CI Financial Corp. (“CI”) (TSX:CIX.TO) today released financial results for the quarter ended December 31, 2022.
“CI’s strong performance during an extended period of financial market volatility reflects the continued successful execution of the three pillars of our corporate strategy,” said Kurt MacAlpine, CI Chief Executive Officer.
“In the fourth quarter, robust net flows in our Canadian and U.S. businesses, along with the acquisition of three best-in-class U.S. registered investment advisor firms, drove double-digit asset growth.
“In Canadian asset management, we continue to see the benefits of the transformation of our investment management function from a group of independent boutiques into an integrated, global platform,” Mr. MacAlpine said. “In the fourth quarter, our Canadian retail business delivered $1.6 billion in positive net flows, versus net redemptions of more than $10 billion for the Canadian industry overall. Our relative investment results continue to be strong and our investment professionals received extensive industry recognition for their performance, winning 14 Refinitiv Lipper Fund Awards and 39 FundGrade A+ Awards for 2022.
“Our wealth management businesses had total net flows in 2022 of $6.6 billion in the U.S. and $3.8 billion in Canada, a testament to the excellence of our advisor teams and our differentiated approach to wealth management – which offers exceptional value to clients, especially during these uncertain times,” Mr. MacAlpine said. “We continue to make significant investments into advancing the technology, support and services of our Canadian wealth platform.
Oil prices fell by $2 per barrel to their lowest in two weeks on Wednesday, as investors became more concerned that recent economic data will mean more aggressive interest rate increases by central banks, pressuring economic growth and fuel demand.
Brent crude futures settled $2.45, or 3%, lower at $80.60 per barrel. The West Texas Intermediate crude futures (WTI) dropped $2.41, or 3%, to end at $74.05 a barrel.
The settlement levels were the lowest for both benchmarks since Feb. 3.
Oil prices rose on Friday and were close to trading positive for the week as the prospect of deeper-than-expected cuts in Russian supplies largely offset concerns that rising interest rates will dampen demand this year.
Crude prices marked a strong recovery from recent losses on Thursday as a Reuters report suggested that Russia plans to cut up to 25% of oil exports from its western ports in March, which is more than the 500,000 barrel per day supply cut announced earlier.
Brent oil futures rose 0.3% to $82.75 a barrel, while West Texas Intermediate crude futures jumped 0.8% to $75.97 a barrel by 21:06 ET (02:06 GMT). Both contracts were trading down less than 0.5% each for the week, having largely trimmed their initial losses.
The prospect of deeper Russian supply cuts also helped markets look past a bigger-than-expected build in U.S. crude inventories, which grew for a ninth consecutive week amid slowing consumption in the country.
Fears of a further slowdown in crude demand weighed on oil prices this week, amid a flurry of hawkish signals and economic data. Signs of resilience in the U.S. jobs market, coupled with high inflation readings for January and the fourth quarter bolstered the Fed’s hawkish stance.
Strength in the dollar also weighed on crude markets, given that a stronger greenback makes oil more expensive for international buyers.
Focus is now on a reading on the Personal Consumption Expenditures price index– the Fed’s preferred inflation gauge- for more cues on monetary policy. The reading is expected to reiterate that inflation remained elevated through January.
Fourth-quarter U.S. GDP data was revised lower on Thursday, indicating that rising interest rates may have had a deeper than expected impact on the U.S. economy so far. While slowing growth bodes poorly for crude demand, it could also reduce the economic headroom the Fed has to keep raising rates.
High inflation readings from Singapore, the Eurozone and Japan this week also raised concerns over tightening monetary conditions in the rest of the globe. Oil prices are trading lower for the year amid persistent fears of a global recession this year.
Still, oil bulls are holding out for a recovery in Chinese demand after the world’s largest oil importer relaxed most anti-COVID measures earlier this year.
But early economic indicators from the country show that parts of the economy are still struggling in the aftermath of the pandemic.
Crude oil prices fell on Friday afternoon following reports of strong U.S. jobs data, with WTI crashing by more than 2.5% to $73.88
The U.S. January jobs report indicates that the jobs market is stronger than expected, with employers adding 517,000 in January. This compares to economists that had expected employers had added 185,000 jobs in January.
Growth cycles in the global economy are incredibly important for commodities markets in general, and oil an gas prices in specific.
According to the Kitchin cycle, the current slowdown in energy is likely to be a mid-cycle soft patch.
Barring a full global economic slowdown, gas and especially oil prices are likely to get stronger in the latter half of 2023.
The oil and gas markets are currently in the throes of yet another downturn, with Brent crude down 34% from its May 2022 peak while U.S. Henry Hub natural gas has crashed 73% from the August 2022 peak. Energy stocks and crude oil futures have also come under pressure after the latest weekly U.S. data showed commercial crude inventories spiked by a whopping 16.3M barrels.
According to the U.S. Energy Information Administration (EIA), crude stockpiles rose to 471.4M barrels, ~8% above the five-year average and way above the Wall Street consensus of just 800K barrels.
Meanwhile, refinery activity slowed down unexpectedly, with the weekly capacity utilization rate falling by 1.4 percentage points to 86.5%, compared to the consensus of a 0.2 percentage point increase.
Whereas the current oil and gas price trends do not look very encouraging, zooming out and looking at the bigger picture reveals that the current slump is part of a boom and bust cycle that repeats itself with alarming regularity. Indeed, Reuters market analyst John Kemp has argued that the ongoing selloff is part of the Kitchin cycle that lasts for 3 to 4 four years.
Compiled by the U.K.-based Financial Times and dubbed the “debt monsters in the downturn,” the report lists just over 200 companies and includes Canadian miners Iamgold Corp., New Gold Inc. and Taseko mines as well as other Canadian firms such as Telesat Corp., Gran Tierra Energy Inc., Ensign Energy Services Inc. and Husky III.
This April 1st, don’t pull a prank on your portfolio with these silly stocks.
we’d help you spot stocks that could end up pranking your portfolio. Using Morningstar® CPMS™, I came up with a list of Canadian-listed companies that investors should think twice about before buying. Though I wouldn’t necessarily call owners of these companies ‘fools’ per se, experienced investors would be remiss if they didn’t consider some of the deteriorating fundamental characteristics of the below list of stocks.
The Dangerous Strategy
For over three decades, Morningstar® CPMS™ has tracked a portfolio of “Dangerous” stocks, or those that fundamentally appear overvalued, over leveraged, and exhibiting shrinking reported earnings. For the record, the performance of the Dangerous strategy looks like this:
In the spirit of the day, I thought to highlight the factors that go into ranking stocks within this strategy. The strategy ranks stocks on a few core factors including:
Readers will quickly question the rank order of the factors as they are counterintuitive for a long investor. For example, investors typically look for companies with growing earnings momentum (not shrinking), and positive estimate revisions from the street (not negative). In essence, the strategy looks for companies that have a combination of generally undesirable characteristics. Based on the long-term performance of the strategy, it seems to have worked as intended, producing a since inception annualized return of -9.2% (ouch!) where the S&P/TSX Composite TR index produced an annualized 8.5% over the same time period. Today, the list of qualifiers to purchase (read: probably avoid) into the dangerous model include:
Are All of These Bad?
No, not necessarily. The strategy’s rules call for it to consistently pick stocks with the above characteristics. Over time, the strategy has performed as expected – very poorly. However, the chart shows that there were periods where Dangerous stocks did really well. For example, we can see that holding Dangerous stocks during the technology bubble of 2000-2002 would have afforded an investor exuberant returns during the rally, and Icarus-like results during the crash. Similarly, we’ve observed that after major market corrections, stocks that make the ‘dangerous’ list tend to exceptionally well, provided that they don’t go bankrupt during the correction itself. All this said, for the conservative investor who looks for more reasonable returns consistently over time, you probably won’t find those on this list.
With Canada’s inflation at a 30-year high, the Bank of Canada is under pressure to take steps to bring it under control. One of the key levers in a central bank’s inflation-management toolkit is interest rate manipulation. The BoC has hinted it will soon start raising the overnight interest rate from record lows – it currently sits at 0.25% — to combat inflation.
Rising interest rates push up the cost of borrowing, a concerning development for consumers and borrowers. However, rate hikes create a tailwind for financial institutions by improving profitability and a stable economic environment for the broader financial sector, one of the strongest pillars of the nation’s economy.
Canadian investors looking to readjust their portfolios to align with the higher interest rate environment may want local lenders to buttress their portfolios. Leading Canadian financial institutions enjoy oligopolistic control of banking deposits, which keeps them highly profitable during periods of economic strength and resilient during downturns.
One of Canada’s two largest banks, Toronto-Dominion (TD) operates three business segments: Canadian retail banking, U.S. retail banking, and wholesale banking. The bank has a strong U.S. presence where it also owns 42% stake in TD Ameritrade, a discount brokerage. The bank derives approximately 55% of its revenue from Canada and 35% from the U.S., with the rest from other countries.
“Toronto-Dominion has done an admirable job of focusing on its Canadian retail operations and growing into number-one or -two market share for most key products in this segment,” says a Morningstar equity report.
The bank also boasts a number-two market share for business banking in Canada. With over $400 billion in Canadian assets under management and the largest card issuer in Canada, “Toronto-Dominion should remain one of the dominant Canadian banks for years to come,” the report adds.
The Canadian lending heavyweight has a significant presence in the U.S. with more branches stateside than any other Canadian bank.
TD’s dominant position in the discount brokerage space bodes well for its growth since “this industry is ripe for growth as investors seek out lower-cost alternatives, and the bank could leverage its knowledge of the industry for future growth in Canada,” says Morningstar equity analyst Eric Compton to recently raise the stock’s fair value from $85 to $97, prompted by strong quarterly results.
The bank’s wide economic moat is underpinned by its solid funding base, leading home market share, moaty nonbank businesses, and the favourable Canadian banking environment.
Bank of Nova Scotia (BNS) is the third-largest Canadian-based bank by assets and one of six Canadian banks that collectively hold almost 90% of the nation’s banking deposits. The global financial services provider has five business segments: Canadian banking, international banking, global wealth management, global banking and markets, and other.
The bank’s international operations span numerous countries with greater concentration in Central and South America. “It is known as Canada’s most international bank as it derives a little over half of its revenue from Canada, over 40% from international operations (primarily Latin America), and a single-digit percentage from the U.S.,” says a Morningstar equity report.
The lender’s domestic operations are more concentrated in mortgages and auto lending, with a leading market share in autos. Scotiabank has been expanding its domestic wealth operations significantly. Its acquisitions of MD Financial and Jarislowsky Fraser made it the third-largest active manager in Canada.
The bank has been rejigging its LatAm footprint. It has made strategic acquisitions in markets like Chile and Colombia while lowering exposure to businesses and geographies that are less favourable. “The international exposure gives the bank the potential for higher growth and return opportunities compared with peers, but it also exposes the bank to more risks, as we’ve seen during the pandemic,” says Compton, who recently raised the stock’s fair value from $83 to $87, after incorporating the latest quarterly results.
The bank’s digital efforts are reflected by spending on technology and communication. “These efforts will ultimately pay off in the form of improved operating efficiency, customer engagement, and internal sales coordination,” says Compton.
One of the two largest Canadian lenders by assets, Royal Bank of Canada (RY) generates two-thirds of its revenue from Canada, with the rest spread primarily across the U.S. and the Caribbean. Its diverse services include personal and commercial banking, wealth management services, insurance, corporate banking, and capital markets services.
Royal Bank has done a commendable job expanding its nonbank lines of business, running efficient banking operations, and generating some of the best returns for shareholders in the industry. “RBC should remain one of the dominant Canadian banks for years to come, even as a more difficult macro backdrop pressures earnings growth in the medium term,” says a Morningstar equity report.
Royal Bank of Canada has the largest amount of assets under management among the Canadian banks and is projected to remain a formidable player in its domestic retail and commercial banking operations.
It is also expected to maintain its dominance in global capital markets, a segment that is expected “to continue to be a strong contributor to net income,” the report adds, pointing out that “if anything, capital markets have been countercyclical for the bank during the pandemic as earnings have soared for the unit.”
The wide-moat bank’s wealth-management segment also boasts strong returns on equity with large inflows lifting it to a top market position. “RBC remains a top asset manager and gatherer in Canada and is also experiencing outsize growth from [U.S banker] City National, where cross-selling and client integration efforts have gone well,” says Compton, who recently upped the stock’s fair value from $132 to $141.
Loblaw Companies Ltd.’s fourth-quarter results beat analysts’ expectations on Thursday as the Canadian retailer was boosted by its pharmacy business and a continued demand for groceries.
The company says it earned a profit available to common shareholders of $529 million. Its fourth-quarter revenue rose about 10 per cent to $14.01 billion from the same period last year, topping estimates of $13.75 billion.
On an adjusted basis, Loblaw earned $1.76 per share, beating analysts’ expectations of $1.71 per share.
Chief financial officer Richard Dufresne said during a Thursday morning earnings call that the company’s gross margins in food retail had peaked in mid-2021, before Canada’s current inflation episode began, but hadn’t returned to those levels since.
He then said that the earnings results “are further evidence that [food] retail prices are not growing faster than costs, and the company is not taking advantage of inflation to drive profits.”
