CP Rides South - Your Money March 26th 2021

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Well if you look at the Friday numbers you would have thought the markets had a good week but if you peel away a few layers you can see that is not the case. As of Wednesday the Nasdaq has corrected nearly 9% from its Mid-February record setting high. In point of fact it had actually turned negative for the year. I can once again go home each day with the realization that momentum trading in stocks with no earnings has given way to rationale investing.  This week’s Dow winner was Cisco, a stock that has been languishing in the proverbial penalty box no doubt due in part for letting upstart Zoom steal their lunch… In fairness, the techies I talk to are not surprised that Microsoft, which owns Skype, allowed an upstart to corner the market in online video chatting. Don’t get me wrong, Microsoft continues to dominate many sectors of the computing world especially since they moved their software to a subscription based model…but what were they thinking when they launched “Teams” and left the door wide open for the average computer user that does not have the resources to upgrade to their Office365 to be swayed by the easy and fun Zoom software?

Anyhow, Zoom’s spectacular run up from the mid $60’s in January of 2020 to $588 by last October. It’s now down to $319 aka a 45% drop from the peak but is also trading at 85 times forward earnings. I lean towards Cisco with a 16 times PE multiple but then I am a luddite when it comes to tech. I prefer to sink my teeth into businesses that I can understand in a world that is normalizing. Again as vaccines spur reopening’s, I feel much more comfortable with names like Coke, Home Depot, Verizon and Chevron. I know some may not agree and sometimes it feels like I am tilting at windmills but the fact of the matter is we will continue to see more and more people on this planet and those people will need to heat their homes and food and that requires…bad old oil and gas. I know that we are embarking on a zero emission vehicle future, but nobody ever talks about the amount of CO2 that is burned in order to make the lithium batteries used in EV’s. You will be amazed and crestfallen to find out how much CO2 released in the mining process.

And of course even if there were no negative impact from using lithium batteries, can I ask “does anyone realize what asphalt is made from?” Unless we turn into the Jetson’s and fly from point A to point B, we are going to need oil to make roads. Dow Inc., the stock not the index, is trading at 16 times earnings and Chevron is trading at 19 times. In my opinion Canadian energy stocks are even better value especially if you believe as I do that energy prices will rebound. Enough said.

I think it’s better to look forward than backwards. To that end (and again I am biased), yesterday Telus announced a $1.3 billion dollar financing to accelerate their 5G rollout and the issuer dropped the price to attract investors into the deal. It now yields 4.9% and while they have struggled like other utilities hit by rising bond yields, I think management went on the offensive given last week’s proposed marriage between Shaw and Rogers.

Speaking of mergers, CP somewhat surprise bid for Kansas City Southern made tactical sense for Canada’s arguably best run railway. They are seeking to tie up a North South shipping route to complement their East West duopoly. I also note that Union Pacific initially fell on the announcement on Monday before recovering and driving to a record high today. Maybe they know something the rest of the street doesn’t.

Lastly, if you were not watching the struggle between man and nature aka the parking of a mega tanker in the Suez Canal with just a minor sense of disbelief, then you undoubtedly got stuck listening to lawmakers caterwauling at the chief poobahs of Twitter, Facebook and Google. Personally I think the CEO’s won but this battle is far from over and I am old enough to remember when Ma Bell in the US, thought they were untouchable from lawmakers back in 1982.

Next week is a short week as we bid farewell to the first quarter and welcome April with the Easter long weekend.

Happy Trading and stay safe.

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Steve Bokor

Steve Bokor

Portfolio Manager