Stay calm and carry on
For the last two months I’ve watched my three Portfolios fall up to 30%, with some stocks falling more than 75% (looking at you Shopify) . A fall of 30% is mentally painful and not for the faint of heart. Having gone through this with the dot com bubble at the start of the century and the financial crisis in 2008/09, I know this correction will eventually turn around and the stock market will resume its relentless march upward. But going through a correction or rapid drop is hard.
I can’t help but wonder if I could have done something else to limit the damage the market correction has done to the portfolios. Perhaps I should have trimmed some of the high growth stocks in October 2021 and taken some money off the table, so to speak, rather than go on a buying spree. But that would be trying to time the market, which no one can do. And I didn’t foresee inflation lasting as long as it has, nor did I expect a full-scale invasion of a European country.
Could I be more diversified? Yes, but my plan is to use high growth companies to build wealth. And I am diversified across various high growth companies and industries. When the market is going through a correction (down 10%), or worse a bear market (down 20+%), I don’t think it is the best time to start making drastic changes. I like to think I invested in great companies. Not only will they recover once the market in general starts to recover, but they will outperform the market recovery. If I sell during a market downturn, all I will do is lock in a loss and deny my investments the opportunity to participate when the market rallies.
During market corrections like this one that started in late November 2021, I try to do the following:
- Stay calm and continue with my investment plan.
- Remind myself that the longer I stay invested the less these downturns will matter in the long run.
- Consider myself an owner of each company I’ve invested in, and nothing has changed with the company, only the share price.
- Review my investment plan to ensure it will still get me to where I want to be.
- Identify companies that were exposed by the market decline and decide if the reason I invested in a particular company is still valid.
- Identify companies, either already in a portfolio or have recently come onto my radar, that I feel will perform better than the companies mentioned in the previous bullet.
- Make note of what I’ve learned from this correction
As far as the three Portfolios go, during the high growth run of 2020 – 2021, Portfolios 1 and 3 excelled because they were heavily into the US high growth information technology sector. This sector drove all three Portfolios higher. During this correction in the US stock market, all three Portfolios have fallen, but the more diversified Portfolio 2 has fallen less then the S&P 500 Index. Portfolio 3 rode the tailwinds of one company and now it is reaping the results of that company’s decline. The lesson I’ve learned from this correction is be diversified and do not let a portfolio be too sensitive to the fortunes of any one company. Its easy to say these things when the stock market is rising but living through it really drives the wisdom home.
That’s it. I try not to worry about the short-term ups and downs of the market. There is always something to worry about. A year ago, it was the Covid-19 pandemic. Today it is the double whammy of the Russian invasion of Ukraine, and inflation. None of these I have any control over. And its very unlikely I’ll have any control over the next thing to worry the stock market. So, invest in great companies, and when a market downturn, correction or bear market occurs, try to stay calm and carry on with your plan. I know, easier said then done.
So, lets see how the much of a roller coaster the stock market was on last week…
Weekly Market Review
Monday: In a volatile day of trading, both the Toronto Stock Exchange Composite Index (TSX), and the Nasdaq Composite Index (Nasdaq) inched higher today while the S&P 500 Index (S&P) and the Dow Jones Industrial Average (DJIA) ended slightly below the bar today.
Sanctions imposed on Russia over the last week begin to kick as the Russian ruble fell to all time lows. In the US, defense stocks jumped on news Germany planned to increase its military spending. Cybersecurity stocks (part of the Information Technology sector) and oil stocks also had a good day. However, these three industries were not enough to offset losses in the Financial sector and the overall market in general. The TSX once again benefited from its heavy weighting of Materials and Energy companies (nearly 30% of the TSX) as higher oil, gold and other base metals lifted the Index.
Tuesday: With the end of February, all four Indexes suffered consecutive losing months. Not the best way to start a new year.
Investors’ concerns about the Russian invasion of Ukraine and its impact on the global economy weighed down all four Indexes Tuesday. In both Canada and the US, the respective Financial sectors dropped, while Energy sector companies rose. On the TSX, the Materials sector (base & precious metals, and fertilizers) also had a good day, but the combination of Energy and Materials was not enough to offset the drop in the Financial sector. In the US, Energy sector companies teamed with defense companies, who had another strong day (as long as there is a war on, they’ll probably continue to have good days), but weren’t enough to overcome the drop in the American Financial sector.
Wednesday: In Canada, the Bank of Canada raised interest rates for the first time since 2018, to .5%, and signalled an additional increase in the rates in April. Financial companies tend to benefit from higher interest rates and investors drove these stocks higher, lifting the TSX accordingly. In fact, the Royal Bank (TSX:RY), TD Bank (TSX:TD) and the Bank of Montreal (TSX:BMO) all announced they were lifting their prime lending rate to 2.7%, from 2.45%. Oil continued to climb, rising above USD $110 a barrel.
In the US, the Federal Reserve indicated it would raise interest rates by .25%, less than what investors expected. As a result, all three American Indexes rose steadily higher, with all 11 S&P sectors, led by the Financial sector companies, ending the day higher.
Thursday: Today was pullback day for the TSX as Energy and Financials companies that had been performing well recently, dropped on concerns of higher oil prices will lead to higher inflation which in turn would lead to higher interest rates. As a result, the TSX edged into the red.
In America, concerns over Ukraine and surging oil prices also negatively impacted all three Indexes today. Drops by Amazon (NASD:AMZN), Tesla (NASD:TSLA) and other growth companies weighed on the Nasdaq and S&P.
Friday: As natural resources (oil, precious and base metals such as gold) had another good day, the resource heavy TSX was the only one of the four Indexes to end the day and week higher. The price of oil jumped to USD $115.58 a barrel, propelling the Canadian Energy sector up 3.5%. The Materials and Energy sectors together account for 26% of the TSX so together they can move the TSX. Today they did just that, in a positive way.
In the US, despite a strong job growth report, all three American Indexes ended down for the day and the week, with the DJIA recording its fourth straight week of declines. Fears of the war in Ukraine, possible escalation and if the sanctions will lead to higher inflation all worked against the market today, especially interest rate sensitive information technology companies that are typically on the Nasdaq.
You know its not a good month when the best performing Index notches a 0.1% gain. The three American Indexes all fell over 3% for the month. The TSX is much more of an energy, resource and financial heavy stock exchange, whereas the American Indexes are not as concentrated in these areas. The Nasdaq and S&P are more Information Technology oriented while the DJIA is more broad based. The big thing I got from this was the importance to be diversified not only across sectors but also across countries. If any of the Portfolios had been entirely comprised of US based companies they all would have had a worse month.
Weekly Portfolio Review
The only winner this week was the energy and resource heavy TSX, up 1.4%. Otherwise, it was another painful week in the markets with all 3 Portfolios falling at least 3% and the three American Indexes declining at least 1.3%. The information technology heavy Nasdaq fell the farthest of the Indexes so its no surprise all three Portfolios had a bad week. The rising oil prices that lifted the Energy sector companies certainly helped Portfolios 1 and 2 minimize their respective losses this week. Unfortunately, Portfolio 3 is technology heavy with no Energy companies to offset the fall in technology companies. Given the decline in the stock market since the start of 2022, its no surprise the three Portfolios are down considerably. At this point, the best thing I can do is nothing. Ride out the market correction and wait for the markets to start to pick up which in turn will lift the Portfolios and Indexes.
Companies on the Radar
As has been the case for the last few weeks, watching companies already in at least one of the Portfolios:
- Nvidia (NYSE:NVDA)
- Microsoft (NASD:MSFT)
- Apple (NASD:AAPL)
- Home Depot (NYSE:HD)
- American Tower (NYSE:AMT)
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended March 4, 2022: DOWN 
Given the decline in Portfolio 1 over the past week, I was expecting to see most companies down from the previous week. I was not wrong. ☹ The information technology companies, the growth companies of the portfolio, fell the farthest. No surprise there as they are the most sensitive higher interest rates. There is no point in selling as that will only lock in a loss. I am counting on them growing the most once this market correction ends.
On a positive note, I was pleased to see the oil companies were continuing their march upward. Turns out there is strong demand for oil and natural gas. The other positive I’m taking from the past week is companies I consider ‘defensive’ were doing their job. A few were down slightly but most were up, not much, but up, nonetheless. And they all pay dividends whether up or down. These include companies in the Canadian Communication Services sector such as BCE (TSX:BCE) and Telus (TSX:T); the Industrials sector such as CN Rail (TSX:CNR), Cargojet (TSX:CJT) and ZIM Integrated Shipping (NYSE:ZIM) and the Canadian REITs Automotive Properties REIT (TSX:ARP.UN) and BSR REIT (TSX:HOM.U).
Speaking of REITS, Automotive Properties REIT acquired two Tesla automotive service properties, bringing the number electric vehicle properties to five, all tenanted by Tesla Canada. The acquisition was funded by the REITs credit facilities rather than issuing shares so there will be no dilution of shareholder equity.
Finally, Teladoc (NASD:TDOC) signed a deal with Amazon or provide non-emergency medical care through Amazon’s Alexa services. When the owner of an Amazon Echo speaker says. “Alexa, I want to talk to a doctor” they will get a callback on their Echo device from a Teladoc doctor for a virtual consultation. I’m assuming this is only in the US since Teladoc is only in the USA. I wonder if this proves successful for both companies if Amazon would consider acquiring Teladoc. It would be a good way to back into shares of Amazon. 😊
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 $
No C$ dividends this past week.
US $
Visa (NYSE:V)
Quarterly Reports
GDI Integrated Facility Services Inc
All currency listed in CAD dollars
Selected highlights from their fourth quarter 2021 financial results on February 28, 2022
Fourth quarter highlights
- Revenue of $433.0 million – an increase of $68.4 million, or 18.7%, over Q4 2020
- net income of $6.9 million compared with $17.0 million for the fourth quarter of 2020
Fiscal 2021 highlights
- Revenue of $1.6 billion, an increase of $185.6 million or 13.1% over 2020
- Net income of $43.4 million compared with $48.0 million in 2020
- During 2021 acquired The BPAC Group, Inc. and its subsidiaries, Enginuity, LLC, Fuller Industries, LLC and IH Services, Inc. and its subsidiaries
Progeny Inc.
All currency listed in USD dollars
Selected highlights from their fourth quarter 2021 financial results on February 28, 2022
Fourth quarter highlights
- Revenue was $127.6 million, a 27% increase as compared to the $100.3 million reported in the fourth quarter of 2020, primarily as a result of the increase in our number of clients.
- Net income was $15.1 million, a decrease of $24.0 million as compared to the net income of $39.1 million, reported in the fourth quarter of 2020.
Fiscal 2021 highlights
- Revenue was $500.6 million, a 45% increase as compared to the $344.9 million reported in the prior year period, primarily as a result of the increase in our number of clients.
- Net income was $65.8 million, an increase of $19.3 million as compared to the net income of $46.5 million, reported in the prior year period.
- As of December 31, 2021, the company had total working capital of approximately $159.7 million and no debt.
Celsius Holdings Inc.
All currency listed in CAD dollars
Selected highlights from their fourth quarter 2021 financial results on March 1, 2022
Fourth quarter highlights
- Revenue of $104.3 million, up 192% from $35.7 million in the year ago quarter
- Gross profit of $41.7 million, up 140% from $17.4 million in the year ago quarter
- Net Income of $11.9 million, compared to income of $1.7 million
Fiscal 2021 highlights
- Revenue of $314.3 million, up 140% from $130.7 million for the full year ended December 31, 2020.
- Gross profit of $128.2 million, up 111% from $61.0 million for the full year ended December 31, 2020.
- Net income of $3.9 million compared to a net income of $8.5 million in the 2020 period
- growing faster than the category at a reported +224% y/y over the past 12 weeks compared to 15.5% for the industry.
Bank of Nova Scotia
All currency listed in CAD dollars
Selected highlights from their first quarter 2022 financial results on March 1, 2022
- Net income of $2,740 million, compared to $2,398 million in the first quarter of 2021.
- Earnings per share (diluted) of $2.14, compared to $1.86 in the first quarter of 2021.
- Return on equity(2) of 15.8%, compared to 14.2% in the first quarter of 2021.
SEA Limited
All currency listed in CAD dollars
Selected highlights from their fourth quarter 2021 financial results on March 1, 2022
Fourth quarter highlights
- Revenue was US$3.2 billion, up 105.7% year-on-year.
- Gross profit was US$1.3 billion, up 145.6% year-on-year.
- Adjusted EBITDA was US$(492.1) million compared to US$48.7 million for the fourth quarter of 2020.
Fiscal 2021 highlights
- Revenue was US$10.0 billion, up 127.5% year-on-year.
- Gross profit was US$3.9 billion, up 188.8% year-on-year.
- Adjusted EBITDA was US$(593.6) million compared to US$107.0 million for the full year of 2020.
Andlauer Healthcare Group Inc
All currency listed in CAD dollars
Selected highlights from their fourth quarter 2021 financial results on March 2, 2022
Fourth quarter highlights
- Revenue increased 53.6% to $133.0 million, compared to $86.6 million in the three months of the previous fiscal year.
- Net income, including a gain of $37.9 million on the step acquisition of 51% of Skelton USA Inc. increased to $53.1 million, compared to $13.9 million in Q4 2020.
Fiscal 2021 highlights
- Revenue increased 40.0% to $440.1 million, compared to $314.3 million in the year ended December 31, 2020.
- Net income increased to $90.0 million, including the gain on the step acquisition, compared to $37.7 million in Fiscal 2020. Net income excluding the gain on step acquisition was $52.0 million for Fiscal 2021.
- Acquired 100% of T.F. Boyle Transportation, Inc. and 51% of Skelton USA, increasing its aggregate ownership of Skelton USA to 100%.
Algonquin Power & Utilities Corp
All currency listed in USD dollars
Selected highlights from their fourth quarter 2021 financial results on March 3, 2022
Fourth quarter highlights
- Fourth quarter revenue of $594.8 million, an increase of 21%.
- Net Income of $175.6 million, down 65% from $504.2 million in the same period the previous year
Fiscal 2021 highlights
- Annual revenue of $2,285.5 million, an increase of 36%.
- Net Income of $264.9 million, down 66% from $782.5 million in the previous year
- Declared a common share dividend of CAD$ 0.2161 per share to shareholders of record on March 31, 2022.
Toronto Dominion Bank
All currency listed in CAD dollars
Selected highlights from their first quarter 2022 financial results on March 3, 2022
- Diluted earnings per share of $2.02, compared with $1.77 in the first quarter last year
- Net income of $3.73 billion, compared with $3.277 million
- Return on Equity of 15.3%, compared to 14.3% in the previous first quarter
Portfolio 2
Portfolio 2 for the week ended March 4, 2022: DOWN
Chorus Aviation (TSX:CHR) announced the acquisition of Falko Regional Aircraft Limited, a regional aircraft lessor. Chorus Aviation is comprised of Chorus Aviation Capital a leading lessor of regional aircraft, and Canadian regional airlines Jazz Aviation and Voyageur Aviation. Falko manages a portfolio of regional jet and turboprop aircraft leased to airlines worldwide including Europe, Asia, South America and Australia. After the deal close Chorus will have a total of 353 regional aircraft, across 32 airlines 23 countries. Another aspect of this deal is Brookfield Asset Management (TSX:BAM.A) has made an equity investment in Chorus and will nominate two directors to the Board of Directors.
I like this deal for two reasons. First, the deal instantly provides Chorus a global footprint in the regional airline industry. After two years of reduced airline travel, I suspect there is a lot of pent-up demand to travel to other countries for business and pleasure. The second reason is the involvement of Brookfield. As indicated by the number of Brookfield companies across all three portfolios, I have great confidence in their management capabilities. I don’t think Brookfield would have gotten involved if they didn’t see tremendous opportunity in this deal and Chorus. With this deal, Chorus will have access to Brookfield’s operational management expertise and ability to raise capital.
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
All currency listed in CAD dollars
Selected highlights from their first quarter 2022 financial results on March 1, 2022
- Net income of $2,740 million, compared to $2,398 million in the first quarter of 2021.
- Earnings per share (diluted) of $2.14, compared to $1.86 in the first quarter of 2021.
- Return on equity(2) of 15.8%, compared to 14.2% in the first quarter of 2021.
Portfolio 3
Portfolio 3 for the week ended March 4, 2022: DOWN
Toronto-Dominion Bank Group said it will buy First Horizon Corp. (NYSE:FHN) for $13.4 billion in cash. This will be TD’s largest ever acquisition. With this acquisition, TD will acquire 412 branches, serving over 1.1 million consumer, business and commercial customers across 12 states. With this deal, Canada’s second-biggest bank is soon to be America’s sixth-biggest bank with about $614 billion in assets, operating in 22 states.
This deal provides TD with an instant presence in the southeastern United States to take advantage of a growing population and opportunities in the southeast corner of the US, including the Gulf Coast.
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 Ltd (TSX:ENGH)
Royal Bank of Canada (TSX:RY)
US $
No US$ dividends this past week.
Quarterly Reports
GDI Integrated Facility Services Inc
All currency listed in CAD dollars
Selected highlights from their fourth quarter 2021 financial results on February 28, 2022
Fourth quarter highlights
- Revenue of $433.0 million – an increase of $68.4 million, or 18.7%, over Q4 2020
- net income of $6.9 million compared with $17.0 million for the fourth quarter of 2020
Fiscal 2021 highlights
- Revenue of $1.6 billion, an increase of $185.6 million or 13.1% over 2020
- Net income of $43.4 million compared with $48.0 million in 2020
- During 2021 acquired The BPAC Group, Inc. and its subsidiaries, Enginuity, LLC, Fuller Industries, LLC and IH Services, Inc. and its subsidiaries
Enghouse Systems Ltd
All currency listed in CAD dollars
Selected highlights from their first quarter 2022 financial results on March 3, 2022
- Revenue achieved was $111.1 million compared to revenue of $119.1 million in the prior year.
- Net income increased to $21.6 million compared to $20.6 million in the prior year. The increase in Net income is a result of lower costs and higher other income despite lower revenues relative to the comparative period.
- Closed the quarter with $214.8 million in cash, cash equivalents and short-term investments, compared to $198.8 million on October 31, 2021, and with no external debt.
- Approved a quarterly dividend of $0.185 per common share, an increase of 16% over the prior dividend.
Toronto Dominion Bank
All currency listed in CAD dollars
Selected highlights from their first quarter 2022 financial results on March 3, 2022
- Diluted earnings per share of $2.02, compared with $1.77 in the first quarter last year
- Net income of $3.73 billion, compared with $3.277 million
- Return on Equity of 15.3%, compared to 14.3% in the previous first quarter