Spare change ….
Canada’s Consumer Price Index (CPI) inflation for July was 7.6%, down from June’s 8.1%, but still well higher than the Bank of Canada’s target of 2%. As in the US last week, the fall in the price of gasoline was the main driver in the lower CPI. However, when volatile components, such as gasoline, are removed, the core CPI continued to climb. Core CPI is the CPI, excluding food and energy prices.
The Bank of Canada stated inflation was still too high so expect another interest rate hike in September as the BoC attempts to cool down the economy. The only question is how aggressively the BoC will raise the benchmark interest rate.
A quick reminder, when interest rates rise, it increases the cost of borrowing, so people tend to borrow and spend less and as a result they save more. The BoC wants to slow down spending to allow the supply side to catch up with the demand side and cool off inflation.
In case you think higher interest rates are unique to Canada and the USA:
- in July, the European Central Bank hiked its interest rate by 0.5%, its first interest rate increase since 2011.
- In the United Kingdom, the Bank of England recently increased its interest rate by 0.5% to 1.75%, its highest level since late 2008, in its battle against inflation which had jumped to 10.1% in July, its highest since February 1982.
- In Norway, the Norges Bank recently raised interest rates another 0.5% to 1.75% and indicated more hikes were on the way.
- Sweden’s Riksbank raised their interest rate by 0.5%, its biggest hike in more than 20 years, bringing Sweden’s interest rates to 0.75%.
- The Reserve Bank of New Zealand implemented a fourth straight hike of 0.5% to bring their interest rate to 3%, the highest since September 2015.
- The Reserve Bank of Australia raised rates by 0.5%, for a fourth straight month.
As you can see, inflation is everywhere, and will be with us for a while. By raising interest rates in the short term, the central banks hope to bring inflation down for the long term.
Have you noticed, since the start of July, the markets went from a bear market to the verge of a bull market. Or, is this one hell of a bear trap about to be sprung on us investors.
While we contemplate that thought, lets look back at the week that just ended……
Weekly Market Review
Monday: Despite a slow start to the day, all four major North American Indexes rebounded to end in positive territory. On Canada’s Toronto Stock Exchange Composite Index (TSX), only the Canadian Energy sector (lower oil prices) and the Basic Materials sector (lower gold and copper prices) failed to end the day higher.
In the US, investor confidence continues to push the S&P 500 Index (S&P), the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq) higher. It was another broad-based rally on the S&P as the index reversed early morning losses, with only the energy and materials sectors ending in the red. Mega market cap technology companies led the Nasdaq higher, with Tesla (NASD:TSLA), Apple (NASD:AAPL), Microsoft (NASD:MSFT) and Nvidia (NASD:NVDA) leading the way.
Tuesday: Mostly a positive day for the Indexes with the Nasdaq being the only Index not to end in the black. The TSX extended its winning streak to 5 straight days and ended at its highest point in two months. Even more impressive, the TSX gained ground without the assistance of the Energy sector that had been holding the TSX up for most of 2022. Consumer Staples (companies that sell goods and services that are needed daily) and Consumer Cyclicals (companies that sell non-essential goods and services) were the leading sectors today.
In the US, a strong earnings report from Home Depot (NYSE:HD), among other Consumer Cyclical sector companies, helped push the S&P and DJIA higher. For those invested in technology companies, the Nasdaq slipped slightly into the red.
Wednesday: I do not like the trend shaping up this week. Monday had all four Indexes ending higher, not much, but higher, Tuesday saw the Nasdaq fall back, and today all four Indexes ended lower. I hope that trend is reversed tomorrow. In Canada, the TSX’s five day winning streak ended as the Technology and Basic Materials (natural resources) sectors dragged the Index down. The only sectors to post a gain for the day was the Energy sector (higher oil prices) and two defensive sectors: Consumer Staples and Utilities.
In the US, the story is not much better with ten of the eleven S&P sectors ending lower. Only the Energy sector made it into the black. The main source of the negative mood was the release of the US Federal Reserve’s minutes from their meeting in July where they indicated they are still committed to raising the US interest rate to get inflation down to their 2% target. The one positive from the minutes was they may not be as aggressive when they raise interest rates in September.
Thursday: I am glad to see the downward slope that had been developing this week ended today when all 4 Indexes ended the day higher. Canada’s TSX hit its highest closing since early June thanks to a rebound in oil and commodity prices that propelled the Canadian Energy and the Basic Materials sectors higher.
In the US, investors continued to weigh the chances of the Fed raising interest rates 0.5% or a third straight rate hike of 0.75%. Meanwhile, in actual stock trading, the S&P Technology sector had a good day to go along with another strong day from the S&P Energy sector to lift all three American Indexes into the black.
Friday: Today was much like a submarine – all four indexes took a dive and then stayed down for the rest of the day. Sigh! In both Canada and the USA, concerns about the size of future interest rate hikes weighed down the Indexes. In Canada, the defensive sectors – Telecommunication Services, Utilities and Consumer Staples – were the only sectors to advance. The Canadian Technology sector had a rough day falling 3.56%.
In America, it was a general decline as not one of the eleven S&P sectors advanced. Fears of higher interest rates hit the Technology sector hard, with the mega cap technology companies Apple and Microsoft pulling the Nasdaq and S&P lower.
For the week, the TSX dropped 0.3%, the S&P 500 fell 1.2%, the Dow slipped 0.2% and the Nasdaq lost 2.6%.
Weekly Portfolio Review
After a good run since the start of the second half of 2022, this is the first week where all four Indexes declined. The DJIA was the best performer thanks to its small number (30) of large, mature companies. The TSX with its energy and natural resource companies was next, followed by technology heavy S&P and Nasdaq. Technology and other high growth companies that can be found on Nasdaq, and to a lesser extent the S&P, are sensitive to interest rates. When investors are concerned about interest rate hikes, the growth companies get beaten down because higher interest rates mean more money is required to service their debt (which most have in abundance).
When I saw that the Nasdaq was the worst performing index, I had a hunch it would not be a good week for the Portfolios. When I saw all four indexes declined, I knew it was not a good week for the Portfolios. And I was right. ☹
All three Portfolios lost value this past week. In fact, looking at the chart, if it were not for the Nasdaq, the Portfolios would have posted the three worst performances. Portfolio 3 had a particularly bad week with a decline almost double the Nasdaq (shares of Shopify (TSX:SHOP) had a bad week). Looking at the glass as being half full, all three Portfolios are ahead of where they were at the start of the second half of 2022. 😊 Let us hope next week the Indexes and Portfolios gets back on the winning track.
Companies on the Radar
Amazon (NASD:AMZN) and Ferrari (NYSE:RACE) remain on my Radar. I am hoping fears of a 0.75% interest rate hike by the Fed in September will lead to a 10+% drop. I hope I do not regret waiting.
Brookfield Select Opportunities (TSX:BSO.UN) is part of all three portfolios because of its 10+% dividend. Its back on my radar due to its drop to under C$ 4.50 in late July. Unfortunately, I did not notice the drop until recently. Fortunately, it appears to be heading back up to the $6.00 range. Since the fund/stock is managed by the Brookfield Corporation (TSX:BAM.A), formerly Brookfield Asset Management, I have confidence the fund is well managed and will continue to be able to pay out these juicy quarterly dividends. If any account has a few hundred dollars, I am looking to pick up shares because I would rather get a 10% dividend than nothing.
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended August 19, 2022: DOWN 
- Alphabet’s (NASD:GOOGL) Google is experimenting with adding artificial intelligence to robots in Google offices. The robots are currently limited to internal use only, and they simply retrieve chips and pop from breakrooms for employees. It will be a few years before these robots are seen outside of Google offices due to concerns about the devices being used for surveillance, as well as fear of using offensive language when interacting with employees.
- General Motors (NYSE:GM) is reinstating their quarterly dividends. The first dividend will be for US$ 0.09 per share, payable on September 15, 2022. Not a lot, but at least its something. GM suspended their dividends and share buyback at the outset of the Covid-19 outbreak in April 2020 to conserve cash. With the rollout of their electric vehicles and US based battery manufacturing capabilities, GM is confident they will generate sufficient capital to return money to us shareholders.
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 $
Automotive Properties Real Estate Investment Trust (TSX:APR.UN)
US $
BSR Real Estate Investment Trust (TSX:HOM.U)
Quarterly Reports
Global – e Online Ltd.
All currency listed in thousands of US dollars
Selected highlights from their second quarter 2022 financial results on August 16, 2022
- Revenue of $87,305 for the three months ended June 30, compared to $57,287 for the same period in 2021. An increase of 52%.
- Net loss of $48,797 for the three months ended June 30, compared to net loss of $22,224 in the same period in 2021.
- Net loss per share of $0.0.31 for the three months ended June 30, compared to a net loss per share of 0.25 for the same period in 2021.
- Revenue of $163,628 for the six months ended June 30, compared to $103,438 for the same period in 2021. An increase of 58%.
- Net loss of $102,383 for the six months ended June 30, compared to net loss of $23,973 in the same period in 2021.
- Net loss per share of $0.66 for the six months ended June 30, compared to a net loss per share of 0.44 for the same period in 2021.
- Launched partnership with Disney Corporation to support Disney’s direct-to-consumer efforts.
SEA Limited
All currency listed in thousands of US dollars
Selected highlights from their second quarter 2022 financial results on August 16, 2022
- Revenue of $2,942,599 for the three months ended June 30, compared to $2,280,548 for the same period in 2021. An increase of 29%.
- Net loss of $931,199 for the three months ended June 30, compared to net loss of $433,669 in the same period in 2021.
- Net loss per share of $0.61 for the six months ended June 30, compared to a net loss per share of $1.03 for the same period in 2021.
- Revenue of $5,842,170 for the six months ended June 30, compared to $4,044,192 for the same period in 2021. An increase of 44%.
- Net loss of $1,511,335 for the six months ended June 30, compared to net income of $855,760 in the same period in 2021.
- Net loss per share of $2.72 for the six months ended June 30, compared to a net loss per share of $1.65 for the same period in 2021.
Nano-X Imaging Ltd
All currency listed in thousands of US dollars
Selected highlights from their second quarter 2022 financial results on August 16, 2022
- Revenue of $2,200 for the three months ended June 30, compared to $0 for the same period in 2021.
- Net loss of $19,614 for the three months ended June 30, compared to net loss of $13,577 in the same period in 2021.
- Net loss per share of $0.38 for the six months ended June 30, compared to a net loss per share of $0.28 for the same period in 2021.
- Revenue of $4,008 for the six months ended June 30, compared to $0 for the same period in 2021.
- Net loss of $41,280 for the six months ended June 30, compared to net loss of $26,294 in the same period in 2021.
- Net loss per share of $0.79 for the six months ended June 30, compared to a net loss per share of $0.56 for the same period in 2021.
- Added to the Russell 2000 (the smallest 2,000 companies in the Russell 3000) and Russell 3000 Indexes (measures the performance of the 3,000 largest public companies incorporated in the US, measured by total market capitalization), as part of the 2022 Russell indexes annual reconstitution.
Home Depot
All currency listed in millions of US dollars
Selected highlights from their second quarter 2022 financial results on August 16, 2022
- Revenue of $43,792 for the three months ended June 30, compared to $41,118 for the same period in 2021. An increase of 6.5%.
- Net earnings of $5,173 for the three months ended June 30, compared to net earnings of $4,807 in the same period in 2021.
- Basic earnings per share of $5.06 for the six months ended June 30, compared to a net earnings per share of $4.54 for the same period in 2021. An increase of 11.5%.
- Revenue of $82,700 for the six months ended June 30, compared to $78,618 for the same period in 2021. An increase of 5.2%.
- Net earnings of $9,404 for the six months ended June 30, compared to net earnings of $8,952 in the same period in 2021.
- Basic earnings per share of $9.17 for the six months ended June 30, compared to a net earnings per share of $8.41 for the same period in 2021.
- Added to the Russell 2000 (the smallest 2,000 companies in the Russell 3000) and Russell 3000 Indexes (measures the performance of the 3,000 largest public companies incorporated in the US, measured by total market capitalization), as part of the 2022 Russell indexes annual reconstitution.
ZIM Integrated Shipping Services Ltd.
All currency listed in millions of US dollars
Selected highlights from their second quarter 2022 financial results on August 17, 2022
- Revenue of $3,428.8 for the three months ended June 30, compared to $2,382.0 for the same period in 2021. An increase of almost 44%%.
- Net income of $1,335.8 for the three months ended June 30, compared to net income of $888.2 in the same period in 2021.
- Diluted earnings per ordinary share of $11.11 for the three months ended June 30, compared to $7.38 for the same period in 2021.
- Revenue of $7,145.2 for the six months ended June 30, compared to $4,126.3 for the same period in 2021. An increase of over 73%.
- Net earnings of $3,046.8 for the six months ended June 30, compared to net earnings of $1,477.8 in the same period in 2021.
- Diluted earnings per ordinary share of $25.26 for the six months ended June 30, compared to $12.56 for the same period in 2021.
- Declared dividend of approximately $571 million, or $4.75 per share, representing approximately 30% of second quarter net income and a 10% onetime catch-up from the Q1 2022 net income
Portfolio 2
Portfolio 2 for the week ended August 19, 2022: DOWN
- Guardant Health (NASD:GH) announced their Guardant Reveal detection test for residual and recurrent colorectal cancer is now available for patients with breast and lung cancers. According to Guardant, “The liquid biopsy test helps manage early-stage cancer patients by detecting circulating tumor DNA to identify patients with minimal residual disease who are at a higher risk of recurrence and may benefit from additional therapy.”
- Hedge fund company Third Point is encouraging the Disney Corporation (NYSE:DIS) to offload ESPN while buying the remaining 1/3 of Hulu Disney doesn’t own and merge Hulu into the Disney+ subscription.
- Mitek Systems (NASD:MITK) received a notice from Nasdaq advising them that the company was not in compliance with Nasdaq’s continued listing requirements. Mitek failed to file its Quarterly Report for the quarter ended June 30, 2022 (the “Form 10-Q”) in a timely manner. Mitek has 60 days from receipt of the notice to submit a plan to regain compliance with Nasdaq regulations.
Activity
Bought: Canadian Natural Resources (TSX:CNQ). Global demand for oil and natural gas will continue for many more years. The company is well run, extremely profitable with consistent cash flow. Like all oil and gas companies, it is benefiting from high oil prices. As long as there is demand for oil and the price remains high, the company will continue to do well. Thanks to the money they are making they have been able to reduce their long-term debt by nearly 30%. As well as paying down debt, the company has been raising their dividend and currently pays a 4.3% dividend. In addition, they are paying out a special, one-time dividend of $1.50 per share because of all the cash they are generating. If they keep producing cash at this rate, there could be more special dividends. 😊
I ran the company through my Radar Check, and it generated a 12 out of a possible 13 points. One of the highest scores ever. Lots of upside and a decent dividend.
Bought: Disney Corporation. While reviewing Disney’s latest quarterly earnings I noticed that they have taken over the top spot for the number of streaming subscriptions, a position long held by Netflix (NASD:NFLX). Mind you, they still trail Netflix when it comes to revenue from streaming. In addition to a solid streaming increase, Disney did very well in their Parks division which grew revenue by 70%. On the technical side, according to Morningstar’s analysis, Disney shares are currently significantly under valued, and TD Direct Investing shows it as a Strong Buy with 16+% upside.
I like that Disney produces top rate movies and TV shows (well, mostly top rate 😊) and is able to supply content from its vast library of shows for its streaming services rather than having to purchase content from other sources, it is a leading streaming service with lots of room to grow revenue, its parks are returning to pre covid-19 levels and they are building new attractions (such as, Star Wars: Galactic Starcruiser) to attract new customers and keep previous visitors coming back. With Disney’s numerous revenue streams (streaming, parks, movies, etc.) its hard not to like Disney. Plus, who does not like Mickey Mouse? 😊
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 $
Summit Industrial Income REIT (TSX:SMU.UN)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.
Portfolio 3
Portfolio 3 for the week ended August 19, 2022: DOWN
- Shopify launched a new strategic initiative to connect digital content creators with merchants, brands, and companies on Shopify’s platform in a bid to find new sources of growth amidst a slowdown in e-commerce. Shopify believes online creators are the next wave of entrepreneurs and they are trusted by audiences who turn to them for insights about brands and their products. Shopify wants to become the “creator’s commerce platform of choice.”
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.
No dividends this past week.
Quarterly Reports
No quarterly reports this past week.