An Airbus A320neo and a Bombardier CSeries aircraft were hauled out for the backdrop at the news conference in October to announce the partnership.REGIS DUVIGNAU/Reuters
I learned the meaning of the term triage a long time ago from the television show M*A*S*H*. When wounded soldiers arrived at the hospital, the triage process involved doctors prioritizing the patients – this guy needs to go right into surgery, this one just needs his bandage changed and can wait for treatment.
Sifting through market news involves a similar process and one I'm struggling with in the past few weeks. There's no way to deal with the daily digital onslaught without an initial rating system based on the extent to which the news will move asset prices, now or in the near future. The task has become much harder and I'm not exactly sure why.
There are some worrisome recent market trends. There's this chart, showing a major new dislocation between U.S. corporate bond and equity market performance. High yield bonds in particular have been a 'canary in the coal mine' for North American equity markets in recent months and the sector has lagged badly.
There's also this chart which strongly implies that central bank stimulus, which will be sharply lower in 2018, is driving corporate borrowing costs. Signs that leaders in China, the country representing the biggest source of demand and price support for almost every commodity on the planet, is serious enough about reining in credit growth that its leaders are willing to accept lower economic growth, are not good news for the resource-heavy S&P/TSX composite index.
There are also a lot of optimistic signs for markets in 2018. Goldman Sachs believes that for global gross domestic product growth, the current situation is "as good as it gets .. the world economy is outperforming most predictions … our global GDP forecast for 2018 is 4.0 per cent ... The strength in global growth is broad-based across most advanced and emerging economies."
Domestically, energy-related investment has recovered from the commodity price collapse and the major banks have remained solid despite rising household debt levels.
It's always like this. The 'market climbs a wall of worry,' as the cliché goes and there's always things to worry about. History shows that the default answer is to be bullish anyway – markets tend to grind higher despite obvious hurdles. During rallies, upward price momentum becomes a self-fulfilling prophecy. Investors who have bet against the post-crisis rally have underperformed, often dramatically.
Even knowing this, I'm finding it difficult to de-prioritize bearish signals as part of the informational triage process. The trick will be to not make any rash decisions before the outlook becomes clearer.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Bombardier Inc. Bombardier Inc. has the potential for upside over the next 12 to 18 months if it can successfully bring its new Global 7000 business jets into service while continue to execute in its Transportation and Business Aircraft segments, according to J.P. Morgan analyst Seth Seifman. Though he acknowledged the presence of both financial leverage and execution risks, Mr. Seifman applauded the performance of company's management over the past two and a half years. He believes it's been "quick to confront" challenges, leading him to express confidence in it moving forward. He raised his rating on Bombardier. David Leeder reports.
Home Capital Group Inc. It's no longer a golden opportunity for bargain hunters. If Home Capital Group Inc. was a steal at $6 a share and a deal at $14, its attractiveness to risk-loving investors is now fading at $17. The alternative mortgage lender, which caters to home buyers who don't qualify for loans from traditional banks, has been on a tear since returning to profitability with its fiscal third-quarter results, released last week. David Berman reports.
TransCanada Corp. For all the attention given to the approval of TransCanada Corp.'s proposed Keystone XL pipeline through Nebraska this week, TransCanada's share price hasn't done much. Investors are seemingly oblivious to what appears to be good news for the stock, but this cautious response looks like an opportunity for anyone willing to make a long-term bet. David Berman reports.
Russel Metals Inc. This stock appears on the positive breakouts list, and offers investors an attractive yield of over 5 per cent. The stock has a unanimous buy recommendation. Russel Metals is one of North America's largest metals distribution companies. The company's has three core business segments: metals service centers, energy products, and steel distributors. Earlier this month, three analysts revised their target prices – all higher. Jennifer Dowty reports.
Xtreme Drilling Corp. This is a deep value stock with solid momentum. Robert Tattersall takes a look at where the stock is at and why he is still enthusiastic about the prospects for the energy services company, which owns a fleet of drilling rigs.
Premium Brands Holdings Corp. Every once in a while a stock such as Richmond, B.C.-based Premium Brands Holdings Corp. comes along. Gordon Pape originally recommended it when it was trading in Toronto at $19.49. It was paying an annual dividend of $1.25, for a yield of 6.4 per cent. At the time, he described the stock as being suitable for investors who wanted above-average yield plus capital gains potential and who are willing to assume some risk. The capital gains side of the ledger has performed admirably. The income side, well, not so much. Premium Brands owns a number of food manufacturing and distribution businesses across the United States and Canada. They include Harvest Meats, Grimm's Fine Foods, Gourmet Chef, Island City Baking, Diana's Seafood and more. Gordon Pape explains.
The Rundown
This will be the most important chart for investors in 2018
Scott Barlow's pick for the most important chart for 2018 is an all or nothing proposition. It either matters a lot, and investors across the world are in for a very difficult year, or it doesn't matter at all and this is the last time you'll see anything like it. Whatever happens, the chart should answer the important question as to how much of the market rally – accompanied by allegations of asset bubbles – has been the result of easy central-bank monetary policy. Scott Barlow explains two charts that are originally the work of British-based Citigroup credit strategist Matt King.
Why a drop in Chinese stocks is a positive sign
Chinese stocks suffered their worst one-day drop in 17 months on Thursday. Despite what you may think, this could be a good thing for investors in emerging markets.Volatility is the flip side of higher returns. It's why investors in riskier enterprises expect better results, on average, than people who pour money into safe, boring businesses. So investors in China, or emerging markets in general, shouldn't see the 3-per-cent drop in the CSI 300 as a portent of inevitable doom. When it comes to investing in these markets, volatility isn't a bug. It's a feature. Ian McGugan reports.
Three Canadian stocks that tick all the right boxes for juicy yields and dividend growth
One of John Heinzl's favourite investing books is The Single Best Investment: Creating Wealth with Dividend Growth, by U.S. money manager Lowell Miller. In a fast-paced world of hedge funds, momentum stocks and exotic exchange-traded funds, the book stands out for its sensible approach to investing. As Mr. Miller explains it, "the Single Best Investment approach relies on a simple formula, so simple it almost seems impossibly simple: High quality + high current dividend + high growth of dividend = high total returns." With that formula in mind, Mr. Heinzl looks at three solid Canadian companies that offer above-average yields and good prospects for dividend growth.
The stock market is being awfully kind to debt-heavy Canadian stocks
Canadians have opted out of the trend of investors punishing debt-heavy companies in favour of those with more-pristine balance sheets. Data from S&P Global Market Intelligence suggests many stocks of companies with weaker balance sheets have outperformed the S&P/TSX composite for the year and in the current quarter, unlike the phenomenon identified recently by Bloomberg News and some Wall Street research firms. David Milstead reports.
Reinventing the 60/40 portfolio
Traditional investment practice over the past 30 years advocated for a balanced portfolio of 60-per-cent equities and 40-per-cent fixed income, with a regular rebalancing program. This passive asset-mix approach has worked well over that time period. But traditions evolve over time in response to changing environments. I believe that now is one of those times, and it is being driven by two major factors – current interest rates and stock-market valuation levels. Lawrence Ullman explains.
When a correction comes, Larry Berman will be quick to buy into these ETFs
Larry Berman takes a look at a few different ETFs that either focus on artificial intelligence or are run by it, taking the emotion out of investment selection. Here are his choices.
ETF investors, this is the best performing Canadian market strategy of the past five years
The most successful ETF strategy for investing in the Canadian stock market over the past five years is the low volatility fund. A surprise, right? A lot of investors who favour exchange-traded funds might have guessed dividends, or maybe just using a fund that tracks the broad Canadian stock market. But both those strategies were mostly beaten over the five years to Oct. 31 by the low volatility fund. Rob Carrick reports.
What to look for when reviewing ETF fees
Investors may know a lot about the virtues of exchange-traded funds, but for some, the fees can still be a mystery. "Transparency on investment issues is becoming more important," says Darren Coleman, a Toronto-based portfolio manager and author of a new book on financial management called Recalculating: Find Financial Success and Never Feel Lost Again. David Israelson reports.
Having two advisors usually not better than one
When it comes to investing, one key tenet the financial services industry preaches universally is diversification. Stock and bond markets, real estate values and interest rates will rise and fall because of a host of unpredictable factors, but, as long as your holdings are adequately diversified, you will do well in the end. Many Canadians, consciously or not, engage in another form of diversification: They invest their money with multiple institutions and advisors. Does it make sense for several advisors to oversee your money, and for you to manage some additional funds yourself through a self-directed brokerage? Or are you better off committing wholeheartedly to one advisor and institution? Paul Brent explores the issue.
How much do you need to retire? A new type of calculator has an answer
If you've ever tried to determine how much you should save for retirement, you might have turned to online calculators of the type provided by banks and investment firms. Those tools could be doing you a disservice as the don't factor in all your potential income. Bryan Borzykowski looks at three different retirement calculators.
Is it wise to follow the herd into the biggest ETFs in Canada?
Investors seeking the largest exchange-traded fund in Canada for their portfolio know exactly where to look. The iShares S&P TSX 60 index, with just under $11-billion in assets under management at Sept. 30, is almost three times the size of its nearest competitors, the Canadian ETF Association reports. Jeff Buckstein reports.
Scott Barlow's Top Links
'Bear market checklist' gives equity rally room to run
Rough year ahead for commodity investors
Others
The week's most oversold and overbought stocks on the TSX
Friday's Insider Report: Companies insiders are buying and selling
Thursday's Insider Report: Companies insiders are buying and selling
Wednesday's Insider Report: Companies insiders are buying and selling
Robo-help for companionship, brain teasers or financial advice
Six ETFs that feature mighty small-cap stocks
Number Crunchers
Seven large-cap dividend stocks with exceptional earnings quality
Stocks in the materials sector with little debt and stable earnings
Seven stocks loved by analysts and institutions
Ask Globe Investor
Question: I pay a 15-per-cent withholding tax on U.S dividends in my non-registered account. Is there any way to get the money back?
Answer: You may be able to claim the U.S. tax withheld as a foreign tax credit on your Canadian return, which will reduce your Canadian taxes otherwise payable.
For example, say you own one share of a U.S. company that declares a dividend of $1 (U.S.). You would convert the dividend to Canadian dollars – about $1.26 (Canadian) at the current exchange rate – and declare it as foreign income on your Canadian tax return. As such, the full amount of the dividend would be taxable at your marginal rate.
But since you've already paid U.S. tax of 15 per cent, you could claim this amount – again, converted to Canadian dollars – as a foreign tax credit on your return to prevent double taxation. (If you received multiple dividend payments, you can make your life easier by using the average exchange rate for the year.)
If you're doing all of this by hand, there's some paperwork involved, but it should be relatively straightforward if you're using tax software. Because foreign tax can be a complex topic, I recommend you consult a tax professional if you have extensive foreign holdings.
Want to avoid the hassles of withholding tax altogether? Consider holding your U.S. stocks in a registered retirement savings plan, registered retirement income fund or other retirement account. Retirement plans are exempt from withholding tax under the Canada-U.S. tax treaty. The same is not true, however, of tax-free savings accounts or registered education savings plans. Not only will you pay a 15-per-cent withholding tax on U.S. dividends in a TFSA or RESP, but you won't be able to claim a foreign tax credit for the amounts.
--John Heinzl
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What's up in the days ahead
Rob Carrick explores the various options online for tracking your investments. Meanwhile, David Berman takes a look at how his portfolio of "misfit stocks" has been performing. Hint: a lot of portfolio managers out there could end up jealous.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston