Investment

5 burning questions investors have right now including the safety of their deposits

Published

2 years ago

March 23, 2023

Bank buildings in Toronto’s financial district. Photo by TIJANA MARTIN/THE CANADIAN PRESS FILES

We here at 5i Research have answered more than 155,000 questions from investors over the past decade. Once every 18 months or so, we highlight a handful of the most common and popular questions we get. Investors are wondering about many things these days with all the recent market craziness. Let’s take a look.

This is by far the most popular question asked by investors over the past two weeks. Having multiple bank failures in the United States has certainly raised concerns with savers and depositors. The short answer is … probably.The Canadian financial system has a different regulatory system than the U.S., and it is far less competitive, meaning banks don’t need to take as many risks. Canadian deposit insurance is $100,000, and there are discussions right now about raising this limit. Broker accounts have $1 million in insurance under the Canadian Investor Protection Fund. The Canadian record of protecting investors is solid, and our banks fared much better in the 2008 financial crisis than their U.S. counterparts.

Could a bank run happen on a Canadian bank? Sure, anything is possible, and confidence is still the key to the banking system. But as in the U.S., we would expect governments to step in and protect investors, to prevent an entire financial system collapse. Thus, we would not lose much sleep over the safety of our Canadian banks.

How come the market is rallying with all the bad news out there?

We have high interest rates, inflation, war, pandemics and a financial crisis, amongst other problems. So how come the markets are so resilient? Well, as they say, markets climb a wall of worry.

If you want to worry, there are plenty to choose from. But keep in mind two things. First, valuations might be lower as fearful sellers exit positions. Lower valuations can set up better investment returns for those brave enough to step in.

Second, when all the news is bad, any actual positive developments can have a larger influence. If investors are worried about eight-per-cent inflation and it comes in at six per cent, there can be some relief buying. If you expect your company to report lower earnings and it reports flat earnings, even that so-so report can spark a sudden rally since no one was expecting anything, anyway.

Will that takeover go through?

Most investors are happy when one of their companies receives a takeover bid. But any bid has uncertainty. As we like to say, no deal is really done until you receive your cash. All takeover bids require shareholder approval, but many require varying levels of government, regulatory or antitrust approval as well.

Microsoft Corp. has been working on getting approval for its proposed takeover of Activision Publishing Inc. for 14 months now. Magnet Forensics Inc. shareholders are fighting its proposed privatization, as are shareholders of Canaccord Genuity Group Inc., where several directors have already resigned.

Toronto-Dominion Bank announced the acquisition of First Horizon Corp. more than a year ago, and now finds its target company caught up in the U.S. banking crisis. First Horizon shares are about US$16 today, well below TD’s bid price of US$25 in February 2022, indicating many do not expect this deal to close as is.

Should I buy this stock that is down?

Some investors sense opportunity whenever the market declines. But they often need a second opinion, or maybe someone to blame if things don’t work out so well. Many questions are about whether investors should average down on losing positions. Our answer is almost always no. However, we will make exceptions when the entire market is down for some reason.

Many times, as has been the case in the past year, investors have been selling the so-called good stocks just as fast as they are selling the bad stocks. This can create opportunities. The key is to look for companies whose fundamentals are going the opposite way of their stock price (for example, earnings are accelerating, but the stock is declining). It’s not a perfect methodology, but everything gets cheaper in bear markets, and smart investors should look for opportunities amongst the carnage.

Growth versus value?

This is always a popular topic with investors. Should they buy ABC stock at 10x earnings with a dividend, but no growth; or should they buy XYZ stock at 25x earnings with no dividend, but high growth? We prefer growth, but don’t think any investor should pigeonhole their style in one way or another.

A boring value stock, if priced right, can still provide solid investor returns. An exciting growth stock, if priced wrong, can still blow up and cause a lot of financial pain. Both value and growth stocks can be owned, and each stock idea needs to be looked at in isolation. We think it is wrong to simply ignore an entire section of the market just because it doesn’t fit one’s investment style.Value stocks had their day in the sun when interest rates soared, so maybe now it’s growth stocks’ turn to shine. But unless you have perfect foresight — which no one does — it might be best to own some of each style in the year ahead.

Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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