It’s a large e-mail today as we not only tackle the updates to our model portfolios, but we cover all of our Stocktrades Premium companies reporting earnings. We’ve trimmed the portfolio updates in this e-mail just so it doesn’t run on for too long.
As always, the portfolio updates are available directly from the website here. You can not only download the portfolio overviews, but the complete pack which contains individual company Ychart reports.
But before we get into earnings, we have an exciting announcement.
Our AMA with Erik Sloane
We have been communicating with the Chief Revenue Officer of the Neo Exchange Erik Sloane for quite some time now, and he’s been helpful in regards to answering questions we have from members in a timely fashion.
We asked Erik if he’d be willing to do an AMA (Ask Me Anything) for Premium members, and he agreed. The AMA will be centered around CDRs and their new ETF platform, however he’d be more than willing to answer anything about the Neo Exchange in general.
The AMA will be on the Discord, and we have a channel set up with questions submitted from members. However, you do not need to have Discord to listen to it. The event will be recorded and be made available for review in Discord and on our website so that even those who aren’t in Discord can still listen to the session – much like a podcast.
We do not yet have a set date for this AMA, but if you have any questions you’d like Erik to answer, either submit them in the Discord channel or if you aren’t in the Discord, reply to this e-mail with your questions!
Manulife Financial (TSE:MFC)
Dividend Bull List stock Manulife Financial may be be on the verge of breaking out of a decade-long slump. After a strong quarter in which earnings beat by $0.02 and core ROE jumped to 13.0%, Manulife’s stock is close to touching decade-high levels.
MFC has been chronically undervalued, and the environment appears to favor a breakout. Of note, the company confirmed the 18% raise to the dividend which was declared as a special dividend last fall.
You can read our full report of Manulife here
Intact Financial (TSE:IFC)
Not to be out done, Intact Financial (IFC) also topped expectations as earnings of $3.85 topped estimates of $2.57 per share. The company’s leverage ratio continues to trend downwards, and it also confirmed its 10% dividend raise announced last fall.
While it still trades at a premium to other insurers, it is growing at a faster clip. The company is also still trading at a discount to its own historical averages. Overall, it was just another strong quarter for what is arguably Canada’s best insurance company.
We’re still in the process of updating this report. So, check the website early in the week for it.
TMX Group (TSE:X)
The last Dividend Bull List stock to release quarterly results is the TMX Group (X) which beat on the top and bottom lines. Earnings of $1.77 beat by $0.03 and revenue of $252M beat by $4M.
The company also announced an 8% raise to the quarterly dividend. It was yet another solid quarter from a solid company, one that seems to be largely ignored by the markets right now. Which for long term investors should be a bonus, as they can accumulate at cheaper prices.
You can read our full report of TMX Group here
Telus (TSE:T)
Turning our attention to Foundational stocks, Telus (T) delivered mixed results. Earnings of $0.23 missed by 2 cents while revenue of $4.78B beat by $460M and represented 20% growth YoY. Equally as important, the company issued Fiscal 2022 guidance.
The company expects that revenue and adjusted EBITDA will see 8-10% growth while free cash flow is expected to come in around $1.2 billion (+20%) over Fiscal 2021. This will likely be one of the fastest growth rates out of the major telecoms here in Canada, and is why Telus is our favorite and a Foundational Stock.
Constellation Software (TSE:CSU)
For its part, Constellation Software (CSU) delivered results that missed expectations. Earnings of $7.44 per share missed by $8.86 while revenue of $1.75B missed by $20 million.
The miss on earnings is something we’ve come to expect. Analysts have no clue how to estimate this company’s earnings which usually lead to large misses or beats. The slight miss on revenue is more relevant but on the bright side, they deployed ~$500M in new capital this past quarter towards acquisitions – one of the most robust capital outlays in some time.
Overall, don’t let wide earnings misses bother you with Constellation. It’s quite common.
Fortis (TSE:FTS)
Finally, Fortis (FTS) came through another decent quarter as earnings of $0.63 per share beat by $0.07. It also re-affirmed the company’s mid-to-long term outlook in which it expects to grow its rate base from $31.1B to $41.6B by Fiscal 2026 and support 6% annual dividend growth over this period.
Overall, it was a ho-hum quarter and just a steady performance from one of the most reliable utilities in the country. It’s consistency is arguably unmatched by any other company on the TSX Index.
Pfizer (PFE)
There were a few US Foundational stocks that also reported earnings last week. Pfizer (PFE) kicked things off with a mixed quarter. Earnings of $1.08 per share beat by $0.21 while revenue of $23.84B missed by $360M.
Importantly, it also announced full year Fiscal 2022 guidance in which it expects record revenue between $98-$102B and adjusted EPS of $6.45 at the mid-range. Of note, these were shy of estimates for $104B and $6.73 respectively. While the lighter guidance vs estimates resulted in downward pressure on the stock, it still represents healthy 23% and 46% YoY growth at the mid-point of guidance.
Pepsi (PEP)
For its part, Pepsi (PEP) beat on both the top and bottom lines. Earnings of $1.53 per share beat by a penny while revenue of $25.25B beat by $1.01B. The beat on revenue was quite significant and was coupled with a 7% raise to the quarterly dividend. With the raise, Pepsi will have effectively reached Dividend King status, reflective of 50-consecutive years of dividend growth.
Importantly, the company did warn that cost pressures due to inflation and supply chain issues are persisting, which has offset some of the impressive revenue growth. Pepsi also released guidance to the tune of 6% organic revenue growth and EPS of $6.67 per share. Slightly lower than estimates for $6.72 per share.
As we’ve witnessed over the last 6 months, forward guidance is being taken into account much more than current company performance. Long term, we aren’t worried.
Disney (DIS)
Disney (DIS) blew out Q1 of Fiscal 2022 expectations as earnings of $1.06 beat by $0.43 and revenue of $21.82B beat by $860M. Disney+ subscribers came in at 129.8M vs 94.9M in Q1 of Fiscal 2021. Parks drove the significant beat as segment revenue more than doubled.
As the pandemic restrictions continue to lessen, people are turning to the Disney parks experience once again as they look to break free of years of restrictions. On the negative side, Disney+ is entering a period of higher programming and production costs which although expected, is going to lead to difficult comps next quarter.
There was a lot of uncertainty towards Disney+ subscriber counts due to Netflix’s poor results. However, the strong subscriber growth is a good sign the platform is maintaining popularity.
Magna International (TSE:MG)
The lone Growth Bull List company to report this past week was Magna International (MG). Overall, it was a strong quarter as earnings of $1.30 beat by $0.43 and revenue of $9.1B beat by $180M. This marked the first time the company beat on the top and bottom lines in a few quarters.
Unfortunately, this did little to appease investors as the stock dropped by ~6% this past Friday. The company is still facing many headwinds and the recent US/Canada blockade is impacting the auto industry. On the bright side, Magna released Fiscal 2022 Outlook in which it expects to see a nice rebound with revenue rising by ~$3.6B. Again, this is a situation where short-term noise should be ignored, and long-term mentalities taken.
Our updated report on Magna is still in the works. So stay tuned for this early this week.
Next week will also be a busy one as we are expecting Restaurant Brands International (QSR), Killam Apartment REIT (KMP.UN), A&W (AW.UN), and TC Energy (TRP) to report quarterly earnings.
Mid Stage Conservative
This is not really a surprise to us, but the Mid-Stage Conservative portfolio has been outperforming its benchmark on a 1, 3, and 6-month basis and is currently close to outperforming it over the course of the last year as well.
The portfolio’s main goal is capital preservation and income, and it’s done just that. In the face of significant volatility it has started to outperform after a few years of underperformance during the high-growth euphoria.
The one small change we will be making is to take profits from a run-up in Toronto Dominion Bank and buy a larger position in what we feel is an undervalued trust here in Canada and a Dividend Bull List stock, Alaris Equity Partners.
With the addition of more Alaris, we’ve boosted the dividend yield in this portfolio to over 3% as well.
Not many changes. But the key difference with this portfolio versus more aggressive portfolio’s is that this is the exact environment that the Mid Stage Conservative is supposed to outperform in. And thus far it has done its job.
Mid Stage Moderate
Overall, the Mid-Stage Moderate portfolio has performed quite well since its inception. It has outperformed its benchmark for 3 years running. Much like most of our growth-based portfolios it is not off to a good start in 2022. But we’re not too worried.
The primary reason the portfolio is underperforming over the short term is due to exposure to technology companies like Enghouse and Shopify. The tech correction is still very much underway, and these companies, although much cheaper than they were in the past, are still facing some price weakness. The correction in goeasy Ltd has also put some pressure on the portfolio.
This portfolio is in a strong position to outperform when positive sentiment returns to the struggling companies listed above. The thesis hasn’t changed on any of them. In fact, we’ll be shoring up one of our positions.
In terms of sales inside of the portfolio, we’ve decided to sell Real Matters. The company was added to the Bull List after promising results in 2020. However, its performance has lagged and ultimately there are just better options for this portfolio because of lack of exposure to a particular industry, which we’ll get to in a bit.
We’ve also decided to trim a bit of exposure to CCL Industries. This portfolio, especially with the new addition we’ll make, will have a lot of cyclical exposure. So, we felt it best to reduce the company’s overall makeup inside of the portfolio from 4% to 3%.
In terms of additions, we’ve decided to top up our position in Enghouse. The company has faced some negative sentiment much like other technology companies. However, we feel it has been unfairly punished. In fact, management has been quoted numerous times stating rising rates would be a good thing for Enghouse, as falling valuations would allow it to make more acquisitions.
We’ve also decided to add XEG, the iShares Canadian oil and gas ETF to the portfolio. This portfolio had zero oil and gas exposure. And with the direct aim of these portfolios being the outperformance of the TSX Index, we feel having no oil exposure would be a poor decision. We feel there is a strong opportunity with the ETF in terms of rising distributions and share buybacks.
Mid Stage Aggressive
Our aggressive portfolios have been under more stress than most. If you read our e-mail and portfolios last week, the Early Stage Aggressive is under some short-term pressure as well.
Not surprising considering they are more heavily weighted towards growth stocks given their aggressive nature. For its part, the Mid-Stage Aggressive Portfolio is struggling to keep up with its benchmark. Since our last update in September, the portfolio has lost approximately 8% of its value. In comparison, the selected Benchmark and the S&P/TSX Composite Index have gained 4.5% and 1.1% respectively.
The main portfolio laggards over this period include Shopify, Well Health, Greenlane Renewables, goeasy, and the Purpose Bitcoin ETF which all underwent significant corrections in recent months. Is there reason for concern? Not really, as all of these companies are still performing well and are simply being swept up in negative market sentiment.
In terms of changes, we’ve decided to trim up our positions in TD Bank and Fortis. Both have had impressive runups, and we don’t mind taking a little profit here and redeploying elsewhere.
We’ve decided to take that portion of the portfolio and invest it in Bull List stock BRP Inc (TSE:DOO). The portfolio lacked consumer cyclical exposure, and with BRP facing some pricing weakness, we feel it was the perfect time to buy this global recreational vehicle leader at a discounted price for the long term.
