The COVID-19 pandemic has created an extremely volatile market this year. The S&P/TSX Composite Index might only be down by 15% this year, but at times it has looked a lot worse.
The Canadian market witnessed a drop of 35% in just over a month in large part thanks to the COVID-19 virus. Many businesses across the country were forced to shut down, as social distancing measures were enforced.
As expected, travel stocks have been significantly impacted by this economic downturn. Some industries have rebounded very well since those March lows, but many travel companies are still well below all-time highs. And Air Canada (TSX:AC) is no exception.
Air Canada stock is down about 70% year to date, significantly underperforming the Canadian market. Brick-and-mortar retail stores are now slowly beginning to open across the country, but there are still plenty of question marks around the travel industry.
To add insult to injury, Warren Buffett’s recent actions did not help support the bull case for Air Canada. Buffett and co. recently announced during the Berkshire Hathaway annual meeting that the holding company sold its shares of four major airlines it owned. Buffett went on to explain how he thinks the travel industry has been dramatically impacted by this COVID-19 pandemic.
With all the uncertainty surrounding Air Canada, there are other TSX stocks that investors should be focusing their attention on. We’ll review two top TSX companies that investors should consider adding to their watch list today.
Shopify (TSX:SHOP)(NYSE:SHOP) has been making lots of noise in 2020 so far. The stock has already more than doubled this year alone. The $130 billion company is also making a case to be the largest company in Canada.
The tech company is one of the largest in the e-commerce space today. The revenue growth is continuing as well. The company reported year-over-year sales growth of 47% in its most recent earnings call.
The rapid growth isn’t the only thing driving up the stock price this year. Investors are reacting positively to how the company has been working with brick-and-mortar retail stores while many businesses were forced to close.
Shopify extended its 14-day free trial to new merchants to 90 days. This extension was implemented to help support brick-and-mortar retailers launch their online stores.
Open Text (TSX:OTEX)(NASDAQ:OTEX) is a much smaller company in comparison to Shopify. The $15 billion company is a leader in the information management industry. The company specializes in providing digital and cloud infrastructure to businesses.
The company benefits from very predictable earnings each quarter as roughly 80% of revenue is recurring. The most recent quarter saw the company increase revenue by 13%. Open Text has now driven 20 straight quarters of revenue growth.
The consistent revenue growth has allowed Open Text to pay out a dividend to shareholders. The company began paying a dividend in 2013 and has increased the payout every year since. The dividend yield of 1.8% is below some of the other Canadian Dividend Aristocrats, but it is the dividend yield in tandem with the company’s potential growth that really makes Open Text a top TSX stock pick.
Foolish bottom line
It’s hard to argue against Warren Buffett when he says the travel industry has been dramatically impacted. As a result, I believe Air Canada is a very risky bet for the foreseeable future.
Investors looking to put their cash to work should instead look to an industry which that has shown an acceleration of growth during this pandemic, technology. Both Shopify and Open Text are strong buys today based on the potential growth ahead for each company.
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Fool contributor Nicholas Dobroruka has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Shopify, and Shopify. The Motley Fool recommends Open Text and OPEN TEXT CORP and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares).
Bombardier to lay off 2,500 workers as demand for business jets drops amid pandemic – CBC.ca
Bombardier will lay off 2,500 workers as the company struggles to keep its operations afloat amid dwindling demand for business jets during the COVID-19 pandemic.
In a release Friday morning, the Quebec-based transportation company said the aerospace industry as a whole is expecting to see a 30 per cent year-over-year loss in business jet sales, forcing it to reduce its workforce.
The company said 1,500 of the permanent job cuts will be in its Quebec facilities and 400 in Ontario, with the rest of the layoffs in its international facilities. The layoffs will begin this month and be carried out throughout the year.
The layoffs come just days after Bombardier made its official exit from the commercial airplane industry, selling off its CRJ regional jet program to Mitsubishi Heavy Industries Ltd. for $550 million US on Monday.
The company has recently staked its future on business jets, sales of which have dropped during the COVID-19-related recession and the subsequent decline in travel.
“Our sales books are still quite full in the long term, but we still had to adjust to the reality we’re going to be facing from now until the end of the year,” Bombardier spokesperson Mark Masluch said in an interview.
“That said, in our collective agreement and in the way we work, there is always the opportunity to call back our workforce if there’s a rebound in the market.”
Masluch insisted that the layoffs were strictly the result of COVID-19.
Bombardier paused all operations in March in an effort to protect employees from the spread of the novel coronavirus.
It gradually resumed operations again last month, but had already reported a loss of $200 million US in its first quarter.
Union disappointed by decision
The International Association of Machinists and Aerospace Workers, the union that represents Bombardier workers, said it was disappointed by the company’s decision.
In Montreal, 717 Bombardier employees benefited from the Canada emergency wage subsidy (CEWS) program, but that help was set to expire today.
Last month, the union asked that Bombardier reapply to the CEWS program but, judging by the layoffs, the union does not believe that request was ever put in.
“I don’t know exactly what motivated these decisions,” said David Chartrand, co-ordinator for the union’s Quebec branch.
Chartrand said the federal government is also to blame. He said it has been absent in supporting the aerospace industry as a whole.
“We need help from the government to support these industries, but they’ve been completely inactive,” he said.
Quebec promises help
Quebec Finance Minister Eric Girard said Bombardier remains an important economic driver and the provincial government “will help them to go through this difficult period.”
“If they need help, I am convince that the minister of economy will be there to attach the right conditions to this help just like he did for the Cirque du Soleil,” he said, referring to a loan recently handed out to the struggling Montreal-based entertainment giant.
Prime Minister Justin Trudeau said the federal government will continue to support workers of all industries as they struggle during the pandemic.
“Obviously, the aerospace industry, airlines, are particularly affected with the ceasing of global travel and with the fact that the demand for purchasing business jets has decreased dramatically,” said Trudeau.
“We will work with industries and individual companies to try and ensure they have access to all the supports that we’ve put forward.”
History of government bailouts
Bombardier, which was in trouble long before the start of the pandemic, has been bailed out before.
In 2015, then-premier Philippe Couillard agreed to provide Bombardier with a $1.32-billion bailout, in hopes of saving jobs in the province.
In return, the province would gain a 49.5 per cent stake in the company’s C-series program, later referred to as the A220. The government made a 20-year commitment to the project.
The same year, just as Trudeau was first sworn in as prime minister, Bombardier called on the federal government to match the $1-billion investment.
Although the Canadian government did not agree to those terms, it did provide the company with $372.5 million in interest-free loans in 2017.
Despite all that, Bombardier sold its remaining A220 stake to Airbus last February, in an effort to pay off a multibillion-dollar debt.
That same month, the company sold its rail-building unit to French train giant Alstom SA, marking its exit from the rail business.
In February, Quebec Premier François Legault insisted the province was done injecting money into the 83-year-old company.
“The government has already invested a lot of money in Bombardier,” he said at the time, calling Couillard’s investment a “mistake.”
As of Friday, Bombardier has 8,200 employees in Quebec and 2,100 in Ontario.
CMHC tightens mortgage insurance rules starting July 1 – CBC.ca
The government-backed Canada Mortgage and Housing Corp said on Thursday it would tighten rules for offering mortgage insurance from July 1, after forecasting declines of between 9 and 18 per cent in home prices over the next 12 months.
The move would make it harder for riskier borrowers, who offer downpayments of less than 20 per cent to access CMHC’s default mortgage insurance.
CMHC is establishing a minimum credit score of 680 instead of the current 600, the group said in an emailed statement.
It will also limit total gross debt servicing ratios to its standard requirement of 35 per cent of annual income, compared with a threshold as high as 39 per cent currently, and total debt servicing to 42 per cent versus as much as 44 per cent now.
The measures will help curtail “excessive demand and unsustainable house price growth,” CMHC CEO Evan Siddall said in the statement.
He said COVID-19 has exposed longstanding financial-market vulnerabilities, and “we must act now to protect the economic futures of Canadians.”
James Laird, Co-founder of Ratehub.ca and president of mortgage brokerage CanWise, said the change to the debt service ratio will have the biggest impact of the three changes.
That’s because under the current gross debt service ratio cap of 39 per cent, a family with an annual income of $100,000 and a 10 per cent down payment would have qualified to buy a home valued at up to $524,980, Laird calculates. Under the new rules, that same family can only get approved to buy a home worth $462,860 — a reduction of 12 per cent.
Laird said the most impactful development was the CMHC’s decision to leave minimum down payment sizes where they are. “The biggest news coming out of the announcement from the CMHC is that they did not increase the minimum down payment from 5 percent to 10 per cent,” he said.
Such a move would have required any buyers to have far more saved up before being approved to buy, which would make the pool of potential buyers much shallower.
1 in 3 mortgages in Canada
Some 35 per cent of Canadian banks’ mortgages are insured, their financial statements show. CMHC is the top mortgage insurer, while Genworth MI Canada and other private companies also provide similar products.
Despite evaporating activity in the housing market due to the COVID-19 pandemic, prices have continued to rise as listings have fallen off alongside demand.
Home prices across the country rose 1.3 per cent in April from March, and data from Toronto and Vancouver real estate boards showed increases of 3 per cent and 2.9 per cent in May, respectively, from a year earlier.
The CMHC has taken a more bearish view of the housing market than others. Last week, some of Canada’s biggest banks forecast maximum price declines of about 7 per cent.
Siddall last week responded to critics of its more dire outlook, saying on Twitter they were “whistling past the graveyard and offering no analysis.”
Here’s more on our house price outlook. Some vocal real estate advisors have labelled us “panic-inducing and irresponsible,’ saying essentially that house prices don’t go down. They’re whistling past the graveyard and offering no analysis. Here’s ours. You decide. <a href=”https://t.co/LsHnLkiHVs”>https://t.co/LsHnLkiHVs</a>
Canada unexpectedly adds 290,000 jobs on gradual reopening – Financial Post
Canada’s labour market unexpectedly strengthened after two-straight months of record losses as the country gradually reopens from COVID-19 related restrictions.
Employment rose by 289,600 in May, Statistics Canada said Friday in Ottawa, surprising economists who had been anticipating more losses last month. The gains were across most industries and provinces, though largely driven by higher employment in Quebec, the province hardest hit by the pandemic.
The numbers echo recent high-frequency data, which had signalled a recovery is underway, with job postings increasing and more Canadians reporting an increase in work at the end of May. They will be a relief to policy makers who had been scrambling to inject hundreds of billions in cash into the economy to keep it afloat. Still, just under 5 million remain without work or substantially reduced hours with the jobless rate at postwar records.
“The surprisingly positive readings on employment paint a more optimistic picture of the early part of the recovery, but there’s still a long road back,” Royce Mendes, an economist at Canadian Imperial Bank of Commerce, said in a research report. “The increase in May only represents 10 per cent of the COVID-19-related job losses and absences that occurred over the prior two months.”
The pick up in May follows an unprecedented loss of about 3 million jobs in March and April. More than 2 million employed Canadians continue to experience much lower hours worked than pre-crisis.
The unemployment rate ticked up to 13.7 per cent in May, from 13 per cent in April, as people returned to the labour force.
Economists in a Bloomberg survey expected a loss of 500,000 jobs, with the unemployment rate rising to 15 per cent.
Canada’s currency extended gains on the result, appreciating 0.7 per cent to C$1.3406 against its U.S. counterpart at 9:46 a.m. Toronto time. Yields on two-year government bonds rose 2 basis points to 0.35 per cent.
The better-than-expected report suggests the governments programs to cushion the blow to the labour market are working. By mid-May, 179,000 businesses had applied for the government’s 75 per cent wage subsidy program. The pace of applications to Canada’s emergency income benefit program has also decelerated in recent weeks, suggesting the worst of the layoffs and job losses is over.
In addition to the employment pick up, Statistics Canada said the number of people who worked less than half their usual hours dropped by 292,000. That means the number of Canadians who have either lost their job or worked substantially fewer hours has fallen to just under 5 million, from about 5.5 million in April. Hours worked rose 6.3 per cent in May from the prior month but were still 23 per cent below February’s levels.
The surprise jump reflects the cautious reopening of the economy across provinces. By the time the employment survey was taken from May 10 to May 16, some provinces including B.C., Saskatchewan and Quebec allowed some non-essential businesses to reopen.
Quebec accounted for nearly 80 per cent of May’s gains, the statistics agency said. In contrast, Ontario -– where the economy remained largely shut until May 19 –- saw more losses.
In the early days of the reopening, employment rebounded more strongly among goods producers, the data show. The goods-producing sector added 165,000 jobs versus 125,000 in services. Lower-wage jobs also rebounded more, particularly in retail trade, accommodation and food services.
Demographically, male employment increased more than twice as fast as that for women, consistent with the more rapid increase in the goods-producing industry. Women were among the earliest victims of the COVID-19 related job losses in March and the latest data suggest they are slower to recover as well.
“The kinds of jobs that reopened earlier tend to be more male dominated in employment and also that more women don’t know how to get back to work because they don’t know what to do with their kids because schools aren’t open,” said Armine Yalnizyan, a research fellow at the Atkinson Foundation.
Women with at least one child under age 6 showed a slower return to work than women with older children. Statistics Canada said it will continue to monitor labourmarket outcomes for men and women with children in the months to come.
Youth are still suffering heavily from the COVID-19 economic shutdown. While employment recovered by 30,000 for those aged 15-24, the cumulative job losses for this age cohort are still a whopping 843,000 from February to May.
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