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.
Looking for value stocks? Here are five strong options for income investors
A reader asks Gordon Pape what value stocks are and to provide some examples. He responds: Investopedia defines a value stock as one that trades at a lower price relative to its fundamentals, such as dividends, earnings or sales. Such stocks usually offer a high dividend yield, low price/book value (p/b) ratio and/or low price/earnings (p/e) ratio. Value stocks typically trade at a bargain price relative to the market and their peers.
These are useful stocks for income investors. Typically, they are in defensive sectors and the higher-than-average yields make them a good source of cash flow. Here are some stocks he believes meet the criteria: Emera, TC Energy, AT&T, Bank of Nova Scotia and Pfizer. He makes the case for each here.
Five ways GIC investors can fight back against wafer-thin interest rates
One of the big banks had a special offer on guaranteed investment certificates recently – one year for 0.75 per cent, compared with a posted rate of 0.55 per cent. Nothing I could say about low interest rates would top this illustration of investing futility, Rob Carrick writes. The cost of living rose 0.7 per cent in June on a year-over-year basis, which means this “special” GIC rate offers an after-inflation return of pretty much zero. Clearly, GIC investors need some special help to get through the next while.
Among his five suggestions is trying a registered deposit broker. They work in much the same way as mortgage brokers – they have relationships with a variety of firms and can shop the market in a way that’s difficult to do on your own. For example, a GIC issuer may have a temporary rate promotion that hasn’t been widely publicized. Or there may be a credit union you haven’t come across with market-leading rates. Here are the other four ways.
More from Rob Carrick: How the COVID-19 pandemic may sabotage retirement for boomers and Gen X
Why the yields on bond ETFs aren’t as high as they seem
A reader looking for fixed income alternatives to poor-paying GICs asks John Heinzl for his thoughts on the iShares Core Canadian Universe Bond Index exchange-traded fund, with a 2.51-per-cent yield. He responds: It’s important to understand what you’re getting into before you take the plunge. While its credit quality is very high, that 2.51-per-cent yield you quoted requires some elaboration.
The iShares website calls this the “distribution yield,” and it represents the ETF’s most recent monthly distribution multiplied by 12 and divided by the current unit price. But it doesn’t tell you the full story. The vast majority of the more than 1,300 bonds in the ETF are trading at a premium to their par value, having risen in price as interest rates dropped. These bonds are going to gradually fall in price as they approach maturity, when they will be redeemed at par. The posted distribution yield doesn’t include this expected capital loss.
A better gauge of its expected return is the “yield to maturity” (YTM), which includes the coupon payments of the bonds and the expected capital loss if the bonds are held to maturity. According to the iShares website, the weighted average YTM of the bonds in the ETF is 1.21 per cent – or less than half of the distribution yield. After subtracting the management expense ratio of 0.1 per cent, its net YTM falls to about 1.11 per cent. Read more here.
More from John Heinzl: Yield Hog model dividend growth portfolio as of July 31, 2020
What’s behind the TSX rebound from the March lows
This relentless rally in Canadian stocks has been brought to you by natural resources, Tim Shufelt writes. Unlike the U.S. stock rally, which is being sustained by a handful of tech and consumer behemoths monopolizing the pandemic economy, the Canadian bull market is in the thrall of a commodity boom.
Metals, energy, and lumber markets have stormed back from their winter lows, gaining strength off of China’s economic resurgence, a broad improvement in global industrial indicators, and optimism that the spread of COVID-19 can be curbed. As a result, Canada’s materials industries have propped up the S&P/TSX Composite Index, even as the mighty domestic banking sector remains deep in correction territory.
Plus Shopify has certainly been pulling more than its weight. Read more here.
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A Q&A with David Rosenberg: Pandemic economy calls for discipline and patience
“This is a flash-in-the-pan bear market rally,” economist and market observer David Rosenberg tells The Globe and Mail. “And actually, it’s a rally that’s been concentrated in a handful of growth stocks, megacap stocks. It’s hard for me to wrap my head around the idea of a bull market when you have financials, consumer services and industrials still in bear markets. The small-cap stocks are in a bear markets. The transports are in a bear market. The bull market is largely concentrated in health care stocks, on these vaccine hopes. And you’ve got a bull market in technology companies that are disguised as utilities: Amazon or Microsoft or Alphabet.
“But it’s the most narrowly based rally of all time. And I don’t think it has a lot of legs. The parts that you like, which are technology and delivery service and the growth stocks, which have great business models, are trading at nosebleed multiples, and are too expensive. And the stuff that’s cheap, the value trade, is cheap because they have no earnings visibility. So I think that you want to be disciplined and you want to exercise tremendous patience. And I know that it must take incredible resolve not to join the herd. But there are times where you don’t want to join the herd. This market, right now, is in the process of rolling over.” Read the full interview here.
What investors need to know for the week ahead
The spotlight will continue to be on earnings in the week ahead, as companies releasing their latest financial results include Hydro One, Emera, Algonquin Power, Northland Power, Brookfield Asset Management, Metro, Jameson Wellness, Great Canadian Gaming, Barrick Gold, Nutrien, CAE, Canada Goose, Intertape Polymer, Boyd Group, Marriott International and Cineplex.
Economic data on tap include: Canada’s housing starts and U.S. producer price index for July (Tuesday); U.S. inflation numbers for July (Wednesday); Canadian manufacturing sales and orders, plus U.S. business inventories for June, as well as U.S. retail sales and industrial production for July (Friday).
Looking for more investing ideas and opinions?
- TSX breakouts: One of the world’s richest people is invested in this soaring Canadian telehealth stock
- ‘Opportunity widens’ in Canadian REIT sector: Analyst
- Multiple insiders trim positions in this stock that’s up 165%
- Stunned by gold’s record rise? There’s more to come, analysts say
- The week’s most oversold and overbought stocks on the TSX
- Real estate better than utilities for yield-hungry investors: BMO