Update #469 - Trailblazers, Ship Congestion, & Inflation Outlook
12Feb22 Stocks covered: $DOL.to , $MFC.to /$MFC
Dear Friends of Purple Chips,
On Thursday, the Dow Jones Index was at 35,400 up marginally from last week. In this video, we look at the following:
How the early names aren't always the winners in the long run;
The backlog of ships waiting at ports and inflation numbers;
Dollarama and Manulife.
Please click on the icon to below to view the video.
Transcript for Update 469:
On Thursday, the Dow Jones was at 35,400, up marginally from where it ended last week. The market is still concerned about a rate hike and rising inflation.
From my point of view, I still see a lot of cash on the sidelines which validates buying the dip, but the concern over rising rates could deflate stock values. With this backdrop, I’m being cautious but still looking for good quality companies that are on sale.
Slide 3 – Changes
I found this article from the WSJ that was talking about how the early entrants in a space may not be the eventual winners and they made a reference to early search engines, they noted that Excite , Infoseek and webcrawler were out before Google but you know who ultimately won the race. Remember AOL or Compaq, they faded away too.
Slide 4 – Value stocks
This bar chart is from another article in the Wall street journal from earlier in the week. It shows that a lot of money has been flowing into dividend paying stocks in the last month. This is a reverse of the flow that we have seen in the last year, where there was steady money flowing out from what we call value stocks and into growth stocks.
Slide 5 – LizAnn Sonders
Here’s a chart from LIZANN Sonders Twitter account. This shows that if the Fed raises interest rates, they will be doing this in a historically expensive market, which could have a big impact.
Bad news in an expensive market tends to have a much greater impact than bad news in an oversold market. The same logic applies to stock values.
Slide 6 – Valuations
On Thursday, the low valuations were:
Fiserv, Exponent, Dorman, Fortune Brands, Ross Stores, Carmax, PROG Holdings, Walgreens, Align, Veeva Systems, Adobe, Salesforce, Workday and ATT.
On the TSX there was Stella Jones, Saputo, CI Financial, Fiera Capital and Enghouse.
Slide 7 – Spotlight – Ships ahoy
In the Spotlight, we look at the number of ships waiting at port and the Inflation outlook.
Pause your video to read this.
Slide 8 – Inflation
Here’s a comment on the inflation outlook.
Slide 9 – Satellite Holdings
There were no changes to our positions this week. n/c
Slide 10 – Core US
we didn’t make any changes to our other positions.
Slide 11 – Core CAD
n/c
Slide 12 – My thoughts
I always feel guilty when I don’t have any changes to announce in our holdings, but the reality is that investing is way more profitable when you trade less and invest more. This week, I was considering reducing my stake in Dollarama because it is looking fairly expensive.
Slide 13 – Dollarama
Here’s the chart of DOL and you can see that the valuation is historically high, but I held back because I still have a fair amount of cash available and I couldn’t find anything that seemed like a good deal that I didn’t already own.
In this environment of raising rates, I have to be careful because rising rates usually have a negative impact on the market as a whole.
However, that doesn’t mean that there aren’t any good deals. Banks and insurers are 2 sectors that benefit from rising rates.
Banks make more money as rates rise because the spread between what they pay and what they lend out at gets wider as rates go up. This is called the Net Interest Margin or NIM.
Insurance companies do better because the yield on their long term investments improve.
I’m not that attracted to the banks at current levels because they appear to be fully valued, but if there was a pullback in the market and say prices dropped by 5 or 10%, I would take a hard look at them.
In insurance companies, there’s one Canadian company that attracts my attention: Manulife.
Slide 14 – Manulife
Here’s the chart of Manulife. I like that profits are at their highest yet and yet the shares are still way below their highest level. When I look at this, I think that Manulife could reach the mid $30’s based on this level of profits, that’s a 20% appreciation. Right now the stock trades at 8.5X earnings and pays a 4.7% dividend. That’s a pretty attractive combination. If you don’t already own this, speak to your advisor because you may want to look into it… Food for thought
Slide 15 – Quote
This quote is by me and I’ve used it many times but I can’t repeat it often enough because I think it’s really key to becoming a good investor: “Don’t let short term thinking influence your long term plans.”
Throughout my career there have been many times when I’ve made the mistake of selling a great investment because I was afraid that a stock could fall another 10% when I should have been focused on the 100% upside potential.
END –
That’s all for this week, I’m john Schwinghamer, the author of Purple Chips. Have a great weekend and thanks for listening.