Atrox mensis
For those not up on their Latin, that is ‘a terrible month’, or so Google tells me. And indeed, it was. Coming into April, I had such high hopes for the markets. So much for history. April has historically been the best performing month for stocks but this year the S&P 500 Index (S&P), Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq) all had their worst monthly drop since the financial crisis in 2008. But how did we get here?
The month started off with the Bank of Canada (BoC) raising its interest rate by .5% to 1% and ended with concerns the BoC may raise interest rates by more than .5% at their next session on June 1. During the month inflation hit a 31 year high in Canada. High inflation leads to high interest rates, leads to my growth companies getting stomped on. ☹ In the US, the consensus seems to be the US Federal Reserve (the Fed) will match the Canadian raise with a .5% interest rate hike. And both central banks are talking about additional rate hikes throughout the year.
The other big headwind is supply chain bottlenecks rearing their heads again. Many companies depend on products or components being made in China but with numerous Chinese cities in lockdown to stop the spread of Covid-19 in that country, those parts are not being manufactured. As a result, many North American companies are unable to fill their orders. For example, General Motors (NYSE:GM) has a huge inventory of nearly complete cars but can’t ship them because they can’t get the components needed to complete the vehicles. As a result, GM failed to meet their own projections for the first quarter. Rivian (NASD:RIVN) is facing the same problem, only they don’t have a successful track record going for them like GM so are finding it even harder to get suppliers to set aside components they need to complete their electric vehicles.
Despite strong earnings of the big technology companies, fear seems to have gripped the markets and investors are indiscriminately selling stocks. When investors were “buying the dip” looking for bargains, they were acting as a brake on the selloffs. With investors sitting on the sidelines, those brakes are no longer there to stop the fall as the markets and individual stocks pass through previous support levels (where share prices have previously stopped their downward movement and moved upward).
At this point, whatever tailwinds are available are easily overwhelmed by tailwinds. Market darling growth stocks that rode tailwinds for the last 2 years and were all the rage have been hammered this year by continuing headwinds. The primary headwind is inflation, but it has many offshoots including: aggressive interest rate hikes by the BoC and the Fed to fight inflation; the fear of higher interest rates on future earnings; and the impact of China’s COVID-19 lockdown on already fragile supply chains. And the cherry on top is the ongoing Russian invasion of Ukraine. On top of the humanitarian crisis caused by the war, the supply of oil, energy, and wheat to global markets has been badly squeezed.
Good riddance April 2022! As April showers lead to May flowers, I hope April’s downdraft has cleaned the deck for a strong May. For now, lets look at the week that was….
Weekly Market Review
Monday: The four major North American Indexes (Toronto Stock Exchange Composite Index (TSX), the S&P, the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq)) started lower but a late afternoon rally saw the three American Indexes end in the black while the TSX fell short of the break-even mark. The TSX was dragged down by declines in the Energy and Materials sectors.
In the US, Twitter (NASD:TWTR) agreed to be bought by Elon Musk, jumpstarting the late afternoon rally in technology companies. Many of the mega cap technology companies – Amazon, Apple (NASD:AAPL), Google parent Alphabet (NASD:GOOGL) and Microsoft (NASD:MSFT) – inched upward ahead or their respective quarterly earning reports later this week.
Tuesday: Headwinds took a toll on the Indexes today, with all four ending lower. The ongoing Russian invasion of Ukraine, Covid-19 lockdowns in China and fears of aggressive interest rate hikes continue to hammer away at the markets. In Canada, the lone bright spot was the Energy sector while the growth sectors Technology and Consumer Cyclicals each fell over 3%.
In the US, the situation was worse with each Index falling over 2% and all 11 S&P sectors ending lower. The Nasdaq suffered its biggest one day drop since September 2020, bringing it to 22% off its all time high in November 2021. Definitely in bear market territory (more than 20% off its high). All the big tech companies mentioned previously fell over 3%. If the big tech companies are hitting their numbers but continue to drop, it will not be pretty for other companies.
Wednesday: Led by the Energy and Materials sectors, the TSX got back on the winning side after 5 consecutive losing days. In the US, the S&P and the DJIA ended in the black while the Nasdaq was just under the bar, ending .01% in the red. The Basic Materials (miners, chemicals, and fertilizers) and the Energy sectors were the top S&P performing sectors.
Thursday: A broad rally lifted all four Indexes into the black today. Strong earnings pushed the Technology sector higher in both Canada and the USA, while higher oil prices lifted the Energy sectors in both countries.
Friday: All four declined today and said goodbye and good riddance to April. For the TSX, it was the biggest monthly decline since March 2020. The difference was the nature of the fall. In 2020, it was steep decline thanks to the onset of Covid-19. This year it keeps slipping lower and lower thanks to higher interest rates in general and in today’s case, unimpressive earnings by Apple and Amazon.
In the US, it was not much better as the US experienced its largest monthly inflation growth since 2005, with the US federal Reserve scheduled to meet next week with a .05% rate increase looming large. The S&P had its largest single day drop since June 2020. The Nasdaq experienced its biggest single day decline since September 2020 and worst month since 2008.
For the week: TSX down 2.0%; the S&P fell 3.3%; DJIA dropped 2.5%; and the Nasdaq declined 3.9%.
For the month: TSX down 5.2%; S&P lost 8.80%; the DJIA declined 4.90%; and the Nasdaq fell 13.26%. Ouch! ☹
Weekly Portfolio Review
Another poor week for the Indexes this past week as fears of aggressive interest rate hike next week and a mixed bag of earning reports from some of the big US companies. The reports in general were OK, it was more the guidance for lower sales growth that caused share prices to fall which in turn led to the Indexes falling.
As for the Portfolios, as I have had the misfortune of saying before, when the Indexes fall the Portfolios are sure to follow. Its frustrating seeing them fall week after week but there is nothing, I can do about it.
Companies on the Radar
Given the jittery markets, at this time I am not looking to increase ownership or add new companies to a Portfolio. Once the markets bottom out and start rising these are the companies I am interested in. The first-tier companies have higher growth prospects, while those on the second tier are safer and less volatile.
First tier companies:
Second tier companies:
- Microsoft
- Apple
- Home Depot (NYSE:HD)
- American Tower (NYSE:AMT)
- Berkshire Hathaway (NYSE:BRK.B)
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended April 29, 2022: DOWN 
- Economic impact of the war in Ukraine, grinding supply-chain disruptions, inflation and rising U.S. interest rates all led GM falling short of their own projections made in January. GM also announced an e-Corvette.
- Apple reported record quarterly revenue of and record profits of . What should have been a strong earnings report, was eclipsed by a disappointing forecast for the rest of 2022.
- Alphabet reported first-quarter revenue below expectations thanks to slowing growth in its core advertising business. While revenues rose 23% to USD$ 68 billion for the quarter, the growth rate is down from 34% in the same period of 2021.
- The share price of Pinterest (NYSE:PINS) rose following an earning report that showed a 9% drop in users offset by an 18% increase in revenue and a 28% increase in average revenue per user.
- Teladoc (NASD:TDOC) Joined the group of companies that benefitted from the Covid-19 pandemic but have so far struggled to maintain upward momentum. In fact, their latest earnings report was an eye opener but for the wrong reason – a write-down of $6.6 billion on their acquisition of Livongo Health in 2020, and increased competition in the telehealth industry. The share price dropped 40%, leaving the share price down 90% from their February 2021 high.
A few months into the pandemic, I deliberately avoided companies like Peloton (NASD:PTON). I figured the company would decline once the world returned to normal, much like a fitness centre has a surge in January (new year’s resolutions to lose weight) but falls back to normal for the rest of the year. Unfortunately, I did not use the same rationale for telehealth. If I had, I would have realized remote visits would decline as the world adapted and overcame Covid-19. I still think telehealth will increasingly play a role in the medical industry, just not as much as it did during the pandemic. I need to lower my expectations and accept that Teladoc will not grow as fast as it did when it rode the pandemic tailwinds.
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)
Brookfield Select Opportunities Income Fund (TSX:BSO.UN) DRIP
US $
No US$ dividends this past week.
Quarterly Reports
CN Rail Company
All currency listed in CAD dollars
Selected highlights from their first quarter 2022 financial results on April 26, 2022
- Revenues of C$3,708 million, an increase of C$173 million or 5%, despite lower volumes
- Operating income of C$1,227 million, a decrease of 8%, and adjusted operating income of C$1,237 million, an increase of 4%.
- Diluted EPS of C$1.31, a decrease of 4%, and adjusted diluted EPS of C$1.32, an increase of 7%.
Visa Inc.
All currency listed in US dollars
Selected highlights from their second quarter 2022 financial results on April 26, 2022
- Net Revenues up 25% to $7.2 billion
- Net Income up 21% to $3.6 billion
- Free cash flow of $7,281 million, second quarter year to date
General Motors Company.
All currency listed in US dollars
Selected highlights from their second quarter 2022 financial results on April 26, 2022
- Revenue up 10% YoY
- Net income down to $2.9 billion from $3 billion in the same period in 2021
- Net income margin down to 8.2% from 9.3% in the same period in 2021
Alphabet Inc.
All currency listed in US dollars
Selected highlights from their first quarter 2022 financial results on April 26, 2022
- Revenues up 23% to $68 billion
- Net income down 8% to $16.4 billion
- Earnings per share fell to $24.62 compared to $26.29 in the same period in 2021
- Robust growth in Search and Cloud services, up 24% and 43%, respectively
- Repurchase up to an additional $70.0 billion of its Class A and Class C shares
Upwork Inc.
All currency listed in US dollars
Selected highlights from their third quarter 2022 financial results on April 27, 2022
- Total revenue grew 24% year-over-year to $141.3 million in the first quarter of 2022.
- GAAP gross profit was $103.4 million for the first quarter of 2022, or 73% of revenue, which was flat with 73% of revenue in the prior period.
- GAAP net loss was $(24.7) million in the first quarter of 2022 compared with GAAP net loss of $(7.8) million in the first quarter of 2021.
- Guiding second-quarter 2022 revenue to be between $147 million and $151 million, which is 20% year-over-year growth at the midpoint. Also providing updated full-year 2022 revenue guidance of between $590 million and $610 million.
PayPal Holdings Inc.
All currency listed in US dollars
Selected highlights from their first quarter 2022 financial results on April 27, 2022
- Net revenues of $6.5 billion, up 8% over the same period in 2021.
- GAAP EPS of $0.43 compared to $0.92 in the same period in 2021.
- Net income of $509 million, down 54% compared to the same period in 2021.
- Net revenues expected to grow ~9% in second quarter, and 11 – 13% for fiscal 2022.
Pinterest Inc.
All currency listed in US dollars
Selected highlights from their first quarter 2022 financial results on April 27, 2022
- Revenue grew 18% year over year to $575 million.
- Net loss was $5 million for the first quarter compared to a net loss of $21.6 million in the same period in 2021. An improvement of 76%.
- Current expectation is that second quarter revenue will grow around 11% year over year.
Teladoc Health Inc.
All currency listed in US dollars
Selected highlights from their first quarter 2022 financial results on April 27, 2022
- Revenue increased 25% to $565.4 million, from $453.7 million in the first quarter of 2021.
- Net loss totaled $6,674.5 million, or $(41.58) per share, compared to $199.6 million, or $(1.31) per share, in the first quarter of 2021. The net loss primarily driven by non-cash goodwill impairment charge of $6.6 billion or $41.11 per share.
- Guidance for second quarter: revenue $580 – $600 million; net loss per share of $.72 – $.60.
- Guidance for fiscal 2022: revenue $2,400 – $2,500 million; net loss per share of $43.50 – $43.00.
Roku, Inc.
All currency listed in US dollars
Selected highlights from their first quarter 2022 financial results on April 28, 2022
- Total net revenue grew 28% year-over-year (YoY) to $734 million.
- Gross profit was up 12% YoY to $365 million.
- Net loss was $23.5 million, down 131% YoY.
- Guidance for second quarter: Revenue of $805 million; Net loss of $109 million.
- Continue to expect total net revenue growth to be 35% year-over-year
Apple Inc.
All currency listed in US dollars
Selected highlights from their second quarter 2022 financial results on April 28, 2022
- March quarter revenue record of $97.3 billion, up 9 percent year over year.
- Net income for the second quarter of $25 billion compared to $23 billion year over year.
- Quarterly earnings per diluted share of $1.52.
- Declared a cash dividend of $0.23 per share of common stock, an increase of 5 percent.
Portfolio 2
Portfolio 2 for the week ended April 29, 2022: DOWN
- While performing the weekly review of Portfolio 2 I noticed the second TFSA account was up 10% since the account was opened in August 2021. This account was created for the purpose of paying off taxes upon sale of an asset a few years down the road. I chose three relatively conservative companies that each generated a dividend and offered varying levels of potential growth. These companies are Brookfield Select Opportunities Income Fund (TSX:BSO.UN) for its 10% dividend (at the time) with limited growth potential but with a 10% dividend (I just want it to not drop); Telus (TSX:T) for its 4.72% dividend (at the time) and decent growth prospects over the long term; and finally, Brookfield Renewable Partners (TSX:BEP.UN) for its 3.00% dividend (at the time) and growth potential over the long term. So far, this account is growing with minimum risk and is much better than having left the cash in a bank account with a .05% interest rate.
- Increased demand for oil helped TC Energy (TSX:TRP) post a C$ 272 million profit for the first quarter. Much better than the C$ 2.5 billion loss the company posted for the same period in 2021. Surging oil prices resulting from the Russian invasion of Ukraine has caused Canada and the US to increase the volume of oil through TC Energy’s pipelines as both countries look to increase their energy security and provide an alternative energy supply to the European Union.
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 $
Brookfield Select Opportunities Income Fund (TSX:BSO.UN) DRIP
US $
No US$ dividends this past week.
Quarterly Reports
Microsoft Corp.
All currency listed in US dollars
Selected highlights from their third quarter 2022 financial results on April 26, 2022
- Revenue was $49.4 billion and increased 18%
- Net income was $16.7 billion and increased 8% GAAP (up 13% non-GAAP)
- Diluted earnings per share was $2.22 and increased 9% GAAP (up 14% non-GAAP)
- The revenue for the business units Productivity and Business Processes, Intelligent Cloud and More Personal Computing were up 17%, 26% and 11%, respectively
- Returned $12.4 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2022, an increase of 25% compared to the third quarter of fiscal year 2021.
Mitek Systems Inc.
All currency listed in US dollars
Selected highlights from their second quarter 2022 financial results on April 28, 2022
- Revenue increased 21% year over year to $34.7 million in a record second quarter.
- Net income increased 88% year over year to $1.9 million, or $0.04 per diluted share.
- Cash flow from operations was $7.4 million.
TC Energy Corporation
All currency listed in CAD dollars
Selected highlights from their first quarter 2022 financial results on April 29, 2022
- Net income attributable to common shares of $0.4 billion or $0.36 per common share compared to a net loss of $1.1 billion or a loss of $1.11 per common share in 2021.
- Declared a quarterly dividend of $0.90 per common share for the quarter ending June 30, 2022.
- TC Energy remains opportunity-rich and intends to continue expanding, extending, and modernizing their existing natural gas pipeline network.
Portfolio 3
Portfolio 3 for the week ended April 29, 2022: DOWN
- Enghouse Systems Ltd. (TSX:ENGH) announced it will renew its normal course issuer bid to buy up to 3 million common shares, or 7% of the publicly listed float. This is s shareholder friendly move as it reduces the number of people who get a piece of the proverbial pie.
- Microsoft’s bid to acquire Activision Blizzard (NASD:ATVI) passed another hurdle when Activision Blizzard shareholders approved Microsoft’s bid to buy the video game developer.
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 $
Brookfield Select Opportunities Income Fund (TSX:BSO.UN)
US $
No US$ dividends this past week.
Quarterly Reports
Microsoft Corp.
All currency listed in US dollars
Selected highlights from their third quarter 2022 financial results on April 26, 2022
- Revenue was $49.4 billion and increased 18%
- Net income was $16.7 billion and increased 8% GAAP (up 13% non-GAAP)
- Diluted earnings per share was $2.22 and increased 9% GAAP (up 14% non-GAAP)
- The revenue for the business units Productivity and Business Processes, Intelligent Cloud and More Personal Computing were up 17%, 26% and 11%, respectively
- Returned $12.4 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2022, an increase of 25% compared to the third quarter of fiscal year 2021.
Real Matters Inc.
All currency listed in US dollars
Selected highlights from their second quarter 2022 financial results on April 28, 2022
- Consolidated revenues of $95.0 million, down 26.3% compared to the same period in 2021.
- Consolidated Net Revenue of $24.2 million, down 48.2% compared to the same period in 2021.
- Purchased 0.3 million shares under our normal course issuer bid at a cost of $1.5 million.