. The moves followed a series of inventory writedowns, facility closings and job losses that have given Canopy investors a very bad trip indeed – one that may not end any time soon. -JH
The meme-stock phenomenon had a narrative worthy of Robinhood’s namesake. Masses of plebeian investors trading on the no-fee platform stuck it to the Wall Street elite, beating them at their own game. By piling into out-of-favour, heavily shorted stocks such as GameStop Corp. and BlackBerry Ltd., rookie day traders made incredible gains and foisted enormous losses on a number of large hedge funds that were betting against those same companies. At that point, the story’s protagonist seemed to join forces with the dastardly Sheriff of Nottingham to screw over the fine people of Sherwood Forest. In early January, Robinhood placed heavy trading restrictions on a number of meme stocks, allowing its members only to sell shares they already held. The move appeared to benefit the establishment at the expense of the little guy, enraging the app’s user base and sparking dozens of lawsuits. Robinhood’s year got worse from there. Its IPO in July was one of the worst on record for a company of its size. Its revenue model, which is based on the controversial practice of receiving payments for directing orders to market makers, has recently come under regulator scrutiny. It all sets up a powerful redemption arc, should our plucky anti-hero, once again, find its way back to the side of justice and “YOLO.” -TS
Falling off a treadmill can be painful. But investing in treadmill and exercise bike maker Peloton Interactive is sheer agony. In the early days of the pandemic, Peloton’s shares surged as locked-down consumers snapped up its home fitness products. But the stock’s ride was cut short when COVID-19 vaccines rolled out and demand sputtered for Peloton’s pricey internet-connected bikes. Last spring, Peloton suffered another setback when the company recalled its treadmills after reports of dozens of injuries and, tragically, one child’s death. With its stock already down by half from its 2021 high, Peloton in November crushed whatever optimism investors had left by slashing its fiscal 2022 guidance, triggering a wave of analyst downgrades. In a final indignity, a character on HBO’s new Sex and the City reboot suffered a heart attack and died after a Peloton workout. The character, Mr. Big, later came back to life in a parody commercial by Peloton, but it may take a bigger miracle to get Peloton’s stock back from the dead. -JH
“Honey, I’m starving. What’s for dinner?”
“Well, let me open this box of ingredients that a stranger in a warehouse assembled and placed on a truck that delivered it right to our door and find out, shall we?”
The concept of meal kits has undeniable appeal, especially during a pandemic. You get to cook a meal at home, without risking serious illness or worse with a trip to the grocery store. Goodfood Market rode the meal-kit trend to huge gains as the stock soared nearly fourfold in 2020. But the good times didn’t last for Goodfood. As consumers returned to buying groceries and eating in restaurants, revenue fell 5 per cent in the company’s fiscal fourth quarter, down from growth that averaged more than 50 per cent in the previous three periods. Goodfood is betting that investments in online grocery delivery will make up for the slowdown in meal kits, but it’s a capital-intensive business with plenty of competition and logistical challenges. Judging by the languishing stock price, investors don’t have the appetite. -JH
To call AT&T a “dog” does a disservice to dogs everywhere. The company has been on a 20-year campaign of capital destruction that has set a gold standard for executive incompetence, infuriating anyone who dared to put their money on the line. At the heart of this story is a doomed attempt to remake AT&T from a dull old telecom into a media conglomerate. This year, the company started the process of trying to undo the damage from its debt-fuelled acquisition binge. In February, it announced a deal to spin off its DirecTV satellite television operation, at a loss of roughly US$50-billion from what it paid for the business in 2014. “Inarguably one of the worst acquisitions of all time,” Wall Street telecom analyst Craig Moffett said in a note. Then, in May, came news of a deal to spin off WarnerMedia, just three years after finalizing the US$84-billion acquisition of Time Warner. The next piece of bad news is the inevitable dividend cut, lest investors be lured in by a soaring dividend yield. And if we must malign the canine species by association, AT&T must be considered among the worst ever, right up there with Cujo. -TS
With its crackdown on Hong Kong, persecution of ethnic Uyghurs and sabre-rattling toward Taiwan, China under President Xi Jinping hasn’t been winning many friends on the world stage. In 2021, its capricious economic and cultural policies started to alarm investors, too. The regulatory blitz – which included a sweeping ban of for-profit education providers and stricter controls on e-commerce, social media and gambling companies – wiped away an estimated US$1-trillion of market value and had investors around the world questioning whether a suddenly unpredictable China was worth the trouble. No company felt the brunt of China’s reforms more than DiDi Global. The ride-hailing giant completed a US$4.4-billion initial public offering on the New York Stock Exchange in June only to have China’s cybersecurity regulator abruptly block 25 of its mobile apps while it investigated Didi’s handling of personal data. With Didi’s stock trading at less than half of its US$14 IPO price, the chastened company announced plans to withdraw from the NYSE and list its shares in Hong Kong. Chalk up another, er, victory for Xi. -JH
Zoom Video Communications
Start with something nearly everybody hates – meetings – and think about how to make them much worse. You could add mirrors, for instance, so you have to look at yourself in real time as you’re discussing synergies and trying not to nod off. Then throw in spontaneous muteness, so people think they’re speaking but no words are coming out. Fill the entire workday with that, and you basically have the recipe for Zoom. Even Zoom CEO Eric Yuan admitted to having “Zoom fatigue” at one point last spring. All of which is why Zoom fading into obscurity would be a welcome signpost on the eventual return to normalcy. This year was a start. The company’s growth rates plummeted, which was inevitable after the pandemic effectively pulled forward years of growth and packed it all into 2020. Revenue in the most recent reported quarter, for example, grew by 35 per cent – not bad until you consider the 367-per-cent top-line growth the company posted in the same quarter last year. In the latest earnings call, Mr. Yuan asked analysts for “cool technology companies” that Zoom may pursue to beef up growth. None replied, unless they were all on mute. -TS
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