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In this Nov. 4, 2016 file photo, Donald Trump speaks in Hershey, Pa. (Evan Vucci/AP)
In this Nov. 4, 2016 file photo, Donald Trump speaks in Hershey, Pa. (Evan Vucci/AP)

Investor Newsletter

Booming banks, a potentially 'raging' energy stock, and whether the Trump honeymoon is over Add to ...

Canadian banks are very good at managing expectations. Chief executives are always pointing out that conditions are challenging – by which they usually mean that interest rates are low, loan losses are moving higher, the regulatory environment is getting tougher and new competitors are emerging in the form of nimble technology companies.

But if these are less-than-ideal conditions, investors must be salivating over what the banks are capable of delivering during better times.

Bank of Nova Scotia illustrated this point on Tuesday, when it kicked off the fourth-quarter reporting season for the big banks. Heading into the season, analysts were expecting the bank’s profits to increase just 4 per cent, year-over-year – no doubt in reaction to commentary from bank executives.

The actual result, though, was considerably better: Profits rose 8 per cent, to more than $2-billion or $1.57 a share – and the share price jumped more than 2 per cent on the big surprise.

And what did the CEO say? Brian Porter said that the bank achieved the results “despite ongoing market volatility, global economic and political uncertainty, and historically low interest rates.” Next year, he added, growth prospects will be similar to 2016.

True to form: Don’t expect good times – but be prepared for them.

-- David Berman

Stocks to ponder

High Liner Foods Inc. Is High Liner Foods’ sinking share price a good catch? A reader asked Jennifer Dowty for her opinion on the stock. The company recently reported results that showed a decline in sales and the company noted demand for breaded seafood products had declined. As a result, analysts have been revising their sales volume and earnings forecasts down. However, the company is focused on improving results and cutting costs, it has room for acquisition and dividend growth.

Raging River Exploration Inc. Analysts see a possible buying opportunity for this junior energy stock, writes Jennifer Dowty. The stock appears on the negative breakouts list with its share price falling 13 per cent over the past month. Analysts believe the current price weakness may represent a buying opportunity for investors. Be mindful that the price of oil, and energy stocks, may be volatile this week due to Wednesday’s OPEC meeting. The company does not pay a dividend, but of the 16 analysts who issued reports on the stock over the past two months, 14 have a "buy" recommendation and two have a "hold."

KP Tissue Inc. This stock appears on the positive breakouts list. It offers investors an attractive 4.9 per cent dividend yield. The stock price has rallied 27 per cent year-to-date, with analysts anticipating further double-digit returns over the next year, writes Jennifer Dowty. This consumer stock also has five ‘buy’ calls.

The Rundown

Trump's market honeymoon threatened by trade stance

The election of Donald Trump as the next U.S. president seems to have been welcomed by the stock market as unambiguously positive, writes Tim Shufelt. But the anticipation of more market-friendly policies to come is probably not sufficient to sustain a continued rally, according to Peter Berezin, managing editor of Montreal-based BCA Research. While certain elements of the Trump agenda, like corporate tax cuts, deregulation and fiscal stimulus are generally supportive of stocks, his protectionist promises could prove more destructive than the market currently calculates, Mr. Berezin said in a report.

The Great Canadian Dividend Fund Smackdown: Find a winner that works for you

Rob Carrick compares dividend exchange-traded funds with D-series mutual funds to find out what offers the best value for today's do-it-yourself investors. Check out his comparative table here.

Transfer times thwart robo-advisers

The popularity of robo-advisers is on the rise in Canada, but some companies say slow transfer times are creating an impediment to their business model, which touts efficiency and speed through online methods, writes Kiran Rana. According to Canadian robo-adviser firm Wealthsimple, it takes an average of 18 days for a financial institution to transfer clients’ funds after receiving the request. There’s also an average transfer fee of $101.

Is it time to buy into AI stocks?

Artificial intelligence can pick our stocks. But should investors be picking artificial intelligence? AI has long been a popular theme in sci-fi movies, but its potential is now entering the real world as computers start driving cars, beating the world’s best Go player, figuring out what we want to buy and constructing investment portfolios, writes David Berman. The best part? Though AI is starting to capture investors’ imagination, the interest has yet to translate into runaway share prices and lofty expectations.

Low volatility ETFs show their faults

So much for the idea that you could get premium returns from stocks with reduced risk, writes Rob Carrick. Low-volatility exchange-traded funds had a great run of doing exactly this. The BMO Low Volatility Canadian Equity ETF (ZLB) had a cumulative return of 85.5 per cent for the five years to Nov. 24, while the BMO S&P/TSX Capped Composite Index ETF (ZCN) made 32.3 per cent. But lately, the low volatility strategy has lagged. ZLB was up 5.5 per cent for the past 12 months, while ZCN was up 12.3 per cent.

One active investor’s recipe for beating the market

Jason Del Vicario has slimmed down his portfolio to five stocks, and he likes stock picking so much he made that his profession.

A slice and dice investing strategy

Last week, our American cousins celebrated Thanksgiving. A great many turkeys were sliced up for the occasion and each gobbler consumed their favourite bit, writes Norman Rothery. Similarly, stock pickers slice up the market and invest in companies they expect to provide the most succulent returns. The best way to chop up the market is naturally the subject of some debate. But it is useful to start by considering factors that have led to strong returns in the past. Money manager James O’Shaughnessy wrote the book on the topic. The latest edition of his What Works on Wall Street examines a slew of factors from ratios value investors love to return patterns followed by momentum investors.

Why your family needs an investment policy statement

Thane Stenner says all families need an investment policy statement. Those with simple estates or few heirs probably don’t. But if you have a larger family, or if you’re looking to pass on complex assets to the next generation – anything from a family business to a family cottage – an IPS can help a lot. An IPS defines the family’s long-term financial goals and forges agreement on those goals between generations.

Toll roads: One more reason to ditch your car

Toronto’s plan to charge highway tolls drives home a point about personal finance for the decade to come: Cars are a financial liability that will only get worse, writes Rob Carrick. So many government priorities can be served by squeezing drivers – fight global warming, ease urban road congestion, find money for public transportation and other projects. Some households can’t operate without a car, especially if they have kids or make long daily commutes from the boonies. For everyone else, here are four reasons to think about ditching your car: tolls are coming, gas prices will rise, car loans are crazy and what you buy will likely be obsolete soon.

Number Cruncher

Fifteen top-ranked TSX small-cap dividend payers

Ask Globe Investor

The Question:

I purchased BCE’s stock in July and since then it has only been going down. I was wondering if I should sell it or hold on. What do you think?

The Answer:

If you are tempted to sell a stock just because its price has fallen over a few months, you need to change your investing mindset. Otherwise, you will be setting yourself up for failure.

All stocks drop at one time or another, and BCE’s roughly 9-per-cent decline since the summer is actually quite mild. If I sold one of my stocks every time it dropped by that much, I wouldn’t have any stocks left! Learning to accept volatility – and not to let it interfere with your long-term investing plan – is a critical step to becoming a successful investor.

Instead of obsessing about short-term price moves, you should be focusing on the outlook for the business.

Stock prices are influenced by all sorts of short-term factors – including economic headlines, geopolitical events and general market sentiment – but if the company’s revenue, earnings and dividends are growing, the share price should ultimately climb over the long run (as BCE’s shares have done, despite occasional setbacks like the current one).

I won’t get into a detailed discussion of BCE’s business here. What I will say is that I own the shares personally and in my Strategy Lab model dividend portfolio (tgam.ca/divportfolio) and I intend to hold them based on the favourable outlook for the business.

In its third-quarter results released in early November, BCE posted revenue and wireless subscriber growth that both topped expectations. In the coming years, I expect that the company will continue to benefit from growing wireless data usage and smartphone adoption.

One of the main reasons I bought BCE was for its rising dividend, and – based on its pattern of increases in recent years – I expect another hike in February.

Whether the stock is BCE or any other company, a falling share price is, in and of itself, no cause for alarm. It may even present a buying opportunity – as long as the business remains healthy.

The only time I consider selling is when a falling share price is accompanied by a deterioration in the long-term outlook for the business, but that does not appear to be the case here.

--John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

On Wednesday, in his Yield Hog column, John Heinzl explains why he's investing more cash in Telus and David Berman looks at whether the "buy the laggard" bank strategy works. On Thursday, Jennifer Dowty will look at 10 stocks with insider selling and buying activity.

Click here to see the Globe Investor earnings and economic news calendar.

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