Market Outlook, February 8, 2016

guage (4)

Interest Rates

yieldcurveThe 30-day T-bill rate is 0.44%, the short government bond yield is 0.37% and the long government bond yield is 1.79%. The yield curve is inverted in the short end. The Bank of Canada prime rate may rise to slow inflation and economic activity.

Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.
guageguage (1)guage (2)

Currency

Singapore dollar (FXSG), Japanese Yen (FXY), Brazilian Real  (BZF), Swedish Krona (FXS) are looking strong relative to the US dollar.
The Canadian dollar has been losing value compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds vs. US stocks:
guage (3)
Canadian bonds vs. Canadian stocks:
guage (4)

Global Markets

  • Italy has changed -5.14% in price since last week’s close.

Comparing national stock markets, Indonesia (EIDO), Chile (ECH), Turkey (TUR), Thailand (THD) are rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was 1,880.05. This is -3.06% lower than last week’s price (1,939.38), and -3.24% lower than last month’s price (1,943.09), and -10.47% lower than the price three months ago (2,099.93), and -9.77% lower than the price six months ago (2,083.56), and -9.00% lower than the price one year ago (2,065.95).

The average P/E ratio of the S&P 100 (equal weighted) is 18.89. This implies the market is fairly priced. This implies a forward capital return of 5.29% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Exelon Corporation Common Stock (EXC)
  • Verizon Communications Inc. Com (VZ)
  • AT&T Inc. (T)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • General Motors Company Common S (GM)
  • Ford Motor Company Common Stock (F)
  • Metlife, Inc. Common Stock (MET)

Canadian Stocks

Yesterday’s closing price was 12,764.00. This is 0.71% higher than last week’s price (12,674.40), and 2.56% higher than last month’s price (12,445.50), and -5.82% lower than the price three months ago (13,553.30), and -11.40% lower than the price six months ago (14,405.90), and -13.40% lower than the price one year ago (14,739.20).

The average P/E ratio of the TSX60 (equal weighted) is 25.62. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 3.90% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Crescent Point Energy Corp. (CPG.to)
  • Encana Corp. (ECA.to)
  • Arc Resources Ltd. (ARX.to)
  • National Bank Of Canada (NA.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Bank Of Nova Scotia (BNS.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Bank Of Montreal (BMO.to)

Other Assets

Canadian Universe Bond (XBB.to), Gold (IGT.to), Silver (HUZ.to) are performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XUS in US$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) of gold
  • 4 units (80%) bonds

Comparing Information Technology Stocks

I’m not reviewing every stock in the IT sector on the TSX, but seven is enough to appreciate the similarities and differences and get an idea of where the opportunities may lie. You can see that many of them have earnings that are more volatile and returns that are less predictable than Financials. Like last time, I don’t own or plan to buy any of these.

Blackberry

Symbol: BB on the TSX. The price at Monday close was $9.85, which is near the 52-week low of $7.99 (undervalued). (Chart.) The price is -0.20% lower than last week’s price ($9.87), and -22.75% lower than last month’s price ($12.75), and -26.71% lower than the price one year ago ($13.44). The company pays no dividend. The P/E ratio is negative / meaningless. The Price/Book ratio is 1.50, below the 10 year average of 4.01 (undervalued). Market capitalization is $5.13B (large cap).

This stocks doesn’t make sense to buy within either a value or momentum strategy. Over the past 10 years, earnings per share have been falling, with a 10 year average of $0.72 and most recent earnings per share of $-0.58. Earnings have been volatile. Any price projection would be meaningless, since the projected earnings are negative.

CGI Group

Symbol: GIB.A on the TSX. The price at Monday close was $60.35, which is a new 52-week high (overvalued). (Chart.) The price is 8.72% higher than last week’s price ($55.51), and 11.43% higher than last month’s price ($54.16), and 14.06% higher than the price one year ago ($52.91). The company pays no dividend. The P/E ratio is 19.72, above the 10 year average of 16.96 (overvalued). The Price/Book ratio is 2.91, above the 10 year average of 2.36 (overvalued). Market capitalization is $18.65B (large cap).

Although this stock is attractive within a momentum strategy, it’s hard to see how much higher the price can go. Earnings per share are positive and have tended to rise. I have extrapolated a 5-year target price of $63.16, wide range: $32.10 – $241.55, tight range: $45.87 – $71.80. Growth from the recent price of $60.35 to $63.16 would represent an annual compound return of 0.91% per year (wide range: -11.86% to 31.97%, tight range: -5.34% to 3.54%).

Computer Modelling Group

Symbol: CMG on the TSX. The price at Monday close was $9.40, which is near the 52-week low of $7.67 (undervalued). (Chart.) The price is 18.24% higher than last week’s price ($7.95), and 6.09% higher than last month’s price ($8.86), and -23.01% lower than the price one year ago ($12.21). The current yield is 4.26%, which is above the 10 year average of 3.37% (undervalued). The P/E ratio is 22.46, below the 10 year average of 26.07 (undervalued). The Price/Book ratio is 12.27, near the 10 year average of 11.98 (fairly valued). Market capitalization is $723.35M (small cap).

This doesn’t appear to present either value or momentum. Earnings per share are positive and have been fluctuating. I have extrapolated a 5-year target price of $20.46, wide range: $5.36 – $25.37, tight range: $18.02 – $21.68. Growth from the recent price of $9.40 to $20.46 would represent an annual compound return of 16.83% per year (wide range: -10.63% to 21.97%, tight range: 13.91% to 18.19%), plus a dividend cash-on-cash yield of 5.32% (average per year, simple return, not guaranteed).

Constellation Software

Symbol: CSU on the TSX. The price at Monday close was $512.26, which is midway between the 52-week low of $355.11 and the 52-week high of $598.00 (fairly valued). (Chart.) The price is -0.92% lower than last week’s price ($517.04), and -7.80% lower than last month’s price ($555.61), and -9.57% lower than the price three months ago ($566.48), and -11.45% lower than the price six months ago ($578.49), and 19.18% higher than the price one year ago ($429.83). The current yield is 0.78%, which is below the 10 year average of 0.96% (overvalued). The P/E ratio is 71.35, above the 10 year average of 62.51 (overvalued). The Price/Book ratio is 36.89, above the 10 year average of 20.32 (overvalued). Market capitalization is $10.75B (large cap).

This one has some momentum, but again it is difficult to imagine it being a profitable trade. Earnings per share are positive and have tended to rise. I have extrapolated a 5-year target price of $427.40, wide range: $0 – $1,196.02, tight range: $256.60 – $512.80. Growth from the recent price of $512.26 to $427.40 would represent an annual compound return of -3.56% per year (wide range: total loss to 18.48%, tight range: -12.91% to 0.02%), plus a dividend cash-on-cash yield of 1.04% (average per year, simple return, not guaranteed).

Enghouse Systems

Symbol: ESL on the TSX. The price at Monday close was $59.51, which is midway between the 52-week low of $39.71 and the 52-week high of $77.54 (fairly valued). (Chart.) The price is 0.27% higher than last week’s price ($59.35), and -18.48% lower than last month’s price ($73.00), and 22.78% higher than the price one year ago ($48.47). The current yield is 0.74%, which is below the 10 year average of 0.96% (overvalued). The P/E ratio is 50.41, above the 10 year average of 31.83 (overvalued). The Price/Book ratio is 6.50, above the 10 year average of 3.45 (overvalued). Market capitalization is $1.57B (mid cap).

Earnings per share are positive and have tended to rise. I have extrapolated a 5-year target price of $73.93, wide range: $23.50 – $104.67, tight range: $58.14 – $81.82. Growth from the recent price of $59.51 to $73.93 would represent an annual compound return of 4.43% per year (wide range: -16.96% to 11.96%, tight range: -0.47% to 6.57%), plus a dividend cash-on-cash yield of 0.93% (average per year, simple return, not guaranteed).

Macdonald Dettwiler

Symbol: MDA on the TSX. The price at Monday close was $86.80, which is midway between the 52-week low of $70.55 and the 52-week high of $101.42 (fairly valued). (Chart.) The price is -1.14% lower than last week’s price ($87.80), and 4.65% higher than last month’s price ($82.94), and -10.66% lower than the price one year ago ($97.16). The current yield is 1.50%, which is above the 10 year average of 0.86% (undervalued). The P/E ratio is 32.31, above the 10 year average of 26.14 (overvalued). The Price/Book ratio is 2.92, below the 10 year average of 4.85 (undervalued). Market capitalization is $3.11B (mid cap).

This is a momentum stock. Earnings per share are positive and have been fluctuating. I have extrapolated a 5-year target price of $52.15, wide range: $0 – $182.72. Earnings are too volatile to have confidence in a tighter range. Growth from the recent price of $86.80 to $52.15 would represent an annual compound return of -9.69% per year (wide range: total loss to 16.05%), plus a dividend cash-on-cash yield of 2.03% (average per year, simple return, not guaranteed).

Open Text

Symbol: OTC on the TSX. The price at Monday close was $68.25, which is near the 52-week high of $76.71 (overvalued). (Chart.) The price is 1.38% higher than last week’s price ($67.32), and 2.74% higher than last month’s price ($66.43), and -4.63% lower than the price one year ago ($71.56). The current yield is 1.05%, which is above the 10 year average of 0.58% (undervalued). The P/E ratio is 39.51, above the 10 year average of 29.77 (overvalued). The Price/Book ratio is 4.55, above the 10 year average of 2.88 (overvalued). Market capitalization is $8.20B (large cap).

Another momentum stock. Earnings per share are positive and have tended to rise. I have extrapolated a 5-year target price of $77.26, wide range: $61.41 – $519.60, tight range: $71.50 – $80.13. Growth from the recent price of $68.25 to $77.26 would represent an annual compound return of 2.51% per year (wide range: -2.09% to 50.08%, tight range: 0.94% to 3.26%), plus a dividend cash-on-cash yield of 1.33% (average per year, simple return, not guaranteed).

Conclusion

Now I understand the reason investors value highly stable, highly predictable earnings, as well as regular, steady dividends. These companies are more difficult to predict, but some of them also have very fast-growing earnings. I wouldn’t suggest these as the “core” part of a portfolio, but they could make up the “explore” portion. I would probably prefer Computer Modelling Group, given that the price has more room to increase before hitting the 52-week high, and Constellation Software, which would present a decent return if it returns to its 52-week high in under five years. But I wouldn’t commit too much capital to these, and I would look to diversify it with other investments. Due to the momentum strategy, I’d also monitor them closely, especially looking to take profit as they near their targets.

Market Outlook, February 1, 2016

guage (4)

Interest Rates

yieldcurveThe 30-day T-bill rate is 0.42%, the short government bond yield is 0.42% and the long government bond yield is 1.87%.

Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.
guageguage (1)

guage (2)Currency

The US dollar currently appears to be the strongest currency.
The Canadian dollar has been losing value compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds vs. US stocks:
guage (3)

Canadian bonds vs. Canadian stocks:guage (4)

Global Markets

  • Brazil Inde has changed 9.68% in price since last week’s close.
  • Chile Inves has changed 5.87% in price since last week’s close.
  • Malaysia Fun has changed 6.57% in price since last week’s close.
  • Mexico Inve has changed 6.38% in price since last week’s close.
  • All Peru Et has changed 5.15% in price since last week’s close.
  • Philippines has changed 8.14% in price since last week’s close.
  • Qatar has changed 7.79% in price since last week’s close.
  • Russia has changed 8.21% in price since last week’s close.
  • South Africa has changed 11.43% in price since last week’s close.
  • Turkey Investable has changed 7.08% in price since last week’s close.

Comparing national stock markets, Indonesia (EIDO) is rising, while other regions appear to be neutral or falling.

US Stocks

Yesterday’s closing price was $1,940.24. This is 3.36% higher than last week’s price ($1,877.08), and -5.97% lower than last month’s price ($2,063.36), and -7.14% lower than the price three months ago ($2,089.41), and -7.99% lower than the price six months ago ($2,108.63), and -7.65% lower than the price one year ago ($2,101.04).

The average P/E ratio of the S&P 100 (equal weighted) is 19.30. This implies the market is fairly priced. This implies a forward capital return of 5.18% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Facebook, Inc. (FB)
  • Mcdonald’s Corporation Common S (MCD)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Conocophillips Common Stock (COP)
  • Ford Motor Company Common Stock (F)
  • General Motors Company Common S (GM)
  • Metlife, Inc. Common Stock (MET)

Canadian Stocks

Yesterday’s closing price was $12,822.10. This is 5.59% higher than last week’s price ($12,143.20), and -1.44% lower than last month’s price ($13,010.00), and -5.23% lower than the price three months ago ($13,529.20), and -10.35% lower than the price six months ago ($14,301.80), and -14.99% lower than the price one year ago ($15,082.80).

The average P/E ratio of the TSX60 (equal weighted) is 26.75. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 3.74% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Barrick Gold Corporation (ABX.to)
  • Agnico Eagle Mines Limited (AEM.to)
  • Cgi Group Inc., Cl.a, Sv (GIB-A.to)
  • Canadian Oil Sands Limited (COS.to)
  • Fortis Inc (FTS.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Teck Resources Limited (TCK-B.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Encana Corp. (ECA.to)
  • Arc Resources Ltd. (ARX.to)
  • National Bank Of Canada (NA.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Bank Of Nova Scotia (BNS.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Yamana Gold Inc (YRI.to)
  • Bank Of Montreal (BMO.to)
  • Potash Corp Of Sask Inc (POT.to)

Other Assets

Gold Trust (IGT.to) is the only asset class performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Portfolio

A theoretical portfolio, split evenly between gold (IGT in Cdn$), real estate (XRE in Cdn$), Canadian stocks (XIU in Cdn$), US stocks (XUS in US$), international stocks (VDU in Cdn$) and bonds (XBB in Cdn$).

As of today, the theoretical portfolio would hold:

  • One unit (20%) of gold
  • 4 units (80%) cash

Market Outlook, January 25, 2016

guage-4

Last week was a roller coaster. I know people who bought at the bottom and I know people who sold at the bottom. The difference is what they are trying to achieve. We likely have a bumpy ride ahead of us, so sitting on the sidelines might save some stress. But if you’re a long-term investor, many potential purchases look cheap. Especially oil & gas stocks, but also banks and others. Maybe I’ll put together a list later this week.

Interest Rates

yieldcurveThe 30-day T-bill rate is 0.44%, the short government bond yield is 0.46% and the long government bond yield is 1.88%. The yield curve is normal.

Long government bonds appear very overvalued. This makes sense when everyone would rather own bonds than stocks or other risky assets. But it provides precious little return to investors, and creates risk of capital losses for anyone who doesn’t directly hold individual bonds (which mature at par).

Credit Environment

The market prefers government bonds to corporate bonds:
guage

Slight preference for short bonds over long bonds (expecting interest rates to rise?)

guage-1

And preference for high quality over high yield (much like the first guage).

guage-2

Currency

The Japanese Yen continues to look strong relative to the US dollar, but it’s the only currency (of the ones I watch) that seems to be holding up so well. The Canadian dollar has been losing value compared to the US dollar, although the last couple days may be the start of a turnaround (if the oil price continues to recover; we seem to have a real petro-dollar).

Equities

Where does there appear to be more opportunity right now?
US bonds are in favour over US stocks:
guage-3
Canadian bonds vs. Canadian stocks likewise:
guage-4

Global Markets

  • Australia Fu has changed 5.91% in price since last week’s close.
  • Canada has changed 5.48% in price since last week’s close.
  • Malaysia Fun has changed 5.99% in price since last week’s close.
  • Norway has changed 5.06% in price since last week’s close.
  • Russia has changed 7.68% in price since last week’s close.
  • South Africa has changed 5.22% in price since last week’s close.

As noted, some regional markets have recovered some of the pull-back or correction that occurred during the beginning of the year. Having said that, no national stock markets appear to have positive momentum. There will be a little ways further to recover before I am satisfied that the correction is finished. If you bought stocks on Wednesday, you are braver than me.

US Stocks

Yesterday’s closing price was $1,906.90. This is 1.41% higher than last week’s price ($1,880.33), and -6.48% lower than last month’s price ($2,038.97), and -7.09% lower than the price three months ago ($2,052.51), and -9.29% lower than the price six months ago ($2,102.15), and -9.66% lower than the price one year ago ($2,110.74).

The average P/E ratio of the S&P 100 (equal weighted) is 19.52. This implies the market is fairly priced. This implies a forward capital return of 5.12% (before dividends).

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Conocophillips Common Stock (COP)
  • General Motors Company Common S (GM)
  • Occidental Petroleum Corporatio (OXY)
  • Metlife, Inc. Common Stock (MET)
  • Ford Motor Company Common Stock (F)
  • Exelon Corporation Common Stock (EXC)
  • Devon Energy Corporation Common (DVN)

Canadian Stocks

Yesterday’s closing price was $12,389.60. This is 3.75% higher than last week’s price ($11,942.20), and -5.30% lower than last month’s price ($13,082.90), and -11.21% lower than the price three months ago ($13,953.70), and -13.40% lower than the price six months ago ($14,307.10), and -18.64% lower than the price one year ago ($15,228.60).

The average P/E ratio of the TSX60 (equal weighted) is 25.85. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 3.87% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Barrick Gold Corporation (ABX.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Teck Resources Limited (TCK-B.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Encana Corp. (ECA.to)
  • Arc Resources Ltd. (ARX.to)
  • Potash Corp Of Sask Inc (POT.to)
  • National Bank Of Canada (NA.to)
  • Bank Of Nova Scotia (BNS.to)
  • Yamana Gold Inc (YRI.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Inter Pipeline Ltd (IPL.to)
  • Bank Of Montreal (BMO.to)
  • Royal Bank Of Canada (RY.to)

Other Assets

Gold Trust (IGT.to) is the only asset class performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Comparing Mining and Materials Stocks

Again, I’m not reviewing all 46 of the stocks that are categorized in the Materials sector in the TSX. Rather, I’ll pick the most interesting, to try and show some opportunity and some variety. These are mainly miners of gold and silver and producers of timber. A number of the companies were excluded because their earnings have been negative for the past 2, 3 or more years. Disclosure: I don’t own and don’t plan to buy any of these.

Gold Producers

The gold price is currently stable or rising, thanks probably to the turmoil in the stocks markets. Gold producers may be a short-term haven.

Agnico Eagle Mines

Symbol: AEM on the TSX. The price at Monday close was $40.85, which is near the 52-week high of $43.70 (overvalued). (Chart.) The price is 0.37% higher than last week’s price ($40.70), and 8.64% higher than last month’s price ($37.60), and 7.19% higher than the price one year ago ($38.11). The current yield is 1.08%, which is above the 10 year average of 0.72% (undervalued). The P/E ratio is 558.86, above the 10 year average of 199.31 (overvalued). The Price/Book ratio is 2.14, below the 10 year average of 2.75 (undervalued). Market capitalization is $8.51B (large cap).

Earnings per share are positive and have been falling lately. I think that the share price will reach $45.92 in about five years. This would represent an annual compound growth rate of 2.37% per year, plus and annual dividend of 1.08% dividend yield per year. Over a 5-year time frame, that’s 3.45% CAGR. This is a momentum stock, and I would look for a short-term gain, selling if it reaches $46.00.

Barrick Gold

Symbol: ABX on the TSX. The price at Monday close was $11.62, which is midway between the 52-week low of $7.89 and the 52-week high of $16.54 (fairly valued). (Chart.) The price is 3.01% higher than last week’s price ($11.28), and 10.35% higher than last month’s price ($10.53), and -28.14% lower than the price one year ago ($16.17). The current yield is 0.96%, which is below the 10 year average of 1.26% (overvalued). The P/E ratio is negative, as is the 10 year average P/E. The Price/Book ratio is 1.38, below the 10 year average of 1.92 (undervalued). Market capitalization is $12.95B (large cap).

Earnings per share are negative and have been falling steadily. I think that the share price will reach $24.68 in about five years. If it survives, because I don’t like the rising debt. This would represent an annual compound growth rate of 16.26% per year, plus and annual dividend of 0.96% dividend yield per year. Over a 5-year time frame, that’s 17.22% CAGR. This is a momentum stock, and I would sell it once it reaches $16.00.

Semafo

Symbol: SMF on the TSX. The price at Monday close was $3.83, which is near the 52-week high of $4.49 (overvalued). (Chart.) The price is -6.59% lower than last week’s price ($4.10), and 4.93% higher than last month’s price ($3.65), and 4.64% higher than the price one year ago ($3.66). The stock pays no dividend. The P/E ratio is 37.23, below the 10 year average of 78.84 (undervalued). The Price/Book ratio is 1.96, below the 10 year average of 2.93 (undervalued). Market capitalization is $1.11B (mid cap).

Earnings per share are positive and have been falling steadily. I think that the share price will reach $4.03 in about five years. This would represent an annual compound growth rate of 1.02% per year. This is a momentum stock, and I would sell once the share price nears its 52-week high of $4.49.

OceanaGold

Symbol: OGC on the TSX. The price at Monday close was $2.68, which is midway between the 52-week low of $1.79 and the 52-week high of $3.18 (fairly valued). (Chart.) The price is -7.59% lower than last week’s price ($2.90), and the same as last month’s price ($2.68), and 7.20% higher than the price one year ago ($2.50). It paid a dividend one time, in February 2015. The P/E ratio is 11.82, below the 10 year average of -405.46 (undervalued). The Price/Book ratio is 1.19, near the 10 year average of 1.16 (fairly valued). Market capitalization is $1.57B (mid cap).

Earnings per share are positive, but have been volatile. I think that the share price will reach $2.95 in about five years. This would represent an annual compound growth rate of 1.91% per year, plus any dividend it may pay. This is a value stock and will require patience and luck.

Silver Producers

Franco-Nevada

Symbol: FNV on the TSX. The price at Monday close was $65.24, which is midway between the 52-week low of $49.96 and the 52-week high of $74.10 (fairly valued). (Chart.) The price is -2.04% lower than last week’s price ($66.60), and -0.17% lower than last month’s price ($65.35), and 2.92% higher than the price one year ago ($63.39). The current yield is 1.77%, which is above the 10 year average of 0.86% (undervalued). The P/E ratio is 174.01, above the 10 year average of 130.44 (overvalued). The Price/Book ratio is 3.16, above the 10 year average of 2.39 (overvalued). Market capitalization is $9.81B (large cap).

Earnings per share are positive, but have been volatile. I think that the share price will reach $52.32 in about five years. This would represent an annual compound growth rate of -4.32% per year, plus and annual dividend of 1.77% dividend yield per year. Over a 5-year time frame, that’s -2.55% CAGR. This looks more like a gamble than an investment.

Tahoe Resources

Symbol: THO on the TSX. The price at Monday close was $10.68, which is near the 52-week low of $9.66 (undervalued). (Chart.) Yesterday’s closing price was $10.68. This is -11.00% lower than last week’s price ($12.00), and -11.30% lower than last month’s price ($12.04), and -35.31% lower than the price one year ago ($16.51). The current yield is 3.17%, which is above the 10 year average of 0.04% (undervalued). The P/E ratio is 41.07, whereas the 10 year average is negative. The Price/Book ratio is 1.36, below the 10 year average of 3.22 (undervalued). Market capitalization is $2.27B (mid cap).

Earnings per share are positive for the first time in five years. As such, it’s impossible to guess where the earnings or price might go from here. The best guess might be the 52-week high, which was $19.45. This is another gamble.

Silver Wheaton

Symbol: SLW on the TSX. The price at Monday close was $16.11, which is near the 52-week low of $14.62 (undervalued). (Chart.) The price is 1.00% higher than last week’s price ($15.95), and -9.09% lower than last month’s price ($17.72), and -40.02% lower than the price one year ago ($26.86). The current yield is 1.65%, which is above the 10 year average of 0.57% (undervalued). The P/E ratio is 101.95, above the 10 year average of 31.33 (overvalued). The Price/Book ratio is 1.50, below the 10 year average of 3.70 (undervalued). Market capitalization is $6.34B (large cap).

Earnings per share are positive and have been rising steadily. I think that the share price will reach $26.48 in about five years. This would represent an annual compound growth rate of 10.45% per year, plus and annual dividend of 1.65% dividend yield per year. Over a 5-year time frame, that’s 12.10% CAGR.

Diversified or Other

Agrium

Symbol: AGU on the TSX. The price at Monday close was $120.92, which is near the 52-week low of $114.87 (undervalued). (Chart.) The price is 1.21% higher than last week’s price ($119.48), and -7.18% lower than last month’s price ($130.28), and -11.18% lower than the price one year ago ($136.14). The current yield is 3.93%, which is above the 10 year average of 0.94% (undervalued). The P/E ratio is 21.52, above the 10 year average of 15.61 (overvalued). The Price/Book ratio is 2.78, above the 10 year average of 2.48 (overvalued). Market capitalization is $17.31B (large cap).

Earnings per share are positive and have been rising steadily, but dipped recently. Hence, combined with the high P/E, I don’t have a good guess for a future target. Maybe near the 52-week high of $146.51, but this would be a bit of a gamble.

Potash Corp Of Sask

Symbol: POT on the TSX. The price at Monday close was $23.03, which is near the 52-week low of $21.50 (undervalued). (Chart.) The price is 3.69% higher than last week’s price ($22.21), and -6.38% lower than last month’s price ($24.60), and -50.34% lower than the price one year ago ($46.38). The current yield is 9.15%, which is above the 10 year average of 1.17% (undervalued). The P/E ratio is 13.31, below the 10 year average of 18.21 (undervalued). The Price/Book ratio is 2.24, below the 10 year average of 4.49 (undervalued). Market capitalization is $19.66B (large cap).

Earnings per share are positive and have been rising (unevenly). I think that the share price will reach $34.64 in about five years. This would represent an annual compound growth rate of 8.51% per year, plus and annual dividend of 9.15% dividend yield per year. Over a 5-year time frame, that’s 17.66% CAGR. This is a value stock.

Teck Resources

Symbol: TCK.B on the TSX. The price at Monday close was $4.61, which is near the 52-week low of $3.65 (undervalued). (Chart.) The price is 18.51% higher than last week’s price ($3.89), and -0.65% lower than last month’s price ($4.64), and -76.13% lower than the price one year ago ($19.31). The current yield is 14.48%, which is above the 10 year average of 2.56% (undervalued). The P/E ratio is 7.32, below the 10 year average of 9.21 (undervalued). The Price/Book ratio is 0.16, below the 10 year average of 1.15 (undervalued). Market capitalization is $2.76B (mid cap).

Earnings per share are positive and have been falling steadily. I think that the share price will reach $13.89 in about five years. This would represent an annual compound growth rate of 24.69% per year, plus and annual dividend of 14.48% dividend yield per year. Over a 5-year time frame, that’s 39.17% CAGR. You could consider this deep value.

Labrador Iron Ore Royalty Corp

Symbol: LIF on the TSX. The price at Monday close was $7.20, which is near the 52-week low of $6.85 (undervalued). (Chart.) The price is -10.78% lower than last week’s price ($8.07), and -35.14% lower than last month’s price ($11.10), and -59.60% lower than the price one year ago ($17.82). The current yield is 13.95%, which is above the 10 year average of 1.41% (undervalued). The P/E ratio is 9.25, above the 10 year average of 5.22 (overvalued). The Price/Book ratio is 0.80, below the 10 year average of 5.95 (undervalued). Market capitalization is $515.03M (small cap).

Earnings per share are positive and have been fluctuating. The price has been volatile, so it’s difficult to pick a target. My projections show $12.34, which seems realistic given the 52-week high of $19.12. Along with the dividend (if it can be sustained), this could produce a tidy profit. Another deep value stock.

Hudbay Minerals

Symbol: HBM on the TSX. The price at Monday close was $2.97, which is near the 52-week low of $2.80 (undervalued). (Chart.) The price is -20.59% lower than last week’s price ($3.74), and -39.26% lower than last month’s price ($4.89), and -71.52% lower than the price one year ago ($10.43). The current yield is 0.68%, which is above the 10 year average of 0.56% (undervalued). The P/E ratio is 10.24, below the 10 year average of 16.78 (undervalued). The Price/Book ratio is 0.35, below the 10 year average of 1.27 (undervalued). Market capitalization is $696.28M (small cap).

Earnings per share are positive and very volatile. I think that the share price will reach $9.28 in about five years. I can only guess at a target, but my projection shows $9.28, which is below the 52-week high of $12.61. Another deep value play.

First Quantum Minerals

Symbol: FM on the TSX. The price at Monday close was $3.10, which is near the 52-week low of $2.87 (undervalued). (Chart.) The price is -11.43% lower than last week’s price ($3.50), and -23.08% lower than last month’s price ($4.03), and -77.84% lower than the price one year ago ($13.99). The current yield is 2.14%, which is above the 10 year average of 0.80% (undervalued). The P/E ratio is 2.23, below the 10 year average of 14.62 (undervalued). The Price/Book ratio is 0.23, below the 10 year average of 1.99 (undervalued). Market capitalization is $2.03B (mid cap).

Earnings per share are positive and have been rising. My projections show a target of $15.35, which seems realistic given the 52-week high of $19.83. Along with the dividend (which appears dependable), this could produce a tidy profit. Another deep value stock.

Conclusion

Materials stocks are out of favour right now. The golds look set to gain in the short-term, but over the longer term I would expect a recovery to benefit the diversifieds. I really like the fact that some of these are trading at a big discount to their book value, without being overwhelmed by debt. If I were to choose a couple, I’d pick Potash, Labrador, HudBay and First Quantum.

Market Outlook, January 18, 2016

guage-4

We’re in a bear market, in Canada. Value investors will likely find bargains, but prices appear likely to fall further before the recovery begins. The US stock market still seems to have the advantage over the Canadian stock market, but anyone who’s looking for a short-term gain would do well to consider gold, as a safe haven at the least. It’s interesting to see that the stock of gold producers seems to be the best of a bad bunch right now.

Interest Rates

yieldcurveThe 30-day T-bill rate is 0.36%, the short government bond yield is 0.33% and the long government bond yield is 1.91%. The yield curve is inverted in the short end. The Bank of Canada prime rate may rise to slow inflation and economic activity.

Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher.
guageguage-1guage-2

Currency

The Japanese Yen is the only currency looking strong relative to the US dollar. The Canadian dollar has been losing value compared to the US dollar.

Equities

Where does there appear to be more opportunity right now?
US bonds vs. US stocks:
guage-3
Canadian bonds vs. Canadian stocks:
guage-4

Global Markets

  • Canada has changed -5.39% in price since last week’s close.
  • China has changed -5.45% in price since last week’s close.
  • Qatar has changed -7.02% in price since last week’s close.
  • Russia has changed -7.59% in price since last week’s close.
  • Saudi Arabia Cappe has changed -7.17% in price since last week’s close.
  • South Africa has changed -5.28% in price since last week’s close.

Comparing national stock markets, all regional markets are flat or falling. It may be time to consider a safe haven, such as bonds, cash or gold.

US Stocks

Yesterday’s closing price was 1,880.33. This is -2.25% lower than last week’s price (1,923.67), and -9.30% lower than last month’s price (2,073.07), and -7.51% lower than the price three months ago (2,033.11), and -11.58% lower than the price six months ago (2,126.64), and -10.90% lower than the price one year ago (2,110.30).

The average P/E ratio of the S&P 100 (equal weighted) is 19.17. This implies the market is fairly priced. This implies a forward capital return of 5.22% (before dividends).

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Conocophillips Common Stock (COP)
  • Metlife, Inc. Common Stock (MET)
  • General Motors Company Common S (GM)
  • Ford Motor Company Common Stock (F)
  • Occidental Petroleum Corporatio (OXY)
  • Exelon Corporation Common Stock (EXC)

Canadian Stocks

Yesterday’s closing price was 12,073.50. This is -2.00% lower than last week’s price (12,319.30), and -6.55% lower than last month’s price (12,919.60), and -12.75% lower than the price three months ago (13,838.10), and -17.66% lower than the price six months ago (14,662.30), and -20.64% lower than the price one year ago (15,212.80).

The average P/E ratio of the TSX60 (equal weighted) is 25.36. This implies the market is overvalued. There is likely an overly optimistic outlook and risks may be unduly discounted. This implies a forward capital return of 3.94% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Agnico Eagle Mines Limited (AEM.to)
  • Barrick Gold Corporation (ABX.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Husky Energy Inc. (HSE.to)
  • Crescent Point Energy Corp. (CPG.to)
  • Arc Resources Ltd. (ARX.to)
  • Potash Corp Of Sask Inc (POT.to)
  • Encana Corp. (ECA.to)
  • Teck Resources Limited (TCK-B.to)
  • National Bank Of Canada (NA.to)
  • Bank Of Nova Scotia (BNS.to)
  • Power Corporation Of Canada, Sv (POW.to)
  • Canadian Imperial Bank Of Comme (CM.to)
  • Bank Of Montreal (BMO.to)
  • Inter Pipeline Ltd (IPL.to)
  • Royal Bank Of Canada (RY.to)

Other Assets

Canadian Universe Bond (XBB.to), Gold Trust (IGT.to) are performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

Cutting Through the Robo-Advisor Marketing

As I wrote in What is a Robo-Advisor?, I spent some time learning about the various robo-advisor offerings in Canada. I concluded that it’s a valid offering, and that it may even be the best choice for many people.

While reading through the websites, however, I realized that much of the content was either exaggeration, marketing half-truths, or downright misleading. These are my observations.

They are not hiring financial wizards to work with you. This was one of the more entertaining claims. I am certain that each firm has hired a small number of wizards to create the program. The program consists of formalizing their thinking and encoding it into questionnaires and processes. Then, they hire minimally-qualified clerks to man the phones.

The portfolio is not personalized, or created just for you. After you complete a questionnaire, you are slotted into one of five generic portfolios, based on your goals and your ability to stomach market fluctuations. This is not a precise science, so grouping you with similar investors is probably good enough.

Next, your account is automatically rebalanced, depending on market performance. For example, if stocks outperform, the program sells stocks (sell high) and buys bonds (buy low). The automatic rebalancing is not based on your account, but your pre-packaged portfolio, so your account could be rebalanced just days or weeks after investing. There are two ways to achieve this, either based on market performance (stocks rise more than x% relative to bonds) or on time (once a quarter, check if stocks have risen or fallen relative to bonds). Either way, it depends on market movement, not the results in your portfolio.

Rebalancing also takes place in actively-managed mutual funds, but based on human judgement. This is essentially what you pay for. Further, uninformed rebalancing is not uncontroversial. For example, if stocks are performing better than bonds, you give up potential return when you sell stocks. In hindsight, stocks have outperformed bonds roughly four years out of five, so rebalancing more frequently reduces potential return.

The savings are purely hypothetical. What actually matters is performance net of fees. If raw performance is identical in two funds, the one with lower fees will produce higher net returns. However, If you pay less but earn less, that’s not as helpful to your long-term financial success as earning more after costs, even if you pay more for it. Example: $1000 + 5% return – 0.5% fee = $1045 or $1000 + 8% return – 2% fee = $1060. The caveat is that return is not guaranteed, while fees are. From the research that I’ve read, mutual fund managers (the good ones) are able to beat the market by about 1-2%, or the cost of their fees, so it should make no difference whether you invest in passive ETFs or actively-managed mutual funds.

The debate between passive and active investing isn’t necessarily a debate between traditional and robo-advisors. Good full-service financial advisors are able to recommend either mutual funds or ETFs and can set up the account either with embedded or transparent fees.

There is value in some of the services that robo-advisors don’t offer. Their cost ranges from a high of 0.7% on a small portfolio (under $100,000) to a low of 0.3% on large portfolios of $1,000,000. I don’t believe this includes trading fees. On average, this is about half the price you would pay a full service advisor, for about half the service offering. A few examples of additional services that a traditional advisor can offer include greater personalisation of investments (ethical investing, access to gold, betting on the outlook for China, etc.), financial planning, tax efficiency, hand-holding during bear markets and more. There is no such thing as a free lunch.

Having said that, a robo-advisor could be a good way to start. Make sure you get what you pay for (don’t overpay a full-service advisor) and that you’re willing to pay for what you get (don’t ignore financial planning and personalized advice). Just don’t be misled by the marketing and keep in mind that you can get the same service from a risk-profile questionnaire and a mutual fund or ETF at your bank.

Comparing Canadian REITs

A couple notes: I am not comparing ALL REITs because there are 17 in the TSX composite index. I didn’t realize that REITs fall into the Financial sector. When I compared financial stocks, there were a few financial corporations that I missed. 2011 and 2012 seem to have been unreasonably profitable years for REITs, which reduces my confidence in future projections. Current earnings are generally positive, and REITs are generally a defensive investment, which makes them unlikely to be under-priced (except for the recent market correction).

Artis REIT

Symbol: AX.UN on the TSX. The price at Monday close was $11.99, which is near the 52-week low of $11.59 (undervalued). (Chart) The price is -4.46% lower than last week’s price ($12.55), and -22.29% lower than the price one year ago ($15.43). The current yield is 8.77%, which is near the 10 year average of 8.69% (fairly valued). The P/E ratio is 27.27, above the 10 year average of 12.56 (overvalued). The Price/Book ratio is 0.68, below the 10 year average of 0.82 (undervalued). Market capitalization is $1.62B (mid cap).

Earnings per share have fluctuated, but it’s reasonable to think they’ll reach the prior high. I think the shares should reach $14.33 within the next five years (the 52-week high was $13.84), which would represent a 19.5% increase, plus an annual dividend of 8.77%. Over a 5-year time frame, that’s 12% CAGR.

Cominar REIT

Symbol: CUF.UN on the TSX. The price at Monday close was $14.21, which is near the 52-week low of $13.70 (undervalued). (Chart) The price is -3.14% lower than last week’s price ($14.67), and -27.05% lower than the price one year ago ($19.48). The current yield is 10.26%, which is above the 10 year average of 7.73% (undervalued). The P/E ratio is 8.60, below the 10 year average of 12.69 (undervalued). The Price/Book ratio is 0.66, below the 10 year average of 1.05 (undervalued). Market capitalization is $2.34B (mid cap).

Earnings per share have grown pretty steadily, but price hasn’t moved in sync, so I’m only willing to guess that the price will reach $15.25 within the next five years (the 52-week high was $20.11), which would represent a 7.32% increase, plus an annual dividend of 10.26%. Over a 5-year time frame, that’s 12% CAGR, most of which will come from the dividend, if it is maintained.

Dream Global REIT

Symbol: DRG.UN on the TSX. The price at Monday close was $8.06, which is near the 52-week low of $7.70 (undervalued). (Chart.) The price is -6.71% lower than last week’s price ($8.64), and -14.62% lower than the price one year ago (9.44). The current yield is 9.93%, which is above the 10 year average of 6.00% (undervalued). The P/E ratio is 4.31, below the 10 year average of 17.93 (undervalued). The Price/Book ratio is 0.83, below the 10 year average of 1.49 (undervalued). Market capitalization is $909.85M (small cap).

This REIT did quite well over 2012, 2013 and 2014, but it doesn’t have a 10-year history, so I’m only willing to guess that the price will reach $10.45 within the next five years (the 52-week high was $10.45), which would represent a 29.7% increase, plus an annual dividend of 9.93%. Over a 5-year time frame, that’s 15% CAGR.

Dream Office REIT

Symbol: D.UN on the TSX. The price at Monday close was $15.41, which is near the 52-week low of $15.04 (undervalued). (Chart) The price is -8.60% lower than last week’s price ($16.86), and -43.37% lower than the price one year ago ($27.21). The current yield is 14.40%, which is above the 10 year average of 8.40% (undervalued). The P/E ratio is 265.26, above the 10 year average of 5.37 (overvalued). The Price/Book ratio is 0.48, below the 10 year average of 0.91 (undervalued). Market capitalization is $1.71B (mid cap).

Earnings per share have fluctuated. I think the shares should reach at least $22.00 within the next five years (the 52-week high was $28.50), but only if that sky-high dividend can be sustained. That would represent a 43% increase, plus an annual dividend of 14.40%. Over a 5-year time frame, that’s 21% CAGR.

Pure Industrial REIT

Disclaimer: I’ve owned this in the past and it’s been very profitable for me.

Symbol: AAR.UN on the TSX. The price at Monday close was $4.21, which is near the 52-week low of $4.12 (undervalued). (Chart) The price is -2.77% lower than last week’s price ($4.33), and -16.63% lower than the price one year ago ($5.05). The current yield is 7.36%, which is near the 10 year average of 6.89% (fairly valued). The P/E ratio is 5.7, below the 10 year average of 14.24 (undervalued). The Price/Book ratio is 0.93, below the 10 year average of 1.00 (undervalued). Market capitalization is $786.57M (small cap).

Earnings per share have grown fairly consistently. I think the shares could reach $7.00 within the next five years (the 52-week high was $5.25), but note that it has rarely traded outside of a range of $4.00 – $5.00. That would represent a 66% increase, plus an annual dividend of 7.36%. Over a 5-year time frame, that’s 18% CAGR.

RioCan REIT

Symbol: REI.UN on the TSX. The price at Monday close was $22.97, which is near the 52-week low of $22.14 (undervalued). (Chart.) The price is -1.84% lower than last week’s price ($23.40), and -20.87% lower than the price one year ago ($29.03). The current yield is 6.15%, which is below the 10 year average of 7.27% (overvalued). The P/E ratio is 14.92, above the 10 year average of 11.51 (overvalued). The Price/Book ratio is 0.93, below the 10 year average of 1.50 (undervalued). Market capitalization is $7.24B (large cap).

Earnings per share have grown, but in lumps. I think the shares could easily reach  $25.00 within the next five years (the 52-week high was $26.79). That would represent a 8.84% increase, plus an annual dividend of 6.15%. Over a 5-year time frame, that’s 7.7% CAGR.

Conclusion

None of these potential investments provide a guaranteed return. Further, they are all Real Estate Investment Trusts, which means that they will probably experience similar risks and benefits from external economic conditions. Having said that, there are some good opportunities here and an investor could benefit from picking two or three to add to a portfolio. For stability and future income, I would choose RioCan, PIRET and Artis. For greater growth potential, I would add Dream Office, although I’m nervous about the possibility of a dividend cut, especially if the economy drags down business leases and increases the vacancy rate.

Market Outlook, January 11, 2016

The global markets have experienced what is technically called a pull-back. Every national stock market that I looked at (see below) fell by 5% or more in the past five trading days. Surprisingly, South Africa and Australia (given the news coverage) performed worse than China. Gold is rising and bonds are rising. Traders call this “risk off.” Investable money is flowing out of risky assets (shares) to safer assets. Whether or not this is an opportunity for long-term investors to buy quality stocks cheap depends on whether or not you believe earnings will recover and whether the discount is deep enough.

Interest Rates

yieldcurve-1The 30-day T-bill rate is 0.42%, the short government bond yield is 0.43% and the long government bond yield is 1.95%. The yield curve is flat in sthe short end, but otherwise normal.

Long government bonds appear very overvalued. There seems to be very little opportunity for profit in bonds. A safe haven, such as tangible assets (eg. precious metals, real estate, etc.), may be a better bet.

Credit Environment

When the dials point left, the credit environment is cautious and risks are priced higher. Investors appear to prefer short-term, high quality bonds.
guageguage-1guage-2

Currency

Of the major currencies I looked at, only the Japan Yen is looking strong relative to the US dollar. The Canadian dollar continues to lose value compared to the US dollar.

Equities

In both the US and Canada, bonds are performing better than stocks. The short-term outlook for stocks is very bumpy.
US bonds vs. US stocks:
guage-3
Canadian bonds vs. Canadian stocks:
guage-4

Global Markets

  • Australia has changed -10.97% since last week’s close.
  • Austria has changed -6.07% since last week’s close.
  • Belgium has changed -5.11% since last week’s close.
  • Brazil has changed -7.69% since last week’s close.
  • Canada has changed -6.74% since last week’s close.
  • Chile has changed -5.89% since last week’s close.
  • China has changed -10.40% since last week’s close.
  • France has changed -6.20% since last week’s close.
  • Germany has changed -7.25% since last week’s close.
  • Hong Kong has changed -7.01% since last week’s close.
  • India has changed -6.11% since last week’s close.
  • Italy has changed -6.11% since last week’s close.
  • Japan has changed -5.61% since last week’s close.
  • Malaysia has changed -5.94% since last week’s close.
  • Mexico has changed -8.95% since last week’s close.
  • Netherlands has changed -6.08% since last week’s close.
  • New Zealand has changed -6.91% since last week’s close.
  • Norway has changed -8.25% since last week’s close.
  • Peru has changed -5.10% since last week’s close.
  • Philippines has changed -7.14% since last week’s close.
  • Poland has changed -8.68% since last week’s close.
  • Qatar has changed -6.85% since last week’s close.
  • Russia has changed -7.64% since last week’s close.
  • Saudi Arabia has changed -9.62% since last week’s close.
  • Singapore has changed -6.81% since last week’s close.
  • South Africa has changed -11.65% since last week’s close.
  • South Korea has changed -5.92% since last week’s close.
  • Spain has changed -6.30% since last week’s close.
  • Sweden has changed -7.09% since last week’s close.
  • Switzerland has changed -5.83% since last week’s close.
  • Taiwan has changed -8.22% since last week’s close.
  • Thailand has changed -5.58% since last week’s close.
  • Turkey has changed -6.35% since last week’s close.
  • UAE has changed -5.38% since last week’s close.
  • United Kingdom has changed -6.94% since last week’s close.
  • S&P 500 has changed -5.88% since last week’s close.

I didn’t find any national stock markets that were rising.

US Stocks

Yesterday’s closing price was 1,922.03. This is -4.50% lower than last week’s price (2,012.66), and -6.13% lower than last month’s price (2,047.62), and -4.61% lower than the price three months ago (2,014.89), and -7.44% lower than the price six months ago (2,076.62), and -7.97% lower than the price one year ago (2,088.48).

The average P/E ratio of the S&P 100 (equal weighted) is 19.60. This implies the market is fairly priced. This implies a forward capital return of 5.10% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Amazon.com, Inc. (AMZN)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Conocophillips Common Stock (chart)
  • Metlife, Inc. Common Stock (chart)
  • Exelon Corporation Common Stock (chart)

Canadian Stocks

Yesterday’s closing price was 12,445.50. This is -3.73% lower than last week’s price (12,927.20), and -3.69% lower than last month’s price (12,922.50), and -10.97% lower than the price three months ago (13,978.70), and -13.65% lower than the price six months ago (14,412.10), and -17.57% lower than the price one year ago (15,100.70). This is getting close to the definition of a bear market: a protracted 20% decline.

The average P/E ratio of the TSX60 (equal weighted) is 25.91. This implies the market is overvalued. There is likely a pessimistic outlook for earnings growth over the coming year. This implies a forward capital return of 3.86% (before dividends).

The following stocks appear to present short-term (2-6 months) opportunities for price increase (buy high, sell higher):

  • Agnico Eagle Mines Limited (AEM.to)
  • Barrick Gold Corporation (ABX.to)

These stocks appear to be priced attractively from a long-term (3-5 years) perspective (buy low, sell high):

  • Husky Energy Inc. (chart)
  • Crescent Point Energy Corp. (chart)
  • Arc Resources Ltd. (chart)
  • Potash Corp Of Sask Inc (chart)
  • Encana Corp. (chart)
  • Teck Resources Limited (chart)
  • National Bank Of Canada (chart)
  • Power Corporation Of Canada (chart)
  • Bank Of Nova Scotia (chart)
  • Canadian Imperial Bank Of Comme (chart)
  • Bank Of Montreal (chart)

Other Assets

Canadian Universe Bond (XBB.to), GOLD TRUST (IGT.to) are performing better than cash.
The gold price is rising, which often indicates nervousness in equity markets.
The oil price is falling, which benefits manufacturers, but hurts the Canadian economy.

What is a Robo-Advisor?

Owning an investment account is like owning a vehicle, or anything complex. It requires maintenance. You are smart enough to learn to manage it yourself. But if you don’t want to spend your time and energy on it, and risk making mistakes early on, you are going to need help from someone. In investment, that person is an advisor.

But what if you didn’t want to spend the money to hire a person? A recent entrant on the scene is the robo-advisor. It’s a bit of a mis-nomer, because there are no robots, and you still have people working on your account. However, rather than give you personalized advice, they rely on rules-based investment decisions. In this way, they remove the thinking and judgement from the investment process, which can be a good or a bad thing, depending on whether you believe that human judgement is reliable or is the source of bias. The robo-advisor begins by using a questionnaire to slot you into one of five* pre-selected investment portfolios. (*Eg. QuestTrade’s Portfolio IQ.)

Does it make sense to hire a robo-advisor? It does, in the following cases. For people who want to learn to invest on their own, but need help in the beginning. For investors with a small account, so there is little room for personalization (eg. the “distance” between two pre-selected portfolios is small). For investors who don’t want or need any financial planning advice (eg. RRSP vs. TFSA vs. open, cash flow management, insurance, etc.). For investors whose paramount concern is either cost or avoiding mistakes. For investors who can set it and forget it, and don’t need hand-holding through downturns and market corrections.

If you read the last paragraph again, substituting opposites in each sentence, you can see what value I believe full-service financial planner / investment advisors offer. In addition, you will benefit from working with a full-service advisor when you have more complex needs, such as multiple accounts or if you want more personalizations, such as ethical investing or exposure to gold or emerging markets.

A transparent robo-advisor could be like investing with training wheels. Then, after some time, you take off the training wheels and either invest on your own or hire someone to do it for you. Even if you hire someone, you are capable of having an informed conversation and participating in the decision-making.

Appendix – The Canadian Robo-Advisors I looked at (in alphabetical order):

  • https://invisor.ca/
  • https://www.nestwealth.com/
  • http://www.questrade.com/managed-investing/portfolio-iq-overview
  • https://www.wealthbar.com/