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Canadian Market Rises on Stimulus  The Canadian stock market continued to rise in 2024 to hit a record high close above 25,000 points in November. The market was primarily driven by a multiple expansion (investors are willing to pay more for earnings) rather than earnings growth. The Federal Government dropped the bank rate by .75% during the year which also meant investors bid up bond prices as well. In the US the American market saw the NASDAQ close above 20,000 points for the first time ever in December. The driver was primarily technology companies like NIVIDIA which became the world’s most valuable company at a valuation of roughly $3.3 trillion driving by the boom for artificial intelligence. Bell Canada Shares Decline While the general markets have advanced over the past year, some companies like Bell Canada (BCE) have continued their decline. In fact, BCE shares trade at less than ½ of what they did in April of 2022. They have dropped from $73 to $33.50 today. They are an interesting company as they have promised to flow earnings back to shareholders in the form of increasing dividends. With the declining stock price, the yield on their common share is currently over 12%. Compelling value? Or a sign they will cut their dividend soon? This is the largest holding in Fidelity’s Canadian Value Fund run by Dan Dupont so hopefully this is just bargained priced now. In September, 2024 they sold off their stake in Maple Leaf Sports (Toronto Maple Leafs and the Raptors) for $4.7 billion. This cash infusion into the company was short lived as they turned around in November and bought a fibre optic company in the US for $5 billion. Maybe they are like my brother; even when he gets cash, he just ups his spending habits and continues to carry a mountain of debt. Bonds Have Become Passe. Edgepoint Stands Out Bond rates have fallen but yields of 3.5% are still nothing terrific. If you believe we will have a recession soon, bonds are a great place to place your money. I personally like gold as well should the ship (economy) hit a sand bar (trouble). Rather than predicting the future, I look at companies like Dundee – mentioned last newsletter – that hold gold producing companies. With their shares trading at roughly 50 cents on the dollar, this means you can buy cashable asset at a discount and pay nothing for the business. With the assumption that the majority is always wrong in investing, the corollary that few invest correctly means that these shares should not only perform well but that gold itself is underpriced.
Tech companies with valuations of 30 times earnings are not appealing either. As a German proverb states; “trees do not grow to the sky.” So, I am waiting it out in funds like Edgepoint which are terrific performers long term but have lagged the high growth party. They also hold a portion of their balanced funds in high yield debt and first caught my eye with their rather robust holding of Dundee preferred shares which traded at a steep discount of $10. Eventually all the preferreds got bought out by $25 by Dundee itself which made me and other shareholders quite happy. I never did like the Trimark funds that much because of their volatility but the balance funds should mitigate this risk. |
