Peter Hodson: Business is very good, but you would never know it by the prices of some stocks
We went three for five on our specific stock market predictions last year after going nine for 10 the prior two years. But we are retiring this yearly practice with an 80-per-cent record, which is pretty good in the land of stock market predictions, though we certainly blew our “inflation won’t be a big concern” prediction. It was, perhaps, the biggest concern of the year.
Instead of predictions, we offer five investment themes investors might be focused on. Sure, everyone knows about the big picture issues, such as inflation, interest rates, corporate earnings and, of course, COVID-19 and its emerging variants. But what other themes might present themselves in 2022? Let’s look at five possibilities.
Small caps could surge : We spend a lot of time looking at this sector. Business is very good, but you would never know it by the prices of some stocks. Many small-cap stocks are down 50 per cent, 60 per cent or even more from their highs. Investors are gaga over Apple Inc. and other trillion-dollar companies, leaving smaller companies behind with low valuations. How low? Based on recent data, small-cap companies, relative to large-cap companies, have never been cheaper.
All it takes is a little bit of confidence from investors and small caps could experience big valuation multiple expansions. If not, then we might see a giant wave of takeovers as large companies buy small companies at big discounts. It might be a fun year for small-cap investors, who have been depressed since February, watching large caps surge while their own portfolios struggled.
Value stocks may finally rocket : As a growth investor we always struggle with this. Growth stocks are, simply, way more fun. Value stocks don’t triple in a year, as some growth stocks can do. But we have to accept reality. In a world where investors are worried, and rates and inflation may rise, investors might see value stocks as the best, or at least safest, bet in the next couple of years.
Why buy a stock at 20 times sales, when you can get one at 20 times earnings? Of course, the reason to do this is to get higher growth, but if growth stocks stay weak, then investors will naturally gravitate to value stocks. This shift might persist for a while, or at least until investors have collectively decided interest rates have peaked.
The metaverse might really be the next big thing : The metaverse got a lot of hype in 2021, but I don’t think it is going away anytime soon since it just makes too much sense for a lot of companies and consumers.
Think of a virtual shopping mall, where your avatar can try on clothes and you can see exactly what they will look like on you. Sales will increase, returns will decrease and some companies will opt to not have physical locations at all. Profit margins could soar. It takes online shopping to a whole new level. Zoom meetings might be far more realistic, and companies will continue to save tons of money on travel budgets. Some companies to watch in this space include Nvidia Corp., Matterport Inc. and Meta Platforms Inc.
The Roarin’ 20s (22s) : If you are like me, you are sick of COVID-19, lockdowns, restrictions and tests. There are jobs aplenty and asset prices have soared. Most consumers have lots of money to spend, if only they could find somewhere to spend it. Yes, Omicron has delayed a full travel recovery, but we think the underlying pressure of consumer demand is about to blow over.
Like we saw in the Roaring Twenties, consumers might be about to embark on a giant, multi-year spending party once pandemic restrictions ease. Now, a massive influx of spending might not help inflation numbers, but it will be a boon to corporations, which will see higher revenue, higher demand and more customers lining up at the door. Travel and leisure stocks could surge again, too.
Gold versus bitcoin : A lot of ink was spilled in 2021 about how bitcoin and other cryptocurrencies were replacing gold in portfolios. How else to explain gold’s weakness when the conditions for a gold rally were, perhaps, ideal? Bitcoin is the new gold, some said, and it certainly outperformed. But we would not be so fast to jump off the gold bandwagon.
Bitcoin has never been tested in a period of inflation, nor in a true bear market. We have seen a lot of merger activity in the gold sector this year, setting up cost savings for these merged companies and eliminating some stocks that sector investors can buy. Higher gold prices, cost savings and fewer companies could combine to form a powerful gold sector rally once investors lose their love affair with cryptos.
Financial Post
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 associate 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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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)
The Canadian Press. All rights reserved.
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)
The Canadian Press. All rights reserved.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
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