Business

Bank stocks are struggling, bolstering the contrarian case to buy them

Published

1 year ago

June 24, 2023

Canadian banks were hit with tougher regulations this week, adding yet another reason for investors to take a dim view of a sector that has been throttled by economic fears, deteriorating credit conditions and a recent U.S. regional banking crisis.

And some contrarians love it.

Just about any beaten-up stock can attract investors who like to buy names when they are cheap and out of favour. But Canadian bank stocks have a special appeal to bargain hunters, in part because stable dividends offer a compelling rebuttal to doomsday scenarios.

“Canadian bank capital structure and management is typically, historically – and remains – conservative. Banks are cash flow and balance sheet machines,” Brian Belski, chief investment strategist at BMO Capital Markets, said in an interview.

Count Mr. Belski among contrarians who are looking beyond the current influx of bad news. In a note this week, he spelled out the case for “overweighting” financials – or owning a bigger slice than is currently reflected in the sector’s 30-per-cent weighting within S&P/TSX Composite Index.

Bank stocks, which are down an average of 23 per cent over the past 18 months and trading near two-year lows, are especially attractive within the sector, given their low valuations and high dividends.

He believes that sentiment toward the stocks is at extremely low levels, rivalling the early days of the COVID-19 pandemic in 2020. The largest financial exchange-traded funds have experienced net outflows over the past two weeks, offering evidence that banks are unpopular with investors and already reflecting a lot of bad news.

To be clear, Canadian banks are facing crummy conditions.

In their most recent quarterly results, released last month, the banks reported that impaired loans increased by 12 per cent, on average, as rising borrowing costs chip away at the ability of businesses and consumers to meet their debt obligations.

Loan growth is slowing to a trickle: Canadian residential mortgages, for example, didn’t rise at all between the first quarter and second quarter.

Meanwhile, expenses at the biggest banks have been increasing at a double-digit clip for the past two quarters, as compensation rises to offset inflation. Gabriel Dechaine, an analyst at National Bank Financial, expects the banks could respond with cost-cutting efforts – translation: layoffs – that could easily drive restructuring charges above $3-billion across the sector if all banks participate.

And this week, the Office of the Superintendent of Financial Institutions, the banking regulator, announced that it is increasing the domestic stability buffer – the capital that banks must hold as protection against an economic downturn. Analysts expect the increase will weigh on bank profitability.

The good news? Well, there isn’t any, other than share prices are in the dumps and valuations are well below the historical norms, offering the tantalizing possibility that bank stocks will eventually rise from these discounted levels.

For valuations, Mr. Belski uses a composite metric based on ratios for price-to-earnings, price-to-book, price-to-sales and dividend yields, which shows that bank stocks are considerably cheaper than the historical average for data going back more than 30 years.

The best bets, according to Mr. Belski: Focus on banks with diversified balance sheets and strong U.S. platforms.

U.S. exposure looked like trouble earlier this year, when regional banks there were struggling with declining deposits and threatened to drag down the broader sector. But he believes that the United States offers attractive growth prospects, and any comparisons to the financial crisis of 2008-09 are deeply flawed.

“There is no sign of a credit crisis. There is no sign of contagion,” Mr. Belski said.

He didn’t recommend individual stocks in his capacity as a strategist with big-picture views on investing. But Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal have large U.S. footprints and are well diversified beyond, say, Canadian residential mortgages.

The dividend yields on these three banks range from 4.4 per cent for RBC, to 4.9 per cent for TD and 5 per cent for BMO. Those are sizable payouts for investors while they wait for better news, perhaps in the form of defeated inflation or less economic uncertainty.

Even large restructuring charges could help turn around sentiment toward bank stocks. During the last round of significant restructuring charges, in 2016, the banks that showed the biggest improvement in efficiency – their expenses fell the most relative to revenues – enjoyed the best rallies, according to Mr. Dechaine.

No one is suggesting that the banks’ challenges are over. But the sector has an impressive track record of rewarding investors who take advantage of downturns.

“All the bad news is already out there,” Mr. Belski said. “Remember, no one can collect on the end-of-the-world trade.”

Source link

Business

Job Seekers’ Trinity Focus, Anger and Evidence

Published

46 minutes ago

November 18, 2024

Nick Kossovan

Though I have no empirical evidence to support my claim, I believe job search success can be achieved faster by using what I call “The Job Seekers’ Trinity” as your framework, the trinity being:

The power of focus
Managing your anger
Presenting evidence

Each component plays a critical role in sustaining motivation and strategically positioning yourself for job search success. Harnessing your focus, managing your anger, and presenting compelling evidence (read: quantitative numbers of achieved results) will transform your job search from a daunting endeavour into a structured, persuasive job search campaign that employers will notice.

The Power of Focus

Your job search success is mainly determined by what you’re focused on, namely:

What you focus on.

Your life is controlled by what you focus on; thus, focusing on the positives shapes your mindset for positive outcomes. Yes, layoffs, which the media loves to report to keep us addicted to the news, are a daily occurrence, but so is hiring. Don’t let all the doom and gloom talk overshadow this fact. Focus on where you want to go, not on what others and the media want you to fear.

Bonus of not focusing on negatives: You’ll be happier.

Focus on how you can provide measurable value to employers.

If you’re struggling with your job search, the likely reason is that you’re not showing, along with providing evidence, employers how you can add tangible value to an employer’s bottom line. Business is a numbers game, yet few job seekers speak about their numbers. If you don’t focus on and talk about your numbers, how do you expect employers to see the value in hiring you?

Managing Your Anger

Displaying anger in public is never a good look. Professionals are expected to control their emotions, so public displays of anger are viewed as unprofessional.

LinkedIn has become a platform heavily populated with job seekers posting angry rants—fueled mainly by a sense of entitlement—bashing and criticizing employers, recruiters, and the government, proving many job seekers think the public display of their anger won’t negatively affect their job search.

When you’re unemployed, it’s natural to be angry when your family, friends, and neighbours are employed. “Why me?” is a constant question in your head. Additionally, job searching is fraught with frustrations, such as not getting responses to your applications and being ghosted after interviews.

The key is acknowledging your anger and not letting it dictate your actions, such as adding to the angry rants on LinkedIn and other social media platforms, which employers will see.

Undoubtedly, rejection, which is inevitable when job hunting, causes the most anger. What works for me is to reframe rejections, be it through being ghosted, email, a call or text, as “Every ‘No’ brings me one step closer to a ‘Yes.'”

Additionally, I’ve significantly reduced triggering my anger by eliminating any sense of entitlement and keeping my expectations in check. Neither you nor I are owed anything, including a job, respect, empathy, understanding, agreement, or even love. A sense of entitlement and anger are intrinsically linked. The more rights you perceive you have, the more anger you need to defend them. Losing any sense of entitlement you may have will make you less angry, which has no place in a job search.

Presenting Evidence

As I stated earlier, business is a numbers game. Since all business decisions, including hiring, are based on numbers, presenting evidence in the form of quantitative numbers is crucial.

Which candidate would you contact to set up an interview if you were hiring a social media manager:

“Managed Fabian Publishing’s social media accounts, posting content daily.”
“Designed and executed Fabian Publishing’s global social media strategy across 8.7 million LinkedIn, X/Twitter, Instagram and Facebook followers. Through consistent engagement with customers, followers, and influencers, increased social media lead generation by 46% year-over-year, generating in 2023 $7.6 million in revenue.”

Numerical evidence, not generic statements or opinions, is how you prove your value to employers. Stating you’re a “team player” or “results-driven,” as opposed to “I’m part of an inside sales team that generated in 2023 $8.5 million in sales,” or “In 2023 I managed three company-wide software implementations, all of which came under budget,” is meaningless to an employer.

Despite all the job search advice offered, I still see resumes and LinkedIn profiles listing generic responsibilities rather than accomplishments backed by numbers. A statement such as “managed a team” doesn’t convey your management responsibilities or your team’s achievements under your leadership. “Led a team of five to increase sales by 20%, from $3.7 million to $4.44 million, within six months” shows the value of your management skills.

Throughout your job search, constantly think of all the numbers you can provide—revenue generated, number of new clients, cost savings, reduced workload, waste reduction—as evidence to employers why you’d be a great value-add to their business.

The Job Seekers’ Trinity—focusing on the positive, managing your anger and providing evidence—is a framework that’ll increase the effectiveness of your job search activities and make you stand out in today’s hyper-competitive job market, thus expediting your job search to a successful conclusion.

_____________________________________________________________________

Nick Kossovan, a well-seasoned veteran of the corporate landscape, offers “unsweetened” job search advice. You can send Nick your questions to artoffindingwork@gmail.com.

Business

Japan’s SoftBank returns to profit after gains at Vision Fund and other investments

Published

6 days ago

November 12, 2024

Anne Joseph

TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.

Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.

Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).

SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.

The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.

WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.

SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.

SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.

SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.

The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.

___

Yuri Kageyama is on X:

Source link

Business

Trump campaign promises unlikely to harm entrepreneurship: Shopify CFO

Published

6 days ago

November 12, 2024

Anne Joseph

Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.

“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.

“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”

Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.

On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.

If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.

These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.

If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.

However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.

He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.

“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.

Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.

The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.

Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.

Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.

Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.

Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.

Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”

In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.

“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:SHOP)

Source link