Steam rises as people look out on Lake Ontario in Toronto.Mark Blinch/The Globe and Mail
The biggest asset bubbles tend to start with the most solid foundations. In the mid-1990s, technology companies were earning their high valuations with incredible growth. Microsoft Corp. was selling Windows software at an extraordinary pace and Nortel Networks Corp. was meeting insane demand from companies looking to build internal networks.
The promise of technology was real. Eventually, it did transform the lives of billions of people on the planet. But at some point in the later 1990s, investors adopted a 'growth at any price' strategy, no longer caring about how much they had to pay to participate in technology's bright future through equity markets.
There are signs of a similar trend in marijuana and cryptocurrency stocks. Investors with little sense of valuations (where they are even possible – many marijuana companies don't have profits so even simple price-to-earnings ratios can't be calculated, as Queen's University economics professor Allan Gregory pointed out) or the extent of future profits continue to pour investment assets into the sector.
The future for legal marijuana sales is almost certainly bright and in the case of cryptocurrencies, one strategist believes they make more sense as a medium of exchange than the money currently in our wallets. In a January 11 research report Macquarie's Viktor Shvets wrote, "unlike fiat currencies, cryptos are more difficult to inflate, cost money and time to produce and are built around mathematics rather than fraud or politics. Hence, they already reflect the essence of money better than existing money."
But the tech bubble provided the painful lesson that growth at any price investing is a bad idea no matter how good the outlook appears. Owning a stock without comparing current prices against estimated profits in three years is at best gambling and market history shows it rarely, if ever, works over any reasonable investment time horizon.
-- Scott Barlow, Globe and Mail market strategist
This is the twice a week Globe Investor newsletter. If someone has forwarded this e-mail newsletter to you, you can sign up for Globe Investor and all Globe newsletters here.
NEW: We have a new newsletter called Amplify. It will inspire and challenge our readers while highlighting the voices, opinions and insights of women at The Globe and Mail. Amplify will land in your inbox every Saturday morning, with a different guest editor each week -- a woman who works at The Globe -- highlighting a topic of the author's choice. The topics will vary and will dive deep into issues and events around the world. The newsletter will also highlight Canadian women who are inspiring others. Sign up today at this link.
Stocks to ponder
Nvidia Corp. (NVDA-Q). If there's one stock that will tell investors whether the hype surrounding artificial intelligence is real, it's Nvidia Corp. The semiconductor manufacturer specializes in graphics processing units (GPUs) to handle visual data and currently the majority of its revenue comes from the video-game industry. The company also has dominant market positions in almost every key area AI is being developed, from autonomous vehicles and machine learning to big data, virtual reality and image analysis for health care. Scott Barlow takes a look at the industry.
Dream Industrial Real Estate Investment Trust (DIR.UN-T). This is a security yielding 7.7 per cent with a payout ratio of 86 per cent. It's on the cusp of appearing on the positive breakouts list. On Tuesday, its unit price jumped 3 per cent on high volume on news that an industry peer, Pure Industrial REIT (AAR.UN-T), was being acquired by Blackstone Property Partners at a hefty premium. Consequently, the valuation for Dream Industrial, owns and operates a portfolio of 214 industrial properties across North America, was driven higher. A new Chief Executive Officer took the helm at the start of the year as he plans to accelerate the Trust's growth through acquisitions. Industrial pays unitholders an attractive distribution, currently yielding 7.7 per cent that appears to be sustainable. The monthly distribution has been maintained at its current level since 2013. Jennifer Dowty explains.
Stelco Holdings Inc. (STLC-T). This is a value stock that may appear on the positive price breakouts list later this year. Its industry peers are off to a strong start in 2018 with many realizing double-digit gains year-to-date. As the multiple spread widens between this stock's valuation compared to its peers, its share price may rise. This company is a "show me" story yet to prove itself; however, all five analysts covering the stock have buy recommendations. Hamilton-based Stelco emerged from creditor protection and completed an initial public offering in November. With two plants in Ontario, Stelco is the country's leading integrated steel company manufacturing hot-rolled, cold-rolled, and coated sheet steel products serving the construction, auto, and energy markets across North America. Jennifer Dowty reports.
The Rundown
Is this the beginning of the end of the bull market?
The people who should know say a quarter-century of balmy weather for bond holders is now over. For shareholders, too, the weather is turning chillier. This isn't necessarily the end of the bull market that has enriched investors since the financial crisis. But it could be the beginning of the end if Bill Gross and Jeff Gundlach are right. Mr. Gross, one of the most widely followed people in the bond world, tweeted on Tuesday that the "bond bear market [is] confirmed today." The recent rise in yields on the benchmark five- and 10-year U.S. Treasuries has broken 25-year-old trends, he said. Ian McGugan reports.
Here's the best way investors can shield themselves from the fallout of a NAFTA exit
If the United States withdraws from the North American free-trade agreement, Canadian investors are going to be scrambling for the best ways to protect themselves from the economic fallout. The best way: Simply buy U.S. dollars. Now. Economists, strategists and analysts have been busy over the past several months forming contingency plans should NAFTA talks fail this year. The latest round of talks begins Jan. 23, in Montreal, and the outlook is hardly optimistic among those in the know. David Berman explains.
Short sales on the TSX: Bearish investors are betting against stocks in this 'faddish' sector
Larry MacDonald takes a look at which Canadian companies have attracted substantial short interest during the month ending Jan. 9.
John Heinzl's dividend portfolio is off to a solid start despite surging bond yields
At the end of September, John Heinzl started the portfolio with $100,000 in virtual cash, which he spread across 22 securities – 20 stocks and two exchange-traded funds. His goal was to build a diversified collection of blue-chip holdings that would raise their dividends regularly and deliver modest capital growth as well. (He also owns all of these stocks personally, so this is more than a theoretical exercise.) The early results have been gratifying. At the end of December, the portfolio's value had grown to $104,315.24, for a three-month total return of 4.32 per cent. If that pace were to continue – and he's not suggesting it will – the compound annualized return would be more than 18 per cent. John Heinzl explains.
One of Peter Lynch's top metrics shows stocks getting cheaper
By virtually any measure, U.S. stocks are expensive. Under one especially harsh lens, the cyclically adjusted price-earnings ratio popularized by Robert Shiller, equities relative to 10 years of profits are more stretched than any time in a century, save the dot-com era. But there's still a methodology that bulls can take comfort in – price not just to earnings, but to earnings growth. Favoured by legendary investor Peter Lynch and known as the PEG ratio, the technique takes the standard valuation snapshot and adds time – time for a stock to grow into its price. Bloomberg's Lu Wang reports.
The popularity of ETFs in Canada is growing at an amazing speed
The popularity of exchange-traded funds continues to accelerate in Canada at a record-breaking rate. Last year, more than $26-billion flowed into ETFs, up 56 per cent from the previous annual record set in 2016. Meanwhile, a record number of new entrants joined the market with 11 new providers launching a combined 60 new funds for investors. Clare O'Hara reports.
Horizons aims to launch a second marijuana ETF
Investors looking to jump into pot stocks may soon be able to do so with an additional Canadian-listed exchange traded fund that focuses on the marijuana industry. Horizons ETFs Management (Canada) Inc. has filed a preliminary prospectus with regulators in hopes of launching a second marijuana-focused fund. It is looking to capture small-cap companies in the industry with the Horizons Junior Marijuana Growers Index ETF. Clare O'Hara explains.
Evolve Funds plans launch of Canada's first actively managed pot ETF
Another provider of Canadian exchange-traded funds is jumping on the pot stock bandwagon, with Evolve Funds Group Inc. looking to launch the country's first actively managed marijuana ETF. Evolve Funds Group Inc filed a preliminary prospectus with regulators Friday to launch the Marijuana ETF. With the ticker SEED, the fund will invest in its own actively managed portfolio comprised of a diversified mix of equity securities of companies listed domestically and globally, with business activities in the recreational and/or medical marijuana industry. Clare O'Hara reports.
These tried and true ETFs are a solid way to capitalize on investment opportunities outside North America
The U.S. economy may be on a roll, but there are better investment opportunities in other parts of the world this year. Jeff Weniger, Chicago-based asset allocation strategist at WisdomTree Asset Management, suggests Europe, Asia, and emerging markets offer better valuations than Wall Street as we move into the New Year. Gordon Pape explains.
2017 was a tough year for the Contra Guys' stock picks
The year 2017 has morphed into 2018 and the results are in from last year's picks. Though stock markets cruised to record levels, our results were nothing to write home about. It could be because so much money went into major indexes and most of our choices were smaller fry, or perhaps because a year is a relatively short period of time and that period can easily sway results in a positive or negative direction. Certainly worth noting is that when we trail market averages, it often signals that a market blow-off is not too far down the line. That was our experience both prior to 2000 and 2008. Food for thought. The Contra Guys take a look at all their picks from 2017.
The overlooked way to find an investment adviser you can trust
Robo-advisers are an overlooked solution to your investing problems. In a new video, I suggest rob-advisers as the answer for people who want to build low-cost portfolios of ETFs but are staggered by the choices and details they must contend with. Robo-advisers also came to mind when a reader recently asked how to find an investment adviser who is trustworthy. "One hears so many horror stories of [advisers] pushing products that may not be best for the client, but give them hefty commissions," this person writes. "I no longer trust the field and would rather put my money under my mattress sometimes." Rob Carrick gives his take on the issue.
Top Links
How big is Canada's marijuana market anyway?
Marijuana stock investors 'delusional'
Why commodity prices are rallying
Others
Dividend payers dominate list of oversold TSX stocks
Friday's Insider Report: Companies insiders are buying and selling
Thursday's Insider Report: Companies insiders are buying and selling
Wednesday's Insider Report: Companies insiders are buying and selling
Betting against Trump has been a market-beater
Cobalt and 11% yields lure risk-takers to this Canadian miner
Desjardins Securities unveils its top stock picks for 2018
Number Crunchers
Why these nine multinational U.S. companies are expected to boost dividends, buybacks
A look at the seasonal trends of the sectors of the TSX
Stocks with low volatility that are buying back shares
Ask Globe Investor
Question: Is it safe to hold U.S. stocks in a tax-free savings account (TFSA)? Will capital gains be subject to U.S. withholding tax? I understand that registered accounts are non-taxable for capital gains on U.S. assets.
Answer: There seems to be a lot of confusion about U.S. stocks in a TFSA so let me try to clear this up. Only U.S. dividends are subject to withholding tax in these accounts. Capital gains are treated the same way as gains on Canadian stocks – they are tax-free.
U.S. dividends received in a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) are not subject to withholding tax because those plans are designated as retirement accounts under the Canada-U.S. Tax Treaty.
-- Gordon Pape
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What's up in the days ahead
Don't look now, but the TSX Venture Exchange is back from the dead. The problem? It's speculative pot and cryptocurrency stocks doing all the heavy lifting. Tim Shufelt explains in Saturday's Globe Investor. And look for an update from Rob Carrick on the two-minute portfolio.
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Click here share your view of our newsletter and give us your suggestions.
Want to subscribe? Click here to sign up or visit The Globe's newsletter page and scroll down to the Globe Investor Newsletter.
Compiled by Gillian Livingston