The past two days has seen three separate stories that could form a dangerous inflexion point for megacap technology stocks.
The outpouring of disgust at Jeff Bezos’s ride into space Tuesday was only the latest example of inequality-derived populist anger towards the biggest winners from modern capitalism. Variety magazine’s headline Watching Jeff Bezos Go to Space Was More Depressing Than Inspiring typified the widely held belief that no one should be wealthy enough to fund their own space program.
Also on Tuesday, President Joe Biden announced the selection of Jonathan Kanter, a dedicated critic of Alphabet Inc., as Assistant Attorney General for the Antitrust Division at the Department of Justice.
CNBC described the appointment as “another shot across the bow at the Big Tech firms.” The White House had already selected Lina Khan, a proponent of harsher anti-trust regulation for technology companies, as head of the Federal Trade Commission. Technology site Gizmodo described Mr. Kanter as the final piece of the president’s “big tech nightmare squad.”
Another high ranking official, Mr. Biden’s senior economic advisor Heather Boushey, was in the news Wednesday with a lengthy interview in the Financial Times. Ms. Boushey is an expert on the dangers of economic inequality as author of Unbound: How Inequality Constricts Our Economy and What We Can Do About It (London School of Economics review of the book is here).
Ms. Boushey did not make specific references to technology companies in the interview but did frequently allude to dominant companies paying higher taxes and government’s role in motivating higher wages.
Mr. Biden’s intent to tame the technology sector is clear and he is methodically building a team that can legislate change, even if every proposal is likely to be met with firm and well-funded opposition in Congress. The volcano of anti-rich political sentiment will, however, hamper any attempts to block reform.
The five biggest U.S. technology stocks make up between 20 and 25 per cent of the market capitalization-weighted S&P 500. Legislation that negatively affects their future growth will have a big effect of the performance of the overall index.
Domestically, Shopify Inc. is the biggest company in the S&P/TSX Composite, currently worth more than Royal Bank of Canada, so the extent to which U.S. reform affects their growth will have a major effect on the domestic index. And any company that dominates is potentially in the way.
I don’t think market-affecting change will be announced soon. But presidential tenures are a short four years and new proposals are likely not far away. Investors should be prepared.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Enthusiast Gaming Holdings Inc. (EGLX-T) Toronto-based Enthusiast Gaming has web and video platforms that people can visit and see video game and e-sports content. Its stock price has dropped more than 40 per cent since April, but may have now put in a bottom. The company has a unanimous buy recommendation from seven analysts, and the average target price suggests that the share price may rise 109 per cent over the next year. Jennifer Dowty profiles the stock.
Cargojet Inc. (CJT-T) The stock has a unanimous buy recommendation from 12 analysts, and is trading at an attractive valuation relative to historical levels. But as Jennifer Dowty tells us in this profile of the company, the share price may not rally significantly until there is evidence of solid execution of management’s key objectives.
The Rundown
‘What online stock trading platform would you recommend for a beginner?’
Huge gains for stocks in the past year have led to an increase in the number of people investing, and trying to get others interested in the market as well. The number of parents asking Rob Carrick for suggestions on how to get children of all ages involved in stock market investing has been far higher in the past 12 months than ever before. Grandparents are asking, too - including one asking what’s the best trading platform for a beginner. Here’s what Rob recommends.
New Canadian ETF offers 8.5% yield on a portfolio of quality stocks – and boosts returns by 1.25 times
Investors are constantly told that higher yields come from higher risks, but a brand new Canadian exchange-traded fund is testing this market convention by tracking a portfolio that is broadly similar to the S&P/TSX 60 – yet targeting an 8.5-per-cent yield. The new fund, created by Hamilton Capital and available for sale Wednesday, also provides investors with 1.25 times the market return of its underlying portfolio. Tim Kiladze explains how it works.
A $1-billion fund manager’s advice on how to weather the latest market turbulence (and three stocks worth buying right now)
Kash Pashootan isn’t letting the latest market sell-off change his conviction that value stocks are the place to be right now. He doesn’t see a bear market taking over in the near term and believes major sell-offs, such as we saw on Monday, further cement his view that, over all, more defensive, dividend-paying stocks will outperform high-growth names that have done well over the past year or so. Here, Mr. Pashootan describes three stocks he believes will benefit from the market shift.
Others
Number Cruncher: Ten highest yielding Canadian securities with proven track record of consistency and sustainability
Number Cruncher: Ten Canadian small caps with solid cash flow momentum
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Companies are buying back shares of these four dividend stocks
Tuesday’s analyst upgrades and downgrades
Tuesday’s Insider Report: Company repurchases $632-million in shares as this large-cap dividend stock slides
Globe Advisor
Advisors look to manage investor biases as stock markets shift
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Ask Globe Investor
Question: I wish to buy Canadian stocks for my non-registered account with U.S. dollars withdrawn from my registered retirement income fund in order to take advantage of the dividend tax credit. I would also like to avoid paying the currency conversion costs of switching my U.S. dollars to Canadian dollars. Are dividends of Canadian companies purchased on a U.S. exchange with U.S. dollars eligible for the dividend tax credit?
Answer: Scores of Canadian companies – including banks, railroads, pipelines, telecoms, insurers and utilities – are interlisted on a U.S. exchange such as the NYSE or Nasdaq. If the company’s dividends are eligible for the enhanced dividend tax credit, it doesn’t matter where you purchase its shares, in Canada or the U.S., as you’ll get the DTC either way.
If you aren’t sure whether a company’s dividends qualify for the DTC, read its latest dividend announcement. It will specify if the payment is an “eligible dividend” for tax purposes.
Assuming you already have U.S. cash on hand, buying Canadian shares in U.S. dollars on a U.S. exchange can save you money because you’ll avoid the spread of 1 to 2 per cent that brokers typically pocket by converting your U.S. funds to Canadian dollars at exchange rates that are favourable to them.
If you wish, you can then ask your broker to “journal” the shares to the Canadian side of your account so the dividends will be received in Canadian dollars. If you leave the shares on the U.S. side, your dividends will usually be paid in U.S. dollars. That’s how it works at my discount broker, but you should verify this with your own broker.
Just to be clear, if you don’t already have U.S. dollars to invest, there is no advantage to purchasing Canadian stocks on a U.S. exchange. You’ll just pay unnecessary currency conversion costs. In such cases, you would be better off buying the shares on a Canadian exchange.
--John Heinzl
What’s up in the days ahead
With restaurants buzzing at last across Canada, is it time to load up on their stocks? Brenda Bouw will tell us more.
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Compiled by Globe Investor Staff