Making sense of the markets this week: February 19, 2023

Steady profits never make the news

Being a pipeline company is sort of like being a hockey referee: If people notice you, it’s probably for the wrong reasons.

Another consistent earnings quarter for Canada’s largest pipeline companies generally went unnoticed—as opposed to when a leak or other crisis occurs.

All three pipeline stocks saw a small uptick in share prices as a result of this, including Enbridge, which had a small earnings miss.

Given the high demand for fossil fuels outside of war zones, it shouldn’t come as a surprise that North American pipeline capacity is at a premium, and that these companies continue to gush dividends in the 6.5% range.

Both Enbridge and TC Energy commented that the higher cost of capital related to the natural gas industry was a headwind for them, and this would likely continue going forward. 

The steady nature of the costs and revenues in the pipeline business is why many dividend-savvy investors prefer these stocks over the much more volatile pure energy producers, such as Suncor (SU/TSX) and Cenovus (CVE/TSX). Canadian investors looking to diversify their fossil fuel portfolios could consider the Horizons Pipelines & Energy Services Index ETF (HOG). (For more information, see Canadian pipeline stocks at MillionDollarJourney.com.)

Shopify earnings go up, but stock price is down due to cloudy future

Despite the fourth quarter topping expectations, Shopify (SHOP/TSX) shareholders showed long-term concerns as after-hours trading had the stock down over 15% on Thursday.

Earnings per share came in at $0.07, whereas the consensus prediction was a small loss of $0.025. Similarly, revenues for the quarter were $1.73 billion, topping the $1.65 billion estimate.

If you’re a “glass is half full”-type shareholder, you’re pleased to see the company announce profits, which is not a given for the tech giant. Shopify president Harley Finkelstein highlighted the Shopify Fulfilment Network and Deliverr as strategic verticals in the company to watch in 2023. You might also be happy at the 45% year-to-date returns, the 21% year-on-year revenue growth in 2022, and the positive momentum building on Q3 results.

It appears there are a lot more “half-empty” tech investors these days. They’re quick to fixate upon Finkelstein’s less enthusiastic statements about Shopify’s future, such as…

“Additionally, while our financial outlook assumes that the COVID-triggered acceleration of e-commerce continues to return to a more normalized rate of growth in 2023, there is elevated inflation and continued caution around consumer spending due to a variety of macroeconomic factors.”

So far, it has been a solid quarter for Canadian tech companies, as they seek to bounce back from a really tough 2022. With Open Text and Lightspeed posting solid results, it’s up to Constellation Software to keep moving the trend when it announces earnings in a couple of weeks.
If you’re looking for a Canadian tech ETF with exposure to these names, the iShares S&P/TSX Capped Information Technology Index ETF (XIT) takes a diversified approach to the sector. While Shopify does make up about 27% of the ETF’s holdings, it would make up substantially more if the capped ETF were just a pure market-weighted index ETF. Shopify’s $90 billion market cap nearly doubles second-place Constellation, and it is roughly seven times larger than Open Text’s $13 billion. For more, you can read this article on Canadian tech stocks at Million Dollar Journey.

Don’t travellers know we’re supposed to be in a recession?

Everyone’s talking about how bad the economy is and how we must already be in a recession. Yet, someone forgot to tell Uber and Airbnb. Looking at their income statements, there’s no sign we’re in hard times.

Admittedly, things weren’t so rosy for Lyft. Even as the rideshare company posted a slight increase on earnings, the stock was down 30% in after-hours trading, due to weak revenue guidance (meaning they’re not predicting a sudden increase in paying customers anytime soon). Lyft appears to have plateaued, as rider numbers are still significantly below pre-pandemic levels.

Uber, however, reported a great fourth quarter, and the stock price was up 9% in after-hours trading. The company also announced that, unlike many other tech companies, it would “continue hiring at a judicious pace in 2023.” Proving that it can do more with less: Uber’s headcount is down 5%, while revenues are up 75% relative to 2019.

Anecdotally, as someone who’s travelled using Airbnb’s services several times over the past year, I wasn’t surprised to hear how well it’s doing. Property owners have definitely noticed demand for their dwellings. And I’ve not experienced any “recessionary price pressure” at the places I’ve looked at and stayed. Airbnb confirmed my hunch when the company released that daily prices on their listings were down only 1% from the summer quarter, and were clinging to the $153-per-night price point. Listings were up 16% in 2022.

Will the world’s economies grow in 2023?

Recently, the Visual Capitalist took a look at growth forecasts around the world this year. Notably, the world is projected to see 2.9% gross domestic product (GDP) growth in 2023, while Canada is expected to come in around 1.5%. 

That’s not exactly lighting the world on fire. But, at the moment, many European countries would probably trade places with us.

A few takeaways from the 2023 Global Growth Forecasts infographic:

• That Brexit thing clearly isn’t working out too well for our British friends. In fact, if present trends hold, by 2024 the average Slovenian family will be wealthier than the average British family. The irony is that the U.K.’s former source of “cheap labour”—Poland—is trending to eclipse them in family wealth by 2030. Perhaps the Polish workers should start worrying about Brits coming over to “take their jobs.”

• While Russia is seeing a massive hit from its 10.5% growth rate in 2021, the West’s economic sanctions are not going to “bring them to their knees” any time soon.

• India’s willingness to embrace business-friendly policies and refusal to go along with the West’s energy sanctions are clearly paying off.

• Guyana’s fossil-fueled growth might double its economic output in two years. 

• Many of the world’s emerging markets appear to be in for some much-needed growth this year.

• Despite relatively high copper prices, Chile, the world’s largest copper producer, is set to see its economy shrink in 2023. Political instability and anti-business sentiment clearly have a price.

Given the first economic indicators that we’ve seen so far this year have generally been quite positive, I think there is an increasing likelihood that a lot of countries will surprise to the upside in 2023.

Kyle Prevost is a financial educator, author and speaker. When he’s not on a basketball court or in a boxing ring trying to recapture his youth, you can find him helping Canadians with their finances over at MillionDollarJourney.com and the Canadian Financial Summit.

About Kyle Prevost

Kyle Prevost is a financial educator, author and speaker. He is also the creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course.

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