Looking for investing ideas? Here’s your weekly digest of the Globe’s latest insights and analysis from the pros, stock tips, portfolio strategies plus what investors need to know for the week ahead.
Rosenberg: Wake up investors, you’re not getting the yield you deserve in the riskier domains of the bond market
The high-yield market is in the danger zone, David Rosenberg writes. This is not about spreads, which are only wide by virtue of how low government yields are trading. It is about the yield, or lack thereof. This is a space that is called “high yield” because the yield is supposed to be high to compensate for heightened risks of debt default. It is otherwise known as “speculative grade” or even “junk,” because these are companies with a ton of leverage on their balance sheets relative to their capital base and cash flows.
The speculative grade (12-month) U.S. corporate default rate has climbed to 7.32 per cent as of July 1, up from 6.39 per cent in June. This is a new 10-year high. There is an unmistakable pattern of rising default rates that started long before the current recession began. A decade ago, when the default rate was this lofty, the high yield coupon was more than 10 per cent. In fact, the level of today’s default rate has historically been associated with an interest rate, on average, of 11 per cent in the high yield sector. Today, that yield sits at 6.1 per cent. That’s why I call it “low yield” now – it does not deserve to be called “high yield” under the current circumstances, unless you think the default rate is suddenly going back down to 3.25 per cent.
Gordon Pape: This little-known Canadian transportation stock is thriving during the pandemic
Surviving and thriving during the pandemic largely comes down to being in the right business, Gordon Pape writes. The winners include information technology, pharmaceuticals, green energy and companies involved in keeping the supply lines open.
One of these is Montreal-based TFI International. It’s a leader in the transportation and logistics industry, operating across North America, offering package and courier service, truckload and less-than-truckload haulage and other services. Its shares are performing well, and first-quarter results were impressive. The bottom line benefited from increased demand as well as the deferral of certain tax payments because of economic stimulus measures. And TFI has been actively expanding its business through acquisitions. Read more about the company here.
Tread carefully with Brookfield Property’s 12-per-cent yield
A reader asks John Heinzl whether Brookfield Property Partners’ high yield is sustainable. He responds: As an owner of real estate including shopping malls, office buildings and hotels, Brookfield Property Partners has taken a direct hit from the coronavirus. The units have plunged about 35 per cent this year, which has pushed the yield up to about 12 per cent – a level that normally signals substantial risk of a distribution cut.
Given the leverage inherent in real estate and the highly uncertain course of the pandemic, its units are “only suitable for more risk tolerant investors, in our view,” Neil Downey, an analyst at RBC Dominion Securities, said in a research note published in May. That said, there’s a case to be made that the dividend may be secure despite the outsized yield, he says. Read more here.
Also from John Heinzl: Tesla, Rogers and more investing dogs for the week (spoiler alert, there are no stars)
Online brokers’ GIC rates are pitiful – here are three alternatives
This year’s plunge in interest rates has exposed a quiet flaw in managing your fixed-income investments through an online brokerage, Rob Carrick writes. If you want guaranteed investment certificates, prepare to get hosed. The GIC issuers that online brokers deal with offer rates that fall well short of the best available. One solution is to hold your GIC investments directly with issuers such as LBC or AcceleRate. But if you still want to hold all of your portfolio in one spot, here are three GIC alternatives to consider: government bonds, corporate bonds and savings account ETFs. Read more here.
More from Rob Carrick: 2020 vs. 2012 vs. 1984: Young adults have it harder than ever today
The good news for REIT investors
When Choice Properties Real Estate Investment Trust reported its second-quarter financial results this week, one of the key takeaways was that more of its retailing tenants are paying their rent, David Berman writes. Does the upbeat news apply to other REITs?
Rent collection from industrial tenants improved to 99 per cent in July, up from 97 per cent in the second quarter. Although rent collection from office tenants held steady at 89 per cent, these tenants account for a small slice of the revenue pie. Read more here.
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What investors need to know for the week ahead
There’s another slew of earnings releases in the week ahead, including many of the FAANG stocks: Apple, Amazon, Alphabet, Starbucks, Facebook, McDonald’s, Gilead Sciences, Fairfax Financial, Forits, Telus, TransAlta, 3M, Altria, General Motors, Spotify, Archer-Daniels-Midland, Royal Dutch Shell, General Electric, Yum! Brands, Kraft Heinz, BlackRock, Molson Coors and TFI International.
Economic data coming this week include: U.S. durable goods orders for June (Monday); U.S. goods trade deficit for June (Wednesday); U.S. GDP for the second quarter (Thursday); Canadian GDP for May, U.S. personal spending for June (Friday).
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