It's a bit of Rock & Roll - Your Money - March 5th 2021

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It’s taken several weeks, but we are finally starting to see a more normal relationship between price and earnings in the stock market. Tesla was trading at $900 five weeks ago and now its back down to $600. Personally I think it still has a long way to fall because their future growth rates are somewhat in doubt (IMO) given the associated cost curves for electric vehicles, and the inevitable price elasticity once global automakers flood the market with cheaper electric vehicles. We also believe that hydrogen fuel cell vehicles will carve out an even bigger niche once hydrogen refueling becomes a common occurrence.

Meanwhile, JNJ received approval for its Covid vaccine and the stock dropped 1.4%. Go figure. The reaction was similar to Pfizer’s approval while the one trick ponies Moderna and Novavax continue to trade at lofty prices…again in my opinion.

Now on a more broader view, despite this week’s sell off on the NASDQ, by my count 22 of the Dow 30, stocks moved higher.  I attribute it to the fact that more of the Dow stocks can either be labelled as “old economy” or ”the return to normal” economy and most of those stocks are trading at around 23 times earnings. Plus, I can buy companies like Verizon, Chevron, and Dow with a 4% dividend. I can’t do that with the recently added Salesforce.com which has fallen from $280 last August to $210 today AND NO dividend. Enough Said!

On the earnings front, more than a few companies hit an air pocket sending their stocks south faster than a smart goose at Christmas. “Thou shalt not miss street estimates or your stock price shall be smited”. One only has to look at the hits and misses to guess the direction of stocks this week. And you better beat on all metrics or face the wrath of fickle investors. Costco saw same store sales comps up 13%... but apparently not quite good enough, stock down 2% today. Or Target, sales up 20.5%  and same store sales up 6.9%. Stock fell 6%. Go figure.

In Canada, the banks rallied nicely as bond prices fell and yields rose. Outside of the banks and energy stocks, which rallied on rising yields and rising crude prices (inflationary pressures are building), we saw a nice rally in the return to normal stocks. CAE jumped 15% on an acquisition which will give them access to more military contracts, and Laurentian Bank saw a nice rebound in earnings. Finally, we note consumer stocks had a good run. Sleep Country up 13% and Spin Master up 43%.  Overall the TSX gained 1.77% this week.

Happy Trading and Stay Safe.

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Steve Bokor

Steve Bokor

Portfolio Manager