In a year of lockdowns, travel bans and protests, one constant of modern life carried on much as before: Investors could still make a fortune – or lose their shirt – in the stock market. It’s just that the gains and losses were even more dramatic in 2020.
As horrible as the pandemic was – and still is – for humanity, it was a gift for investors in e-commerce, video streaming and vaccine stocks that soared as the coronavirus spread around the globe. But it was a bust for airlines, cruise ships and movie theatres, which spent much of 2020 on life support.
John Heinzl and Tim Shufelt take a humorous look at the companies that caught our eye, for better or worse, in a year we would all like to forget.
STARS
Etsy - Star
Before Etsy Inc. went public in 2015, the e-commerce company’s prospectus warned investors that it would not be the kind of organization that values “profits over community,” and as such, would refrain from providing earnings guidance of any kind to the Street, thank you very much. Then the document went into great detail about the composting practices at the company’s Brooklyn headquarters. The problem was that Etsy wasn’t that good at selling stuff. The site was tough to navigate, shipping was expensive and delays were common. It took about a year of nasty losses before the chief executive was ousted, the real suits were brought in and Etsy tweaked its mission ever so slightly – from socially conscious grassroots commerce to “maximizing shareholder value.” This year, Etsy became a bona fide blue-chip. The total value of goods sold on the site nearly doubled in the third quarter over the prior year. Before Tesla Inc. was added to the S&P 500, Etsy’s stock was not only the single best performer in the index, nothing else was even close. Etsy’s story reinforces two eternal truths: Wall Street is no place for idealists. And the world will never have enough artisanal soaps. – Tim Shufelt
Moderna – Star
Back in September, Gallup released its annual ranking of U.S. industries by reputation. Near the bottom of the list was oil and gas, advertising and public relations, and the federal government. But the pharmaceutical industry was dead last. From its role in the opioid epidemic, to its dubious lobbying of government officials, to sky-high U.S. drug prices, Big Pharma came into the year with a long list of strikes against it. Then along came the mother of all hero turns – a chance to save the world from the worst pandemic in a century. Just one year after the first cases of a mysterious new respiratory illness were reported in Wuhan, China, COVID-19 vaccines started being jabbed into shoulders around the world. The process has been particularly transformative for Moderna Inc., which entered the year a small biotech that had never successfully brought a drug to market. It’s now a household name – one that may soon be toasted over group dinners in crowded restaurants. – TS
Cargojet – Star
Finally we all have something to blame for the misery that is airline baggage policy – cargo. Here’s how every boarding experience goes now – passengers stretching the rules of carry-on limits crowd around the gate an hour before the boarding has even begun, then they get in line even though their zone hasn’t been called yet, and by the time you get on the plane, all the overhead bins are stuffed. Well, it turns out airlines have been filling the bellyholds of passenger planes with cargo, while charging us more and more to check luggage in the same space. So when airlines around the world ground to a halt in March, two-fifths of the global air cargo capacity vanished, at the very moment we all started compulsively shopping on Amazon.com while stuck at home. Cargojet Inc. was right in the sweet spot where a supply crunch met a surge in demand, especially considering the deal the company struck last year to handle Amazon packages. We can only hope Cargojet takes over the entire industry, saving us from baggage anarchy at the terminal gate. – TS
Netflix – Star
The doomsday movie genre got it all wrong. We were led to believe that surviving the apocalypse would require narrow escapes from crumbling cities, makeshift weapons, scouring abandoned towns for supplies, the occasional jump scare. In 2020′s unique brand of living nightmare, everyday protagonists found themselves doing little but day-drinking and binge-streaming prestige programming while stuck at home, with no sports to watch. Tailor-made for the lockdown economy, Netflix Inc. added 28.1 million subscribers in the first three quarters of the year. One industry poll cited by analysts earlier this year hinted at incredible loyalty among Netflix viewers, with 55 per cent of respondents indicating they would be willing to pay more for Netflix. So the company obliged them by raising subscription prices, which it tends to do every other year with little impact on demand. There’s little hint of weakness in the company’s stock, even with the possible end of the pandemic coming into view, when we can all go back to compulsively streaming by choice, rather than at the mercy of an evil little virus. – TS
Tesla – Star
Some of the things that have mattered most to Elon Musk include accelerating the transition to sustainable energy, colonizing Mars, using tunnels to transport people in ultrafast underground pods, creating brain-computer interfaces and facilitating moon tourism. Profits didn’t seem to be a huge priority. Tesla Inc., in fact, has become a US$600-billion company without much in the way of profits at all. While the company has now put together a string of marginally profitable quarters, the bottom line has been helped by the selling of energy credits to other automakers. But now Tesla’s stock is a member of the venerable S&P 500 index, and Mars boy has turned all dollars-and-cents. In a widely reported e-mail to Tesla employees this month, Mr. Musk emphasized the need to cut costs and said the company’s shareholders are betting on future profitability. “If, at any point, they conclude that’s not going to happen,” he warned, “our stock will immediately get crushed like a soufflé under a sledgehammer!” Depending on how the next year plays out for Tesla, future investors may have Mr. Musk to thank for coining a special class of inflated names, to be forever known as “soufflé stocks.” – TS
Amazon.com - Star
You didn’t have to look at Amazon.com Inc.’s soaring stock price to know the company was having a blowout year. You just had to notice the small mountain of Amazon parcels piling up on your neighbours’ doorsteps. As the pandemic prompted consumers to embrace online shopping like never before, the e-commerce giant reported a 35-per-cent surge in sales to US$260.5-billion for the nine months ended Sept. 30, as net income soared nearly 70 per cent to US$14.1-billion. Even as many businesses were going bust or fighting for their survival, Amazon’s growth only accelerated: To keep up with booming traffic on its e-commerce platform – and to meet surging demand for its Amazon Web Services and Prime Video offerings – the company went on a hiring binge, adding 400,000 employees worldwide through the end of the third quarter. But Amazon’s success also spawned another, less savoury line of work – porch piracy. Fortunately, Amazon sells a wide assortment of video doorbells and lock boxes to keep the package thieves in check. – John Heinzl
Zoom Video Communications - Star
“Grandma, pass the cranberry sauce, please.”
“I would, dear, but I’m in Winnipeg, remember?”
Christmas dinner over Zoom may have its limitations, but you won’t hear any complaints from investors in Zoom Video Communications Inc. With businesses, schools and families turning to the videoconferencing platform by the millions during the pandemic, Zoom became a household word as its revenues more than quadrupled through the first nine months of the year. But Zoom’s popularity didn’t come without costs. Exploiting weaknesses in the platform’s security, “Zoom bombers” – presumably working from their parents’ basements – hijacked online meetings and posted profanity, hate speech and pornographic images. Still, Zoom’s growth continued, and by the stock’s peak in October it had posted a year-to-date gain of more than 700 per cent. But with vaccines coming and the company projecting a slowdown in its explosive growth, the Zoom stock boom faded as the year came to a close. – JH
Peloton Interactive - Star
With the pandemic closing gyms and shutting down recreational activities, people who wanted to avoid packing on the pounds had a choice: They could walk, jog, or do push-ups in their living room (tip: put a small child on your back to really feel the burn). Or they could whip out their credit cards and purchase expensive home fitness equipment in a desperate attempt to avoid the “quarantine 15.” No company was a bigger beneficiary of the at-home fitness trend than Peloton Interactive Inc., whose pricey internet-enabled stationary bicycles – starting at US$1,895 – were in such hot demand that users often had to wait months to take delivery. As sales of Peloton’s bikes, treadmills and online fitness subscriptions took off, culminating with a 232-per-cent revenue increase for the quarter ended Sept. 30, the stock has more than kept pace, rising more than 400 per cent year-to-date. After a brief rest in the fall, the stock began pedalling furiously again in December after Peloton announced the acquisition of Precor – a fitness equipment company whose U.S. manufacturing capacity should help Peloton cut delivery times for its bikes. – JH
Shopify – Star
“It’s way too expensive!” “It’s the next Nortel!” “It’s already gone up 3,000 per cent over the last five years – it’s gonna crash any day now!” Investors had all sorts of reasons not to invest in Shopify Inc., and given the stock’s skyscraping multiple of about 300 times next year’s estimated earnings, you couldn’t blame them. Yet the Ottawa-based software company kept proving the skeptics wrong. With the pandemic driving more merchants and consumers online, the company, whose e-commerce platform is used by more than one million businesses in 175 countries, posted revenue of US$1.95-billion for the first nine months of 2020 – up 82 per cent from a year earlier. Shopify’s scorching growth propelled it past eBay to become the second-largest e-commerce platform in the U.S. behind Amazon.com. It also made Shopify, at least briefly, the most valuable publicly traded company in Canada. Although it has since relinquished top spot to Royal Bank – a company that was more than 40 times as profitable through the first nine months of 2020 – Shopify still claims a hefty weighting of more than 5 per cent on the S&P/TSX Composite Index, meaning plenty of Canadian investors are exposed to the stock whether they want to own it or not. – JH
Northland Power - Star
Renewable power companies had the wind at their backs – and the sunshine on their shoulders (that’s a John Denver reference, kids) – all year long. One of the standouts was Northland Power Inc., which operates offshore and onshore wind facilities in North America and Europe and is building a major offshore project in Taiwan. Propelled by a shift away from carbon fuels and by surging demand from ESG investors – who evaluate companies based on environmental, social and governance factors – Northland’s stock kept pushing higher as analysts issued a flurry of “buy” ratings and competed to see who could raise their price targets the fastest. Northland, which also operates solar and natural-gas-powered plants, had plenty of company: Boralex Inc., Innergex Renewable Energy Inc., Brookfield Renewable Partners LP and its newly created sister company Brookfield Renewable Corp. also delivered electrifying returns, which stood in sharp contrast to the sinking share prices of dirty oil and gas stocks. To borrow from another famous singer-songwriter: “The money, my friend, is blowin’ in the wind.” – JH
DOGS
Xerox – Dog
You know all of those work-from-home stocks that were suddenly thrust into the spotlight when the pandemic forced us all to work in our living rooms? Xerox Holdings Corp. is the opposite of that. It’s a work-from-work stock. In fact, Xerox makes most of its money from office workers accidentally printing phonebook-sized reports and then forgetting to pick them up from the copy room. The rest of the top line comes from those spam-like faxes for travel deals that seem to pile up on copy machines. Where do those even come from? But not only did the pandemic crush the printing business, it also killed Xerox’s hostile takeover attempt of HP Inc. To simply call it a tough year for Xerox, however, does a disservice to the company’s campaign of obsolescence. It’s been a tough millennium. Its only hope is that we all get vaccinated and return to the office before we realize that we don’t really need to print anything any more. – Tim Shufelt
Genworth MI Canada Inc. – Dog
Up until the end of February, Genworth MI Canada Inc. had been showering cash on its shareholders like a rich uncle. Over the previous 12 months, the mortgage insurer had distributed more than $900-million, implying a dividend yield of nearly 20 per cent, based on late February’s share price. The company still had another $200-million to $300-million pledged to shareholders through the rest of 2020 and more in 2021. When the pandemic hit, Genworth had to turn off the taps. The company backstops Canadian lenders at the riskier end of the mortgage market. So the concern was that once mortgage payment deferrals afforded to Canadian borrowers ended, and income supports provided by the government wound down, mortgage insurers would be hit with a spike in defaults. So no more special dividends, at least for a while. For investors accustomed to frequent payouts from Genworth, the pause in special dividends was received like a trust fund kid having his credit card declined. – TS
Fairfax Financial – Dog
The stock market rally that first took hold in the spring was so powerful and all-consuming, it was difficult for any company to be left out. But Fairfax Financial Holdings Ltd. managed to pull it off. Since the March 23 market bottom, Fairfax shares have trailed the S&P/TSX Composite Index by a colossal 50 percentage points. That feat of underperformance is the result of Fairfax’s concentration on some deep-value turnaround plays that have failed to materialize, such as BlackBerry Ltd., which is trading 50 per cent below its five-year peak. Additionally, insurance conglomerates such as Fairfax tend to suffer when interest rates are low, because they earn less on reinvested premiums. It’s the same kind of business model Warren Buffett built Berkshire Hathaway Inc. around, which is one reason Prem Watsa is often compared to the famous U.S. investor. But considering Berkshire’s stock has badly trailed the S&P 500 index over the past decade, perhaps the comparison is apt for the wrong reason. – TS
Energy sector - Dog
Consider what the past five years has been like for the Canadian energy sector. First, the U.S. shale oil boom flooded the global market, leading to an enormous excess supply made worse by Saudi Arabia triggering a price war in 2014 to defend its market share. Then, a critical shortage of pipeline capacity in Canada devalued a barrel of Alberta crude down to the price of a decent sandwich, forcing a cascade of job losses, dividend cuts, capital outflows, production curtailment and poisoned politics that cripple Western energy economics to this day. Growing urgency surrounding climate change and the boom in ESG investing have increasingly targeted the oil sands for its emissions-intensive record. Then came the pandemic, which crushed the demand for oil as much of the world stopped commuting or travelling in order to focus on making sourdough bread. It’s hard to imagine what else could go wrong for the oil patch, except maybe for the discovery of an alien propulsion system completely replacing fossil fuels. But wait! Here comes a shift into deep value and cyclical stocks, which has reduced the losses in XEG, an ETF proxy for the oil patch, from its 2014 peak to a mere … 70 per cent. – TS
iShares S&P/TSX Capped Energy Index ETF - XEG
Wells Fargo – Dog
When you’ve sapped the patience of Warren Buffett, you know you’ve done something very wrong. Whereas Wells Fargo was once the single largest equity holding in Berkshire Hathaway’s portfolio, the conglomerate’s stake in the bank has been slashed to just US$3-billion. And Mr. Buffett is a fan of banking. He reiterated in February it’s a good business “as long as you don’t do dumb things.” Wells Fargo’s dumb thing was creating millions of accounts without customer consent in order to boost fees. In February, the bank settled with federal authorities and agreed to pay a US$3-billion fine. And in November, former CEO John Stumpf was hit with a US$2.5-million fine by the Securities and Exchange Commission. On top of that, the pandemic has hammered the entire banking sector. But none more so than Wells Fargo, which cut its dividend by 80 per cent in July, is looking at more painful cost cutting and layoffs, and is losing share in some key markets. Customers, like regulators, have long memories for dumb things. – TS
Cineplex - Dog
The pandemic was brutal for countless businesses, from retailers and restaurants to that “gentlemen’s” club down the street where the contact tracing list never seems to check out. But few felt the pain more than movie theatres, whose business depends on packing large numbers of people into a confined space for hours at a time. Even if people wanted to go to a movie – and many did not – government-mandated shutdowns made it impossible for much of the year. And with studios delaying major releases or bypassing the big screen altogether and going directly to online streaming platforms, the financial losses mounted. For the nine months ended Sept. 30, revenue at Cineplex Inc. plunged 70.1 per cent and the company posted a net loss from continuing operations of $393.6-million. Had the timing of the pandemic been different, this movie might have had a happier ending. Late in 2019, Canada’s largest movie theatre chain agreed to a $2.8-billion takeover by U.K.-based Cineworld Group PLC. But Cineworld called off the deal in June, and the parties are now fighting in court – not the sort of drama Cineplex investors were hoping for. – John Heinzl
Carnival - Dog
Cruise ships have a well-deserved reputation as floating petri dishes, infamous for outbreaks of norovirus, food poisoning and bad dancing by middle-class people in rented formal wear. But in 2020, the danger was taken to a new level as the deadly novel coronavirus hitched a ride on dozens of vessels. The British-registered Diamond Princess – which in February was quarantined in the Port of Yokohama in Japan – was the first cruise ship to be crippled by a major outbreak, with more than 700 cases and 14 deaths. Before long, cruise ship outbreaks seemed to become a daily event, with vessels being turned away or forced to quarantine while governments scrambled to repatriate citizens. With ticket sales drying up and the virus spreading around the world, major players such as Carnival Corp., Norwegian Cruise Line Holdings and Royal Caribbean Group had no choice but to cancel voyages. In the span of just two months, shares of Carnival – the world’s largest cruise operator – lost more than 80 per cent of their value. And while the shares have been recovering on hopes that the pandemic will recede in 2021, the stock is still badly under water. – JH
RioCan Real Estate Investment Trust - Dog
For months, RioCan REIT investors wondered if its lofty yield – which at times topped 10 per cent – was sustainable. In December, they got their answer: Of course it isn’t sustainable. RioCan’s one-third distribution cut shouldn’t have come as a complete surprise given the extent of the REIT’s troubles, but it was still an unwelcome development in a year that already had more than its share of grim news for REITs in general and RioCan in particular. Citing “the most challenging quarter ever for many of our tenants,” RioCan in July said it collected just 73.3 per cent of rent for the second quarter (excluding deferrals and government funding). Cash collections from tenants improved to 90.9 per cent in the third quarter, but it wasn’t enough to stave off the distribution cut, which RioCan said was necessary given “the uncertain retail landscape created by the COVID-19 pandemic and … an unknown length and breadth of closures.” The lesson for investors? If a yield seems too good to be true, it probably is. – JH
Air Canada - Dog
At some point during the pandemic, you may have looked up and asked yourself, “Where have all the airplanes gone?” Air Canada investors were asking themselves a slightly different question: “Where has all my money gone?” The airline business is volatile at the best of times, but when you layer on a global pandemic it becomes unviable. In the third quarter – historically the most profitable for the company – Air Canada’s revenue totalled just $757-million, down $4.77-billion or 86 per cent from a year earlier. As it suspended routes and slashed passenger capacity by 80 per cent, the company eliminated 20,000 jobs – roughly twice as many as it had created over the previous five years. Other cost-savings measures included retirements of older aircraft and delays or cancellations of new plane orders. Even as Air Canada CEO Calin Rovinescu warned that the airline is preparing “for a smaller footprint expected to last several years,” the shares moved higher in November and December, signalling that some investors are hoping – perhaps a little too optimistically – for clear skies as early as next year. – JH
Le Château – DOG
In its 61-year history, Montreal-based clothing retailer Le Château Inc. survived recessions, stagflation, the financial crisis, the invasion of U.S. retailers and the advent of online shopping. It also survived more than a few scary fashion trends – acid wash jeans and velour tracksuits, anyone? But even as it endured its share of financial struggles, the retailer carved out a niche as a place where young people could buy an outfit for the prom or the club without breaking the bank. But when the coronavirus cancelled the 2020 prom and wedding seasons, and retailers were ordered to temporarily close their doors, the writing was on the wall. In October, with the holiday party season shaping up as a complete bust, the company announced that it would wind down its business and liquidate its 123 stores under the Companies’ Creditors Arrangement Act. The shares were then demoted to the NEX board of the TSX Venture Exchange, where they recently fetched about a penny. The good news is that, as of this week, you could still score a deal on a party dress on Le Château’s website. The bad news? You may not get to wear it until the pandemic is over. – JH
John Heinzl
Tim Shufelt