Answers to popular stock and investing questions this week

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Popular Answers to Member Questions 

Question 1: Any comments on where to put savings to acquire a low-risk return? Currently, the funds are in a high-interest savings account earning 2.75%. GICs don’t look much better. Looking for some alternatives with low risk but a little better return. 

Answer 1: For low risk and a low return, we think you are in the right place with High-Interest Savings Accounts. It is hard to find short-term/safer bond funds that pay over the yield you quote. And these come with more risk. We think to get higher than that rate you would need to start accepting the risk of capital in terms of volatility.

Question 2: What would you expect would be the key drivers of iShares S&P/TSX Canadian Preferred Share Index ETF (CPD)'s price in the marketplace? For example, would it likely follow equities down/up (because of reliance on the credit of issuers) or bonds ("safe" haven for yield when equities are volatile)? How do interest rates impact it? What would it do in a recession? I'm not looking for a prediction of the future, but a simplified model on how to think about this kind of security.

Answer 2: It has various influences. In a mild recession, we would expect it to do better than equities, as credit quality may not be impaired, and the relative safety of dividends on preferreds would be attractive to investors. In a bad recession, credit concerns would impact it much more. But rates currently are a big impact. Owning reset preferreds, as interest rates fall investors pay less for reset preferreds. This has certainly influenced it lately. Inflation would not be good for preferreds, as we think the benefit of rising rates (higher dividends on reset) would be far outweighed by inflationary pressures and valuation impact on the securities. 

Question 3: Can you provide me with your current view of Canopy Growth (WEED).

Answer 3: It was a very weak quarter reported, with recreational cannabis sales actually declining, bringing the 'expected' very rapid growth of the sector into question. The CEO is confident, but we are less sure right now. We still consider it one of the better sector names, but after this horrible quarter, we would give it some time.

Question 4: I noticed in the news that the Koch brothers have just sold their interests in the Alberta oil sands. And it was a Canadian company who bought them. I find it a worrying sign that so many foreign companies have sold. It could be I suppose because they see more interesting plays elsewhere. But one would think that the Canadian companies who bought might see those same opportunities and put their money there. I would appreciate hearing your opinion on this.

Answer 4: International investors do not like the pipeline situation in Canada, and it certainly has not been good for the sector. Foreign investors see much better opportunities in faster-developing areas such as the Permian Basin. Paramount (POU)(the buyer) takes a long-term view, and the land acquired is largely a long term 'option' on the future of the oil sands. But, this does not mean Paramount will be 'right'. With US production growth and the high capital cost of oil sands projects, it is hard to see how new projects are going to get approved, financed, and built. In Canada, the backdrop is 'anti-oil' right now. 

Question 5: I have some cash that could be invested, but am not sure when to buy-in. (financial sector is what interests me the most.)
Based on your decades of experience how would you decide on when the present downward slide is near the bottom. Please provide your top 5 indicators that there is "blood in the street" and could be a time for buying.

Answer 5: Signs can be (a) Prices 'gap' down, when markets/stocks open significantly lower, as investors worry the night before and decide to get out. (b) Higher trading volume (c) A big spike the VIX index (d) A flight to the US dollar for safety (e) Extensive media coverage of a 'crash' or 'plunge'. For what it's worth, we do not share the fears that most investors have these days. That being said, the recent declines in no way to us really look like a panic sell situation, either.

 

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Disclosure: The author does not hold positions in any stocks or funds mentioned.

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