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BNN: Top economic and political risks this year

A discussion on consumer spending, demographic trends and where to withstand market weakness.

Our Portfolio Manager, Sam LaBell, appeared on BNN Bloomberg with Amber Kanwar to discuss the health of consumer spending and where our funds are finding opportunities.

Highlights:

  • Consumer health and earnings: “What people are trying to get their heads around is, ‘Is the consumer healthy? Sam said. “Canadians are actually suffering a little bit more because our rates on mortgages have reset faster and we’re paying more interest. You’re starting to see that really weigh stocks, particularly we saw that with Canadian Tire (TSX: CTC.a) which had negative 4.6% same-store sales growth.” While a lot of companies are showing soft top-line growth, they are still showing improved earnings because they’ve been able to control costs and improve their supply chains. “What I would remind everyone of is that we’ve had very high rates of growth of consumption coming out of the pandemic and now we’re normalizing back,” Sam said, noting the personal consumer expenditure is still currently above the 10-year rate before the pandemic. “We’re getting back to normal, but because we’ve had a rapid run-up, it feels like a big slowdown.”
  • Where to invest: One of the big demographic trends that people miss is that the millennial generation is bigger than the baby boom generation. Millennials are also spending more as they form households, while the baby boomers are spending less as they retire. “What we like to look for is things where both the baby boomers and the millennials are spending because that overlap presents a nice tailwind.” One example where there is overlap is travel. “We have a position in Air Canada (TSX: AC) and we think it is very oversold,” he said, noting that it is trading at about the same point as the depths of the pandemic, yet has turned around its balance sheet and is generating upwards of $3-billion of operating earnings. “It’s in a lot better position than it was and it is still trading at $15. If you compare it to U.S. operators, it is trading at a much discounted multiple, and the U.S. operators have much more competition.”

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