Ho, ho, ho. The Santa Claus rally may be just around the corner. Usually, though not every year, there is a lift to the markets in late December. There are many theories to the Santa Claus rally but there all just that – theories. From extra cash on hand thanks to unloading losing investments for tax purposes and/or receiving ‘new’ money in the form of year end bonuses, to a general upbeat mood because of the season and optimism heading into a new year, to large institutional investors taking time off leaving the markets open to individual investors who generate their own fear of missing out on the Santa rally momentum. Whatever the explanation, investors seem to want to get back into the markets to get their money working for them. Hopefully, we saw our first glimpse of a Santa rally earlier this past week and there is no Grinch plotting to take the joy out of the Christmas season.
Weekly Market Review
Monday: Optimistic comments about the latest Covid – 19 variant, Omicron, helped lift all four major North American Indexes – Toronto Stock Exchange (TSX), S&P 500 (S&P), Dow Jones Industrial Average (DJIA) and Nasdaq Composite Index (Nasdaq). The DJIA rose nearly 2% on the strength of investors moving back into travel stocks, especially airline companies. Was this the first signs of a Santa rally?
Tuesday: As fears of Omicron eased, in part due to news that GlaxoSmithKline’s covid-19 treatment works against all Omicron mutations, money headed back into the markets on both sides of the border. On the TSX Index, the energy and the technology shares were the big winners. In economic news, Canada posted its largest trade surplus in nearly 10 years. South of the border, technology stocks sent the S&P and Nasdaq Indexes up 2+%, while the DJIA was lifted by investors moving gradually back into travel companies.
Wednesday: After a bullish 2 days, the TSX had a slight pullback on hump day, with technology stocks shouldering most of the blame. Hopefully, the Santa Claus rally will continue after a brief respite. The Bank of Canada left overnight interest rates at .25% but suggested a rate hike in mid 2022. Down south, all three indexes were up slightly for the day, with the Nasdaq leading the way. Once again Omicron related news impacted the travel stocks. News that the Pfizer vaccine offered some protection against the Omicron variant caused investors to jump back into the travel stocks such as airlines and cruise lines.
Thursday: The combination of tax loss selling and taking profits after the surge earlier in week caused the TSX to fall for a second straight day. In the US, the DJIA was the winner for the day because it remained flat while the S&P and Nasdaq both were down for the day. As with the TSX, fears of Omicron and its impact on the markets caused investors to take profits after the early week surge. The markets are being bounced around every time more information on covid-19 comes out. On bad news about covid-19, Mr. Market retreats. On positive news about vaccines, Mr. Market advances.
Friday: It was a mixed day for the TSX on Friday. On the downside, the TSX fell for a third straight day. On the upside, it still posted a gain for the week thanks to gains earlier in the week. In the US, the S&P had its best week since early February and ended this week by closing at an all time high, with the technology sector being the big winner in Friday trading. Both the DJIA and the Nasdaq also had a good day on Friday and for the week. The big news in the US was inflation in America rose as expected, to 6.8%, the highest in the last 39 years. Because this inflation rate was telegraphed well in advance of today’s announcement, the markets seemed to carry on as normal. If the inflation rate had been higher its likely the US Federal Reserve would’ve started tightening the belt sooner rather than later, leading to increased interest rates. Increased interest rates are not good for companies carrying a lot of debt.
Weekly Portfolio Review
Portfolio 2 was clearly the big winner this past week, matching the 4% gain of the DJIA. Portfolio 3 was not able to beat any of the American Indexes but did squeak past the TSX. Bringing up the rear was Portfolio 1 which nominally broke even for the week, but technically fell a few dollars short of the start of the week amount. I choose to look at the glass half full side and consider Portfolio 1 to have broken even for the week. 😊 I did add a new company to Portfolio 1 but that is a pure income play so I don’t expect that to add to the growth of the portfolio. There are a few companies on the radar this week and I hope to find one or two that could provide some boost for the portfolio.
Companies on the Radar
The end of Earnings season finally gave me a chance to consider a few new companies.
Nelnet (NYSE:NNI): An American based company that operates in four business segments: Business Services; Communication Services; Financial Services; and Diversified Services (Professional Services). A mid cap, mini conglomerate if you will.
Expensify (NASD:EXFY): A cloud-based expense management solution that use artificial intelligence to take the pain out of managing employee expenses, from small business through to the largest organizations.
Matterport (NASD:MTTR): A leading spatial data platform to digitize any type of space (workspace, home areas, offices, etc.) to better design, build, promote and manage spaces. This product can be used across multiple industries including real estate, architecture, engineering, construction, and facilities management. Could be a good play into the metaverse, one of the latest technology buzzwords.
Alphabet (NASD:GOOGL): Google has 93% of the search market and 76% of the online streaming market, through it’s YouTube business. It also has a multitude of cloud-based services as well as the most popular smartphone operating system in Android (75% of the global market). Shareholders of GOOGL having voting rights while GOOG shareholders have no voting rights, otherwise they are essentially the same. I don’t know why, but GOOGL is a few bucks cheaper than GOOG. I would’ve thought the non-voting shares would be cheaper.
American Tower (NYSE:AMT): owns and operates communications properties, including antenna towers and data centres. Should be well positioned for the rollout of 5G technology which requires lots of wifi antennas.
I still like the idea of adding to Unity Software (NYSE:U) so the question becomes are any of the above companies a better investment than investing again in Unity Software, or another company in any of the portfolios.
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended December 10, 2021: Break even 
Another mixed bag for Portfolio 1. Many of the technology stocks had a rough week, especially the Canadian technology companies Nuvei (TSX:NVEI) and Lightspeed Commerce (TSX:LSPD). On Wednesday, a report came out charging Nuvei “covered up a series of business failures, a lack of organic growth and business ties with individuals linked to fraudulent activities”, causing the share price to drop over 40%. The share price has since started to recover but is still well off its Tuesday closing price of over CAD $120. I sense a buying opportunity.
Lightspeed still falls under the shadow of a class action lawsuit that claim Lightspeed made “false and/or misleading statements.”
On the positive side, the semiconductor companies – Nvidia (NASD:NVDA), Lattice Semiconductor (NASD:LSCC) and Skyworks Solutions (NASD:SWKS) – continue to outperform and pick up the slack of their Canadian technology counterparts.
Activity
Bought: Brookfield Select Opportunities Income Fund (TSX:BSO.UN) I first heard about this company in early 2021 and couldn’t believe this stock paid a 10% dividend. Usually, a dividend that high suggests a failing company, or to good to be true. However, I did a bit of due diligence and discovered it was run by Brookfield Asset Management, a good sign, and the fund invested in high yield corporate debt and publicly listed equity securities of infrastructure and real estate companies. Because this fund is made up of numerous bonds and other fixed income assets it will act as part of the bond component of this portfolio. With Brookfield managing the fund I’m comfortable it will do fine, and I won’t need to keep an eye on it. It will further diversify the portfolio and lessen the overall volatility of the portfolio, plus, a relatively secure 10% dividend is much better than sitting in a bank account earning less than 1%.
I first bought shares back in May and I’ve been telling others about this fund since then. Each time I mentioned BSO I kept thinking “why don’t I buy more of this?” So, I finally bought shares for this portfolio. With a 10% dividend, as long as the fund maintains the price, I paid I’ll be happy. If the share price increases that will be a bonus.
Dividends
Dividends Received this week for the following companies:
Canadian $
No CAD$ dividends this past week.
US $
Visa Inc. (NYSE:V)
Quarterly Reports
No quarterly reports this past week.
Portfolio 2
Portfolio 2 for the week ended December 10, 2021: UP 
Portfolio 2 continues to be driven by MongoDB (NASD:MDB) with big companies like Microsoft (NASD:MSFT), Disney (NYSE:DIS) and Telus (TSX:T) providing a strong second wave of growth. On the downside, Chorus Aviation (TSX:CHR) is the only big loser, down 52% from the initial purchase point. Prior to the covid-19 pandemic, Chorus was doing fine, up 10% and paying a decent dividend, but since late March 2020 it’s been cut in half and discontinued its dividend. Until the pandemic is completely over, and airlines return to pre pandemic capacities, I doubt the share price will recover. I keep hoping it will, but I suspect I’m suffering from loss aversion and should simply sell it and move on.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Canadian $
No CAD$ dividends this past week.
US $
Microsoft
Quarterly Reports
MongoDB Inc. (NASD:MDB)
All currency listed in US dollars
Selected highlights from their third quarter 2022 financial results on December 6, 2021
- Total revenue was $226.9 million in the third quarter fiscal 2022, an increase of 50% year-over-year.
- Gross profit was $158.4 million in the third quarter fiscal 2022, representing a 70% gross margin, up from 69% gross margin in the year-ago period.
- Net loss was $81.3 million compared to $72.7 million, in the year-ago period.
- Negative free cash flow of $9.2 million, compared to negative free cash flow of $14.9 million in the year-ago period
Portfolio 3
Portfolio 3 for the week ended December 10, 2021: UP
Portfolio 3 continues to be driven by Shopify (TSX:SHOP), with a second wave of goeasy (TSX:GSY), Microsoft, and Royal Bank (TSX:RY). The only companies in the red at this point are Enghouse Systems (TSX:ENGH) and Real Matters (TSX:REAL), but there are 2 or 3 hovering at their respective breakeven points. A year ago, both Enghouse and Real Matters were comfortably in the black and Brookfield Asset Management (TSX:BAM.A) was the big name in the red. One never knows what the market has in store.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Canadian $
No CAD$ dividends this past week.
US $
Microsoft
Quarterly Reports
No quarterly reports this week.