A Wednesday research report from Barclays analyst Ross Sandler called Its official – the internet is slowing big-time. Now what to do? identifies a huge shift in a global equity market that has been frequently FANG-driven.
Barclays analyst Ross Sandler wrote, “the fact is that the consumer internet is rapidly slowing across all sectors… deceleration has only continued into 1Q19 and is being experienced across all major sub-sectors we track: advertising, e-commerce, online travel, ride-hailing, streaming services, cloud, etc … The next wave of innovation is likely coming from plumbing like machine learning, which will dramatically improve all internet services and bring about new use cases like voice and image recognition, but we don’t see this as a major traffic or revenue growth re-acceleration catalyst.”
Where cloud computing is concerned, Mr. Sandler’s view is backed up by Citi’s Jim Suva, who recently projected that corporate spending on cloud computing is set to decline in 2019 after climbing 57 per cent in 2018.
This is inconvenient for me. Cloud computing, along with health care stocks, has been my top investing theme for the past five years. Through investments (and eventual sales) in F5 Networks Inc. and Red Hat Inc., the theme has been a profitable one.
The Barclays report, and U.S. Senator Elizabeth Warren’s campaign commitment to use anti-trust legislation to break up Facebook Inc. and other tech sector behemoths, are contributing to a growing sense that the second wave of technology investment is reaching a conclusion.
In the 1990s, the tech boom was primarily corporate driven. Telecom companies bought Nortel and Cisco equipment to spread internet access across companies, and desktop computers and Microsoft Windows were installed at almost every employee desk, and Walmart used software to revolutionize its store stocking logistics. The recent boom – featuring online shopping, social media, Netflix, gaming and Uber – has been far more consumer focused.
Geopolitical concerns are limiting technology spending by corporations in 2019 and it’s possible that a resolution in the U.S. versus China trade battle will prove the tech slowdown a temporary phenomenon. Even so, investors should view the technology winners of the past decade with increasing skepticism and search for new growth trends in the sector.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Premium Brands Holdings Corp. (PBH-T). This stock appears on the positive breakouts list (stocks with positive price momentum). On Tuesday, the share price popped over 8 per cent on news of a roughly $200-million investment in the company made by the Canadian Pension Plan Investment Board. Since closing at a record high in April 2018, the share price has decline over 30 per cent. On the recent earnings call, management highlighted headwinds that the company faces that may limit near-term share price appreciation. For patient, long-term investors, the depressed stock price may represent an investment opportunity. Jennifer Dowty reports (for subscribers).
The Rundown
The alcoholic-beverage sector is losing its buzz, and caffeine is taking its place. Here’s how investors can profit
A non-alcoholic pub opened in Dublin and that shows why the drinks industry is facing strong headwinds to growth. Investors should take note. The beer, wine and spirits business was once as close to a riskless growth proposition as a shareholder could hope to find. Sales dependably swelled, even in economic downturns, and so did profits. Those steady, assured gains no longer seem like such a sure thing, especially when it comes to beer. Over the past five years, some of the world’s biggest brewers – Anheuser-Busch InBev SA, Diageo PLC and Molson Coors Brewing Co. – have lagged behind the market. What has done better? Think caffeine. Ian McGugan explains (for subscribers).
Balanced fund smackdown: Old-guard mutual funds versus upstart ETFs
A well-chosen balanced fund is the simplest path to investing success. Nothing else comes close because balanced funds are well-diversified portfolios you access through a single purchase. The only way to fail with a balance fund is to (a) not invest regularly or (b) make a bad choice of fund. Let’s take a look at two excellent balanced-fund options for do-it-yourselfers who invest through an online broker – low-cost balanced mutual funds and balanced exchange-traded funds, which have been gaining popularity in the past year or so and are easily the best new investment product in ages. Both offer a soundly constructed, cost-effective way to build wealth. For a successful investing outcome, choose one that makes sense and commit to it for a few decades or more. Rob Carrick reports (for subscribers).
Horizons launches first ever ETFs to bet against pot stocks, instantly double down on sector
Investors for the first time will be able to purchase exchange-traded funds to bet against pot stocks – or alternatively, double down on a wager that the cannabis sector is about to move higher. Horizons ETF Management Canada Inc., the provider of the world’s first marijuana-focused ETF – the Horizons Marijuana Life Sciences Index ETF – received regulatory approval on Tuesday to launch two new leveraged pot ETFs this Friday on the Toronto Stock Exchange. Clare O’Hara reports (for subscribers).
Canada’s big banks are about to report quarterly results - and analysts are hardly upbeat
Canadian bank stocks are lagging the S&P/TSX Composite Index this year amid concerns about slumping home sales, rising loan losses and a deteriorating outlook for the Canadian economy – adding to the importance of the banks’ second quarter financial results, which kicked off Wednesday. David Berman reports (for subscribers).
What’s better - bank stocks or a bank stock ETF?
The eruption of so many new ETFs in the Canadian market is putting more responsibility on investors to make sure they understand what they’re buying. The need to spell this out was driven home in a recent e-mail from a reader who seems dissatisfied with the RBC Canadian Bank Yield Index ETF (RBNK-T). RBNK holds the Big Six banks, but not in equal proportion. Stocks are weighted by dividend yield, so that high-yielding banks have a heavier weighting than lower-yielding banks. This strategy puts generating yield over growth. Rob Carrick explains (for subscribers).
See also: Listen to our first Carrick Talks Money call: Mortgage rates, condos and downsizing
Why technology stocks are at risk for an even bigger tumble
Like a lot of market volatility, the recent downdraft endured by large-cap technology stocks is entirely understandable in hindsight. Economically sensitive sectors such as technology had been outperforming to an extent not supported by global growth, and the resulting correction is helping narrow the divergence. Technology companies have often seemed like an unstoppable force as global economies become digitized but Richard Bernstein, former chief quantitative strategist at Merrill Lynch and founder of New York-based RB Advisors, has frequently warned that the sector is cyclical, with revenues highly dependent on global economic growth. Scott Barlow reports (for subscribers).
This ‘stable dividend portfolio’ has market beating returns with little drama
Thrill-seekers will line up to ride their favourite roller coasters this summer. The fiendish devices prompt rushes of adrenalin and queasiness, but offer little in the way of any real danger. The same is not true for stocks. Investors risk losing their money in the market after wild and stressful rides. To avoid sleepless nights, many investors turn to dividend stocks for succour because they’ve offered good returns with a modest amount of downside risk. Norman Rothery looks at stable dividend stocks that sport relatively placid return patterns because they’ve fared well in the past. (For subscribers).
Meet the Canadian analyst who thinks Warren Buffett has lost his touch (and Berkshire refuses to invite to its annual meeting)
Stock analyst Meyer Shields wasn’t being entirely serious when he suggested that Warren Buffett might consider a passive investing strategy rather than picking stocks. But he wasn’t entirely joking, either. After all, Mr. Buffett hasn’t quite lived up to his popular reputation as a gifted, visionary investor in recent years. Over roughly the past decade, Berkshire Hathaway Inc.’s track record for stock investing has failed to beat the performance of the S&P 500 index. Tim Shufelt reports (for subscribers).
Short sales on the TSX: What bearish investors are betting against
With Canadian stocks up more than 15 per cent in 2019 and outperforming nearly all other markets around the world, losses among short sellers in Canada now tally in the billions of dollars for the year. But the shorts remain unbowed: their bearish bets on Canadian equities recorded a net increase of $1.3-billion over the past 30 days to bring the total to $73.4-billion, according to data-analytics firm S3 Partners. Larry MacDonald reports (for subscribers).
Robo-advisers plot more growth in Canadian market
Robo-advisers are gaining momentum in Canada, with the digital investment managers now surpassing $5-billion in assets under management. In Canada, robo-advice assets under management was $4.1-billion as at December, 2018, spread among 15 firms, according to the Fintech Advisory Service Report by Strategic Insight. With the growth seen at Wealthsimple in the first quarter of this year, overall assets under management (AUM) in the industry has now well exceeded the $5-billion mark. Clare O’Hara reports (for subscribers).
Others (for subscribers)
Investors should prepare portfolios for a ‘major slowdown in the global economy’
Waste reduction: Sifting for companies that are leading the charge
Former Tesla bull makes $10 worst case call on China worries
Tariffs could lead to markdowns in U.S. retail shares
Wednesday’s Insider Report: Canadian billionaire buys 1-million shares in this beaten-down stock
Wednesday’s analyst upgrades and downgrades
Wednesday’s small-cap stocks to watch
Tuesday’s Insider Report: Director buys over $200,000 worth of this stock
Tuesday’s analyst upgrades and downgrades
Others (for everyone)
The Globe’s stars and dogs for last week
Bullish on Franco-Nevada Corp.
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Ask Globe Investor
Question: We have sold our house and wish to put a sizable sum into short-term investments in order to purchase a replacement within two years. We are looking at two-year GICs as well as potential high-interest mutual funds/exchange-traded funds (ETFs). Naturally, the big banks are not an option due to their low rates. But smaller banks like EQ Bank offer realistic rates. Your thoughts?
Answer: Since the money is going to be used within a short time, you don’t want to take any chances with it. A low-risk bond ETF is a possibility – the iShares Core Canadian Short Term Bond Index ETF (XSB-T) gained 3.71 per cent over the year to April 30. But if interest rates start to climb again, it could potentially lose some ground. That happened in 2017. The loss was fractional, but it was still a loss.
A high-yield savings account is certainly worth considering but you should consider the degree and nature of deposit insurance coverage. Motive Financial’s Savvy Savings Account currently pays 2.8 per cent and is covered by the Canada Deposit Insurance Corp. (CDIC). But that only protects the first $100,000 of your money. You probably have more from the house sale, which means you should look at spreading it around, so you’re not exposed if one financial institution runs into trouble. EQ Bank doesn’t pay as much (2.3 per cent) but it too has CDIC coverage. Using those two companies, you could invest $200,000 with full deposit insurance protection at an average rate of 2.55 per cent.
As for GICs, RateHub.ca shows the best two-year rate as being 2.85 per cent from Oaken Financial. Oaken is owned by Home Capital and their deposits are CDIC protected. However, Home Capital ran into some financial problems a few years ago that spooked investors so keep that in mind when making a decision.
You can check other options at www.ratehub.ca.
– Gordon Pape
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What’s up in the days ahead
CAE Inc. has a problem: Its shares have performed too well. David Berman looks at whether there’s greater opportunity, or risk, for investors right now.
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Compiled by Gillian Livingston
Scott Barlow