Ticker Take: a weekly newsletter on investing.
A recap of the week.
Thanks for checking out this week’s edition of Ticker Take! As always, you’ll find the stock picks of the week at the bottom of the newsletter.
Quote of the week - “You buy Tesla because you believe in autonomy.”
2024 has been a roller coaster year for Tesla investors. While the company is navigating short term pain in the EV market, Elon Musk won over Wall Street by reiterating his commitment to more affordable models. But, at the same time, Musk also tried to shift investors away from short-termism by further outlining a future with driverless cars.
I thought RBC analyst Tom Narayan — who is a big believer in Tesla’s stock — put it best, when I asked him about the investment thesis around Tesla this week.
“If you believe in autonomy — if you believe in FSD near term and then robotaxi in the future — I think this is definitely a stock to own. If you still think we’ll be driving cars in 50 years, you should not own this stock. So it is a very binary situation. I wouldn’t own this business for the car business — just as a box with wheels. You buy it because you believe in autonomy.”
Which big tech companies will have biggest earnings growth?
It’s earnings season and there is a lot of focus on bottom line performance. Tech companies – given the growth nature of their businesses – are in a position to see earnings improvements in the years ahead. So we decided to examine Wall Street’s expectations for the percentage increase in tech company profits over the next 5 years. Now, keep in mind, companies that are expected to have the biggest growth are typically the ones that currently have the lowest earnings. That said, here’s the breakdown of expected 5-year earnings growth for some of the largest tech companies in North America by market cap. These estimates are the averages, based on Wall Street analyst forecasts, according to Bloomberg data.
Micron: +2,167%
AMD: +1,601%
Uber: +1,454%
Intel: +1,441%
Shopify: +1,238%
Palo Alto Networks: +922%
Amazon: +254%
ServiceNow: +252%
Salesforce: +208%
Tesla: +205%
Oracle: +197%
Broadcom: +170%
Intuit: +156%
Netflix: +153%
Nvidia: +137%
Adobe: +119%
Microsoft: +110%
Meta: +87%
Alphabet: +82%
Booking: +79%
Qualcomm: +76%
Texas Instruments: +59%
IBM: +47%
Applied Materials: +41%
Apple: +28%
Lam Research: +28%
Cisco: +25%
Airbnb: +14%
Analog Devices: +7%
Big Tech’s dividend players
One of the interesting developments with Alphabet’s latest results was the decision to unveil its first dividend. The company, which is now more than 25 years old, has always focused more on using its cash to invest in the future. But, at a time when Alphabet is spending big money in areas such as artificial intelligence, unveiling a 20 cent quarterly dividend plan may appease some investors seeking more immediate ROI. Morgan Stanley analysts, in a research note, said the move, while muted, will help the overall shareholder return strategy.
It got us curious about how Alphabet’s dividend story compares to the other, so called magnificent 7 names.
Let’s start with Apple – which as you may know, jumped onto the dividend train back in 2012. The company had previously paid a dividend, but that ended in the mid-1990’s when Apple was in crisis. By 2012, the success of the iPhone had left Apple with what Tim Cook called a war chest of cash, even after spending on big projects. At the time, Apple was also looking to broaden out its investor base and there are a lot of money mangers who only invest in companies that pay dividends. While Apple’s dividend yield remains modest, if you own a lot of Apple stock, it adds up – just talk to Warren Buffett about that.
Meta was the most recent new member of the dividend club prior to Alphabet, having unveiled its first payout in the prior quarter. That quarterly move was unexpected, but it did come at a time when Mark Zuckerberg was still looking to win over Wall Street – compared to this week, when he was much focused on the priority of investing in AI.
Meta’s dividend yield looks somewhat similar to that of Alphabet. I should note Bloomberg data suggests Meta could continue to boost that dividend – as much as 75 percent over the next 3 years – with the company’s investments and stock buybacks (and the dividend commitment) barely denting its cash hoard.
Microsoft, meanwhile, has paid a dividend for more than two decades. The company originally made the move back in 2003. It was considered an acknowledgement that Microsoft’s best growth days were in the past. At the time, the company had plenty of cash, but in addition, it had made some bad investment bets in areas such as cable tv and telecom. So it was hungry to win over investors. In addition, the company had started to move beyond its antitrust woes, which removed a reason for the company to be stingy with its cash.
AI darling Nvidia pays a dividend. Don’t forget this company has been around for a long time, despite entering the daily conversation on Wall Street more recently. Nvidia has steadily paid a dividend for the past decade, albeit a fairly modest one. Looking at projections from Bloomberg, there are not big expectations that the dividend will grow significantly in the next few years. I imagine for investors who expect massive sales and profit gains, they are largely focused on the growth opportunity – although, one could argue Nvidia at some point will feel a need to compete on dividends with some of its rivals, such as Broadcom, which has shown a notable commitment to shareholder payouts.
Now – when it comes to big tech players who have not hopped aboard the dividend train, Amazon is the obvious one. The company addresses that quite prominently on its investor relations website. As we know, Amazon has long plowed cash back into the empire – expanding its warehouse capabilities, its cloud unit, and of course other areas such as media. Amazon has often received a pass on that from investors, thanks to its top line growth and free cash flow generation. And as the company generates more profit from its AWS unit, investors will be pleased to know that its earnings growth over the next 5 years is expected to be the highest among the magnificent 7 stocks.
And finally, Tesla (like Amazon) is another name that does not pay a dividend — although as I mentioned earlier, Tesla and Amazon are expected to see the biggest 5-year earnings growth among magnificent 7 stocks. Tesla has been clear there are no current plans for a dividend. Obviously with Tesla, we have learned recently about its plans to go even bigger on autonomous vehicles and that will be a key area of spending.
Cash Cow Stocks
They often say cash is king. And companies that are steady cash flow generators often earn high marks on the street. One good example is the Pacer U.S. cash cows 100 fund. The symbol is COWZ and it tracks companies that already make it onto a list of value stocks, as measured by the Russell 1000 index. But in addition, they look for names that have price to earnings ratios that meet a relatively low threshold, while also having significantly high cash flow yields. The ETF has outperformed the broader market over the past 5 years and it’s seen as a hedge of sorts against frothy tech valuations. The fund has seen its asset base soar, with steady inflows of investor money in the past year.
We wanted to show you some of the names that have big weightings in that fund, so we picked the top ten, screening out any stocks that don’t have a majority of buy ratings on Wall Street. Here they are:
Valero Energy
EOG Resources
Marathon Petroleum
Vistra
Exxon Mobil
Diamondback Energy
Occidental
Chevron
Devon Energy
Cencora
Overall, energy names represent the biggest sector weighting within that fund, followed by consumer discretionary and health care stocks.
Meanwhile, we decided to crunch similar numbers to find some standout cash cow names in the Canadian market. So we followed a similar rule pattern. We started with looking at the broader TSX, but we then looked at stocks that had both reasonable price to earnings ratios and high free cash flow yields. And from that list, we screened out for stocks that have a majority of buy ratings on Bay Street. Against that backdrop, we netted out this list of stocks:
Air Canada
Transalta
Vermilion Energy
Precision Drilling
Africa Oil
Dundee Precious Metals
Transcontinental Inc
Tourmaline Oil
Whitecap Resources
BRP
Ranking the Bitcoin ETFs
There was a lot of focus on Bitcoin after the big halving event, which historically been an important one in the history of the cryptocurrency. This year, though, it came after the launch of spot Bitcoin ETFs in the U.S., which was already a major catalyst. Analyst Geoff Kendrick at Standard Chartered (who is extremely bullish) sees those ETF flows remaining as one of the dominant drivers of Bitcoin, which got us curious about which ETF’s are the most dominant.
The answer is Blackrock, with its iShares Bitcoin Trust, which seems to be on its way to becoming like the GLD (the dominant gold ETF). According to data from Bloomberg, it’s already had one of the longest streaks of inflows in the history of the ETF market.
Currently, the Brayscale Bitcoin Trust, which pre-dates the big launch of spot Bitcoin ETFs this year, has the most assets, at nearly $20 billion. But it has had a tough time competing with the lower fee offerings. And Bloomberg research suggests the Blackrock fund – with nearly $18 billion in assets after less than 4 months of trading – will pass the Grayscale offering by the end of this month. And in terms of volume, its trading levels are already three times those of Grayscale.
Here’s the breakdown, by assets:
Grayscale Bitcoin Trust: $19.6 billion
iShares Bitcoin ETF: $17.6 billion
Fidelity Wise Origin Bitcoin ETF: $9.8 billion
ARK 21Shares Bitcoin ETF: $2.8 billion
Bitwise Bitcoin ETF: $2.2 billion
Bitcoin vs Stock Market
You also have to wonder how much of the Bitcoin story ties back to “FOMO.”
Of course, fear of missing out isn’t an ideal investing strategy. But the fact that Bitcoin created an enormous amount of wealth for those who invested early is hard to ignore.
For context, here’s what $1 invested would be worth today.
Bitcoin S&P 500
1 year ago: $1.87 $1.24
5 years ago: $9.25 $1.72
10 years ago: $102.60 $2.69
14 years ago: $8 million $4.18
Canadian companies with big U.S. exposure
We spoke with investment strategist Lesley Marks of Mackenzie who recommended investors lean into a weak Canadian dollar by targeting TSX companies that have notable U.S. exposure.
The idea there is that a resilient American economy and the relative strength of the U.S. dollar helps to boost a company’s profit when that currency is translated back into Canadian funds.
So we decided to screen for TSX names that generate a majority of their revenue in the United States. Now, I want to be clear that all companies have different strategies when it comes to currency and currency risk, so just because a company has large U.S. operations doesn’t necessarily mean there’s a windfall coming from a weaker loonie. But, it is an instructive exercise when trying to determine which Canadian firms have big, American exposure.
We decided to limit our list to companies that have more than 50% of their sales coming from the U.S. and are recommended by a majority of analysts who cover them.
Here’s the list:
Firstservice
GFL
Boyd Group
Interfor
Enerplus
TFI International
Stella Jones
Descartes
West Fraser
Waste Connections
Aritiza
Canfor
Colliers
Kinaxis
Stantec
BRP Inc
Badger Infrastructure
Alimentation Couche Tard
Algoma Steel
Stock picks of the week:
Kim Forrest, Bokeh Capital Partners: Urban Outfitters, Intel, UnitedHealth
David Burrows, Barometer Capital Management: Goldman Sachs, Crescent Point Energy, Canadian Pacific Kansas City, Finning, Agnico Eagle
Adam Johnson, Bullseye Brief: Bank of America, Energy Transfer
Allan Small, iA Private Wealth: Nvidia, AMD, Alphabet, Bank of America, Morgan Stanley, U.S. Bancorp, Pfizer, Bristol Myers Squibb
Liz Miller, Summit Place Financial Advisors: Corteva, BlackRock, Apple