In this edition of Market Factors I discuss the ways I\u2019ve been overrating U.S. stocks at the expense of domestic companies. I was surprised by the degree to which suburban condo prices are getting trashed and that is covered in section two. The diversion outlines a new discussion on linguistics that is more interesting than it sounds, and we look ahead to the important data releases for the next week.<\/p>\n
Open this photo in gallery:<\/a><\/p>\n A shopping cart is seen in an aisle of a Dollarama store in Montreal, Wednesday, June 7, 2023.Christinne Muschi\/The Canadian Press<\/p>\n EquitiesU.S. companies bigger but not better<\/p>\n I might have been under-estimating the TSX if CIBC head of portfolio strategy Ian de Verteuil is right. My working assumption until now was to own Canadian banks and energy companies, some income-oriented sectors to get the favourable tax treatment, and then look to the U.S. for everything else. After all, the domestic market has little to nothing for health care, U.S. companies like Colgate-Palmolive offer the competitive moat of globally respected brands in the staples sector, and U.S. technology stocks dominate the sector in every way. <\/p>\n Mr. de Verteuil\u2019s report earlier this week argues that up to half of the TSX is suitable as a \u201ccompounder\u201d, a company capable of generating cash flow, profit and stock price growth consistently over the long term. <\/p>\n The strategist has previously recommended stocks from Canadian oligopolies like banks, rails, grocers and telecoms as buy and hold options that would create wealth over time. <\/p>\n With this report he added life insurers (while warning that he is struggling with valuations in the property and casualty insurance sector) and waste management and pipeline sectors. In the latter two instances his optimism is a bit tepid owing to profit margins (in terms of return on equity) relative to the oligopolies. <\/p>\n Mr. de Verteuil also looked to identify individual stocks that could compound investment returns over time. He wrote that \u201cDollarama Inc. (DOL-T<\/a>) and BRP Inc. (DOO-T<\/a>) are wonderful cash generating entities, and Stella-Jones Inc. (SJ-T<\/a>) and CCL Industries Inc. (CCL-B-T<\/a>) have focused on narrow businesses to drive long-term returns.\u201d <\/p>\n Dollarama\u2019s performance has crushed Colgate-Palmolive\u2019s returns over the past five so maybe I shouldn\u2019t be so hasty to look south for staples exposure. Colgate-Palmolive Co.\u2019s (CL-N<\/a>) stock has appreciated by 4.2 per cent annually over the past five years compared with Dollarama\u2019s 30.5 per cent mark in U.S. dollar terms, including dividends. <\/p>\n In terms of BRP – the maker of recreational vehicles – I have a bias against pure retail stocks because people are fickle and their spending patterns are unreliable. (This doesn\u2019t extend to the essential items that Dollarama and grocery stores sell). I have missed many investment opportunities because of this belief but I\u2019m keeping it anyway. <\/p>\n U.S. companies are often glossier. For me it seems intuitive that a mammoth company selling Colgate toothpaste, Ajax cleaners, Irish Spring soap, Murphy\u2019s Oil Soap and Hill\u2019s pet foods among many more brands would have a stock that easily outperformed puny (by comparison) Canadian retailers. But that is definitively not the case.<\/p>\n I need to rethink things a bit. Just because a U.S. company or its products are more familiar, in any sector including technology, doesn\u2019t mean their stock is a better investment and I need to get that idea out of my head. <\/p>\n Open this photo in gallery:<\/a><\/p>\n A sign for Halton Hills, at the corner of Trafalgar Road and Steeles Avenue in the south end of town, Wednesday, October 25, 2023.Nick Iwanyshyn\/The Globe and Mail<\/p>\n Real estateOntario condo prices hammered<\/p>\n Many suburban Ontario condo markets are getting crushed, according to Moody\u2019s, with the damage correlated with distance from the major downtown areas. <\/p>\n Moody\u2019s Analytics\u2019 analyst Brendan LaCerda found that the correction in condo markets is more severe in suburban Ontario than the rest of the country. Within that trend, the outlying areas southwest of Toronto are getting hit much harder than the northern suburbs. <\/p>\n Some of the numbers in the Moody\u2019s report beggar belief. Halton Hills condo prices, for instance, are down more than 50 per cent from the 2022 peak. Milton, Brampton and Mississauga condo prices are down roughly 25 per cent and Oakville and Pickering condos are down just over 20 per cent. <\/p>\n Ontario might be hit hardest on average but there are select B.C. markets that have also endured a beating. White Rock condos are lower by more than 40 per cent and West Vancouver condos are down more than 30 per cent on average, according to Moody\u2019s. <\/p>\n DiversionsNew theories on how language changes over time<\/p>\n The rise of TikTok has increased interest in linguistics in some quarters. Pundits like Bloomberg\u2019s Joe Wiesenthal are re-reading Walter Ong\u2019s Orality and Literacy<\/a> (a book so old I studied it at school and remember it as fascinatingly brilliant) for clues as to whether we are returning to an oral and visual, as opposed to text-based, society. <\/p>\n A recent study from McGill University<\/a> has added interest in the specialty by challenging conventional wisdom as to how language changes over time. PhD student Gaurav Kamath used AI to study changes in the use of 100 different words in almost eight million U.S. recorded political speeches. <\/p>\n Mr. Kamath found that changes in language are inter-generational when previously it was believed that older generations had to die off before language changed. I\u2019m not sure how important this finding is but I can report that linguistics is a far more interesting topic than many believe at first glance, with implications for culture, communication and even neurology. <\/p>\n The essentials<\/p>\n Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here<\/a> to visit our Inside the Market page. <\/p>\n Globe Investor highlights<\/p>\n Jamie McGeever looks at how the markets\u2019 tariff resilience is challenging long-standing<\/a> economic orthodoxy. Meanwhile, here he<\/a> reports on the dramatic moves in U.S. assets over the last few days and how they serve as a microcosm of some deeper market divergences going on<\/p>\n David Rosenberg isn\u2019t at all buying<\/a> Donald Trump\u2019s reasoning for firing labour statistics boss Erika McEntarfer and has some harsh words for the U.S. president<\/p>\n Ian McGugan ponders<\/a> the question, what if all the AI excitement driving the markets eats the tech giants from within? On that note, investing professor Dr. George Athanassakos says<\/a> history suggests you\u2019re better off sticking with true value stocks than today\u2019s high-fliers. <\/p>\n