A worker walks past a pump jack on an oil field near the village of Nikolo-Berezovka in Russia on Jan. 28, 2015.SERGEI KARPUKHIN/Reuters
There is a price at which any asset is a buy, and a price where any asset is a sell. This can be a difficult idea for investors attempting to focus on good versus bad companies.
Take Amazon.com, for example. It’s a fantastic company, capable of growing its original online shopping business exponentially and expanding profitably into areas like cloud computing and smart speakers. Warren Buffett called Amazon CEO Jeff Bezos ‘the best business person I’ve ever seen.’
Amazon’s operational brilliance does not, however, automatically make its stock a great investment. The stock is down more than 10 per cent this week as a reminder that ‘growth at any price’ is a bad investing strategy. No matter how great a company is, there are limits to how much an investor should be willing to pay for the stock.
The reverse case is also true – there is a price where underperforming companies with business challenges can be profitable investments. Bombardier Inc., for instance, has struggled to sell C Series jets despite public assistance with financing, and the company remains well behind schedule in delivery streetcars to the Toronto Transit Commission.
The RoB’s David Berman, however, successfully identified a profitable entry point for Bombardier stock in late September 2017, and investors who followed his advice and bought the stock have generated an 80 per cent return so far.
None of this is to suggest that investors should build portfolios consisting entirely of underperforming companies, although it is possible for diligent investors to make money that way. The lesson is that being conscious of price, in combination with the quality of a company, is a vital part of successful investing.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Canadian Apartment Properties REIT (CAR-UN-T). It’s a solid choice for investors seeking income with a dash of growth, says John Heinzl. Apartment REITs provide steady cash flow that grows over time, without the hassles – such as problem tenants and maintenance headaches – of being a landlord. What’s more, because apartment REITs provide exposure to a large and diverse collection of rental units, a few vacancies here and there won’t have a material impact on your cash flow. One of Canada’s largest residential landlords, CAP REIT owns more than 50,000 residential rental suites and leased-land sites. John Heinzl reports.
Northland Power Inc. (NPI-T). This stock yields 5.2 per cent and has a payout ratio of 73 per cent and nine buy calls. It’s been on the positive breakouts list. Toronto-based Northland Power is an international power producer. In 2017, the company completed two offshore wind projects in Europe and is currently working on completing a third offshore wind farm, its Deutsche Bucht project located in the North Sea, Germany. This project is expected to be completed by the end of 2019. After the market closed on Feb. 22, the company reported better-than-expected fourth-quarter financial results. Jennifer Dowty reports.
Athabasca Oil Corp. (ATH-T). Don’t laugh. Athabasca Oil Corp. could just be the best stock pick in the energy sector, says David Berman. If you search the beaten-up Canadian energy sector for a notable underperformer, you’ll likely come face to face with Calgary-based Athabasca Oil, a stock that has fallen off the radar screens of most investors following a splashy initial public offering in 2010. From a debut at $18, the shares have been languishing below $2 for most of the past three years – weighed down by struggling oil prices, declining foreign interest in Canada’s oilsands and a rash of quarterly losses. But there is a bullish case here: Athabasca’s cash flow will soar if the energy sector can solve the shipping bottlenecks that are being blamed for holding back the price of benchmark Canadian oil.
Jamieson Wellness Inc. (JWEL-T). This stock that is just 1 per cent away from appearing on the positive breakouts list. For 2018, management anticipates earnings per share will grow between 19 per cent and 24 per cent. The company also offers investors income with a dividend yield of approximately 1.4 per cent. The stock has a unanimous buy recommendation from six analysts. The share price has rallied 11 per cent over the past two trading sessions and as a result, the share price may pause in the near-term allowing the stock to digest these gains. Jennifer Dowty reports.
The Rundown
Forget all the noise - here are the real risks for big tech stocks
In a world of ratcheting trade tensions, new-economy companies are proving to be just as vulnerable to international disputes as musty old-economy stalwarts such as steel makers or auto companies. Share prices of the FAANGs – Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google’s parent, Alphabet Inc. − have tumbled in recent days. There are multiple reasons for their slides, but one of the largest forces dragging them down is the growing possibility that countries outside the United States will unleash a new wave of taxes and regulation on the tech superstars. Ian McGugan reports.
What the oil-futures curve is saying about where crude is heading next
Oil futures in New York fell after the Energy Information Administration reported U.S. crude inventories increased by a more-than-expected 1.6 million barrels last week. After this surprise jump in supply, it’s time to revisit the oil futures curve to see what comes next for inventories and the price of crude. Continuing production curbs by the Organization of the Petroleum Exporting Countries (OPEC) has the effect of increasing short-term crude prices by limiting global supply. This short-term scarcity is artificial in that OPEC countries have the ability to export more oil, but are just deciding not to. This raises the odds of excess supply in the future, which depresses longer-term futures prices. The result is an oil-futures curve that points downward – “backwardation” is the trading term – with longer-term prices lower than spot and short-term commodity levels. Scott Barlow reports.
The dark side of dividends: Ballooning corporate debt
Canadian corporations have racked up a hefty debt load to feed the country’s dividend habit. Over roughly the past decade, corporate debt has tripled as companies have binged on ultracheap financing in part to keep money flowing to investors through dividends and share buybacks. The country’s corporate balance sheet now bears a record amount of debt, owing primarily to those sectors that are most generous with shareholder payouts – namely telecoms, pipelines and utilities. Tim Shufelt reports.
As the market struggles, this TFSA portfolio continues to rise
Gordon Pape takes a look at how well his TFSA portfolio has done since last September.
FANG stocks’ bite has U.S. fund managers looking for alternatives
Fund managers have begun to ditch FANG stocks that powered the U.S. stock market to record highs in January and are slowly rotating into commodity-related shares and other value stocks which typically outperform in late-cycle recoveries. Portfolio managers holding shares of Facebook Inc, Amazon.com Inc, Netflix Inc, and Google-parent Alphabet Inc say they are increasingly concerned that the data scandal that has sent shares of Facebook down nearly 15 per cent year-to-date will spill over into all of the FANG stocks, imperiling the broad market’s momentum at a time when there are no clear companies or sectors to take their place.
How not to get ripped off on GIC rates at banks
It’s a basic rule of investing that do-it-yourselfers get a better deal than people who buy through an adviser or sales person. Still, it’s striking to see how people buying guaranteed investment certificates get abused when they do their transaction in a bank branch. Expect rates that are dramatically lower than the same bank is offering to clients who buy GICs though the in-house online brokerage. Rob Carrick reports.
The upside of boring – potential bargains in an uncertain stock market
Andy Warhol is reputed to have said, “I like boring things.” When selecting stocks these days, investors may want to take Mr. Warhol’s statement to heart. While exciting investments – tech and marijuana companies, for example – have provided dramatic returns, research demonstrates that stocks with low volatility and modest but steady growth generally outperform growth stocks in the long run. Here are six stocks to consider.
Top Links
‘Markets are now sniffing out a rising stench from decaying debt’
Canadian consumer debt might be even worse than we thought
Others
Thursday’s Insider Report: Companies insiders are buying and selling
Thursday’s analyst upgrades and downgrades
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Companies insiders are buying and selling
Canadian pot and crypto stocks among promoters flagged by OTC
Tech fear premium jumps to 13-year high on latest FANG rout
200 days of pain is the lesson from stock corrections past
Inverse ETFs are trading like they did when VIX Index blew up
Seven gold stocks that can be a haven in tumultuous times
Ask Globe Investor
Question: I have a stock in my direct-investing portfolio with RBC which is being delisted. How do I obtain paperwork to support my capital loss claim on my income tax return as I never sold it?
Answer: Even if you have not sold the shares, you can claim a capital loss in certain situations, such as if the company went bankrupt or if it is insolvent and subject to a “winding-up order.” I wrote about these scenarios in more detail in a previous column. You should also contact your broker and ask if it can provide a way to dispose of the shares. Your broker may ask you to fill out a “deed of gift” form that transfers the shares to the broker at a value of zero.
--John Heinzl
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What’s up in the days ahead
David Berman looks at the investment case for Stella Jones, while Clare O’Hara explains why new bond ETFs are coming to market.
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Compiled by Gillian Livingston