Do you like receiving surprises? A surprise gift or a surprise birthday party? I think most people like the former but not so much the latter. The markets are similar in they do not react well to surprises, as what happened this past week. I was reminded the stock markets do not like inflation, they do not like pandemics, but most of all, they do not like surprises. Let’s see what spooked the markets this week …
Market News
Monday: After fears of the Covid-19 Omicron sent the markets into a tailspin on Friday, all four North American indexes – Toronto Stock Exchange (TSX), S&P 500 (S&P), Dow Jones Industrial Average (DJIA) and Nasdaq Composite Index (Nasdaq) – rebounded as investors took a breath and waited for more information on the new virus strain. The US markets were led upward by the technology sector (Apple (NASD:AAPL) & Microsoft (NASD:MSFT) leading the way) and consumer cyclical (Amazon (NASD:AMZN) & Tesla (NASD:TSLA) leading the way) sectors.
Tuesday: US Federal Reserve Chair Jerome Powell spooked the markets when he suggested he no longer considers high inflation as “transitory,” and as a result, the Federal Reserve may accelerate interest rate hikes. Worries about interest rate hikes and the Covid-19 Omicron virus teamed up to knock the TSX down 2%, the biggest decline since October 2020. As well, all three of the American Indexes were down between 1.5% – 1.9 %.
Wednesday: As fears of Omicron eased, the TSX rebounded on the strength of rising oil prices and strong earnings from Canadian banks. In the US, the markets had a good start to the day but the first reported case of the Omicron virus in the America sent all 3 Indexes down at least 1%, respectively.
Thursday: While the markets await news on the severity of the covid-19 Omicron variant, the TSX rebounded from Wednesday’s seven week low, thanks to the financial sector leading all 11 sectors higher for the day. The gain in the financial sector was led by the big 5 Canadian banks (Royal Bank (TSX:RY), TD Bank (TSX:TD), Scotiabank (TSX:BNS), Bank of Montreal (TSX:BMO) and Canadian Imperial Bank of Commerce (TSX:CM)) all announcing higher dividends and share repurchasing programs, both good for investors.
In the US, all three Indexes were up, with the DJIA having its biggest one-day percentage gain since early March. Despite Canada ruling out Boeing (NYSE:BA) as the supplier of Canada’s next fleet of fighter planes, Boeing had their best day since late February after China approved the 737 Max airplane. Imagine, Chinese approval is worth more than Canadian approval. 😊
Friday: The Omicron covid-19 variant sent shivers through investors with the TSX falling 2.3% for the week, its biggest weekly drop since January 2021. In the US, the S&P, DJIA and Nasdaq were up and down like a yo-yo throughout the week but in the end they all fell for a second straight week. For the DJIA it was the fourth consecutive weekly drop.
For November, the markets were unable to maintain the upward October momentum for more than a week before drifting sideways once talks of inflation started. On November 19, the markets started downward before a sharp drop on fears of increased covid-19 cases in Europe, fears of inflation being more than ‘transitory,’ and finally, fears of the latest covid-19 strain, omicron. For the month, the TSX/S&P lost 1.8%, the S&P declined of 0.8%, the DJIA dropped 3.7% and the Nasdaq squeaked out a 0.25% gain.
To put the Indexes into perspective, despite the recent declines, all of the Indexes are still up for 2021. The chart below shows the gain/loss for the year on the right, and the compound annual growth rate (CAGR) percentages for each index across the top, year to date.
Portfolios News
Before I created the past week’s chart, I knew it was not going to be pretty. All three portfolios lean towards growth-oriented technology stocks and other than the mega cap companies like Apple and Microsoft, the technology sector had a rough week. What the markets give, they take back. This was another week they took back. ☹ Portfolio 2 is more dividend oriented, and those companies tend not to move up and down as much as growth-oriented companies. While Portfolio 1 has a lot of growth-oriented companies, it is also much more diversified than the other two portfolios. While the majority of technology companies in the portfolio company did not fare well, Apple, a few of the non-technology companies managed to escape the week with minimal losses. Finally, Portfolio 3 was the biggest lose for the week. If we were talking weight that would be great, but we are talking dollars, which is not so great.
Companies on the Radar
With the markets on a general downward trend, despite brief upward spikes, I have been sitting on the sidelines to see how far down the markets will go before scooping up companies that are on sale. Currently, I like American Tower (NYSE:AMT), Nvidia (NASD:NVDA) and Unity Software (NYSE:U).
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended December 3, 2021: DOWN 
Thud! That is the sound of DocuSign (NASD:DOCU) dropping like a stone, nearly 35%, on an investor’s toe at the start of trading on Friday. Having a company fall over 30% in a few minutes is not the way to start a day. DocuSign ended up down 42% for the day. Revenues were not DocuSign’s problem, it was their billings growth which had slowed from 47% in the second quarter to 28% in this third quarter, indicating a possible slow down in the company’s growth. The urgency of implementing DocuSign’s solutions has tapered off as the world starts to live with covid-19. The digital transformation tailwinds caused by the virus that had propelled the company’s share price up substantially since the start of the pandemic are starting to diminish.
I still like the company’s electronic signature solution and do not see us returning to the old way of signing forms. For example, think of how you bought car insurance prior to covid-19. You went to an insurance agent to signed legal documents that allowed you to drive your car. Since the pandemic started, you can phone an insurance agent and ‘sign’ your insurance papers while sitting at your computer. Much more convenient. And this is only the component end users experience. DocuSign also has a full cloud-based agreement management system with additional benefits for companies that sign up for their solutions.
Another company that has not done so well lately is Lightspeed Commerce (TSX:LSPD). Lawsuits against Lightspeed for allegedly making false and misleading statements continue to weigh on the share price, down over a third in the past month. The general market downturn is not helping.
Otherwise, Portfolio 1 got knocked down like the other portfolios and the markets. Hopefully, the bottom of this downturn is nearby, if not already reached. Somehow Rivian (NASD:RIVN) is till above where I bought it. I wonder how long that will last?
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Shaw Communications Inc (TSX:SJR.B)
US $
No US$ dividends this past week.
Quarterly Reports
Bank of Nova Scotia (TSX:BNS)
All currency listed in Canadian dollars
Selected highlights from their fourth quarter 2021 financial results on November 30, 2021
Fiscal 2021 Highlights on a Reported Basis (versus Fiscal 2020)
- Net income of $9,955 million, compared to $6,853 million
- Earnings per share (diluted) of $7.70, compared to $5.30
- Return on equity(1) of 14.7%, compared to 10.4%
- Annual common dividend per share of $3.60
Fourth Quarter 2021 Highlights on a Reported Basis (versus Q4, 2020)
- Net income of $2,559 million, compared to $1,899 million
- Earnings per share (diluted) of $1.97, compared to $1.42
- Return on equity of 14.8%, compared to 11.0%
Crowdstrike Holdings Inc. (NASD:CRWD)
All currency listed in US dollars
Selected highlights from their third quarter 2022 financial results on December 1, 2021
- Total revenue was $380.1 million, a 63% increase, compared to $232.5 million in the third quarter of fiscal 2021.
- Annual Recurring Revenue (ARR) increased 67% year-over-year and grew to $1.51 billion as of October 31, 2021
- GAAP loss from operations was $40.3 million, compared to $24.2 million in the third quarter of fiscal 2021
- Free cash flow was $123.5 million, compared to $76.1 million in the third quarter of fiscal 2021.
DocuSign Inc. (NASD:DOCU)
All currency listed in US dollars
Selected highlights from their third quarter 2022 financial results on December 2, 2021
- Total revenue was $545.5 million, an increase of 42% year-over-year.
- Subscription revenue was $528.6 million, an increase of 44% year-over-year.
- GAAP net loss per basic and diluted share was $0.03 on 198 million shares outstanding compared to $0.31 on 186 million shares outstanding in the same period last year.
- Free cash flow was $90.0 million compared to $38.1 million in the same period last year.
Toronto-Dominion Bank (TSX:TD)
All currency listed in Canadian dollars
Selected highlights from their fourth quarter 2021 financial results on December 2, 2021
FULL YEAR FINANCIAL HIGHLIGHTS, compared with last year:
- Reported diluted earnings per share were $7.72, compared with $6.43.
- Reported net income was $14,298 million, compared with $11,895 million.
- Reported earnings were $3.8 billion, down 26% compared with the fourth quarter last year, primarily reflecting a net gain on the sale of the Bank’s investment in TD Ameritrade
- A dividend increase of ten cents per common share for the quarter ended January 31, 2022, an increase of 13%
FOURTH QUARTER FINANCIAL HIGHLIGHTS, compared with the fourth quarter last year:
- Reported diluted earnings per share were $2.04, compared with $2.80.
- Reported net income was $3,781 million, compared with $5,143 million.
- Canadian Retail reported net income was $2,137 million, an increase of 19% compared with the fourth quarter last year.
- S. Retail net income was $1,374 million (USD $1,092 million), an increase of 58% compared with the fourth quarter last year.
Portfolio 2
Portfolio 2 for the week ended December 3, 2021: DOWN
Portfolio 2 was the best of a bad lot this week, falling 3.9%. The Portfolio saw increasing losses every day starting November 30. The week was capped off with a 6.5% drop by MongoDB (NASD:MDB) on Friday. The good news is nothing changed with any of the companies in the portfolio, so Portfolio 2 was caught up in the general market decline. Its not fun to experience declines but since there is no need for cash, the best thing for me to do is be patient and wait for a buying opportunity to present itself.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Fortis (TSX:FTS)
US $
No US$ dividends this past week.
Quarterly Reports
Bank of Nova Scotia (TSX:BNS)
All currency listed in Canadian dollars
Selected highlights from their fourth quarter 2021 financial results on November 30, 2021
Fiscal 2021 Highlights on a Reported Basis (versus Fiscal 2020)
- Net income of $9,955 million, compared to $6,853 million
- Earnings per share (diluted) of $7.70, compared to $5.30
- Return on equity(1) of 14.7%, compared to 10.4%
- Annual common dividend per share of $3.60
Fourth Quarter 2021 Highlights on a Reported Basis (versus Q4, 2020)
- Net income of $2,559 million, compared to $1,899 million
- Earnings per share (diluted) of $1.97, compared to $1.42
- Return on equity of 14.8%, compared to 11.0%
Portfolio 3
Portfolio 3 for the week ended December 3, 2021: DOWN
You know who seems to like inflation – bank stocks. When inflation rises, the way to fight inflation is to raise interest rates. While higher interest rates are not good for borrowers, they are beneficial to lenders. For Portfolio 3, the beneficiaries were the Royal Bank of Canada (Royal) and Toronto Dominion Bank (TD). Both held up fairly well during the market decline. TD was one of two companies in the portfolio to actually end up higher at the end of the week. The other company that ended the week higher was GDI Integrated Facility Services (TSX:GDI) . Both banks and GDI are not flashy, but they keep grinding upward which is why they are in the portfolio. They provide diversification and function as a counterweight to the flashier high growth technology stocks which can jump up a lot but also can fall hard, like Shopify (TSX:SHOP) dropping CAD $200 on Friday. Shopify is by far the largest position, so when it falls, the Portfolio falls.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Enghouse Systems (TSX:ENGH)
Royal Bank of Canada (TSX:RY)
US $
No US$ dividends this past week.
Quarterly Reports
Royal Bank of Canada (TSX:RY)
All currency listed in Canadian dollars
Selected highlights from their fourth quarter 2021 financial results on December 1, 2021
For the year ended October 31, 2021:
- Net income of $16.1 billion for the year ended October 31, 2021, up $4.6 billion or 40% from the prior year.
- 2021 Diluted EPS $11.06, up 41% YoY
- 2021 ROE – 18.6%, up from 14.2% last year
Q4 2021 compared to Q4 2020:
- Net income of $3,892 million
- Diluted EPS of $2.68
- ROE of 16.9%
Toronto-Dominion Bank (TSX:TD)
All currency listed in Canadian dollars
Selected highlights from their fourth quarter 2021 financial results on December 2, 2021
FULL YEAR FINANCIAL HIGHLIGHTS, compared with last year:
- Reported diluted earnings per share were $7.72, compared with $6.43.
- Reported net income was $14,298 million, compared with $11,895 million.
- Reported earnings were $3.8 billion, down 26% compared with the fourth quarter last year, primarily reflecting a net gain on the sale of the Bank’s investment in TD Ameritrade
- A dividend increase of ten cents per common share for the quarter ended January 31, 2022, an increase of 13%
FOURTH QUARTER FINANCIAL HIGHLIGHTS, compared with the fourth quarter last year:
- Reported diluted earnings per share were $2.04, compared with $2.80.
- Reported net income was $3,781 million, compared with $5,143 million.
- Canadian Retail reported net income was $2,137 million, an increase of 19% compared with the fourth quarter last year.
- S. Retail net income was $1,374 million (USD $1,092 million), an increase of 58% compared with the fourth quarter last year.