Domestic Winners vs Canadian Global Champions: Time to Switch Gears
Tom Burke - Nov 28, 2013
What better indicator for the state of the domestic retailing sector than the earnings numbers of two of Canada's largest grocery chains. And how depressing is it when the verdict from the the
FOR INVESTORS, THE CANADIAN SANDBOX IS GETTING CROWDED
What better indicator for the state of the domestic retailing sector than the earnings numbers of two of Canada's largest grocery chains. And how depressing is it when the verdict from the the markets is a major thumbs down - Loblaws dropping 7.5% and Metro Richelieu dropping 5.5% after sales figures that were anemic with guidance for more of the same. If the price competition in Ontario is an indicator of things to come, the food retailing arms race has just become a very claustrophobic exercise.
This is just one more glaring example for Canadian investors to get their eyes peeled firmly on the global picture. Whether it's Canadian retail, telco and cable, or financial services companies; some of these industries have exploited protected positions in the marketplace but may now be facing up to a reality that a 33 million consumer market has its limitations. Look what happened when a "phantom" Verizon was pondering a Canadian initiative: the market freaked out with stock prices plummeting and hyperventilating CEOs begging for status quo through every media outlet.
COZY CANADA, RESOURCE HANGOVER
As Canadians we have developed a bit of a superiority complex about our standing in the world in the wake of the financial crisis. Our banks became the envy of the world; our head central banker, Mark Carney, became a type of rockstar in global financial circles; and our real estate markets have been amongst the most resilient in the western world. But what's up with our gaping multi-year underperformance in our equity market against our US and most European counterparts? The TSX three-year compound growth rate is lagging badly behind the S&P 500 with a difference of about 13% compounded. And why is our Canadian currency that went on a 10-year tear now looking like it's convincingly in a soggy down drifting trend? What are we missing in this country of complacency?
For the large cap Canadian investment universe, our prolonged stay on the "disabled list" can be attributed to the following: resource addiction, selling off our Canadian champions, misallocation of capital, financial concentration, and anemic productivity growth. The result is that our equity sandbox is no longer the playground for the global value poachers, as the resource-grab party has left for other opportunistic pastures like US growth in tech, healthcare, and specialty consumer. Even Europe has been a playground of aggressive bottom fishing.
EYES ON THE INTERNATIONAL PRIZE
BOTTOM LINE: It may be time for investors to venture out into the world and either invest in companies in Canada that are making their mark on a global scale, or move on to invest in companies that directly give them that exposure. Being tied to a single economy that is displaying questionable growth with a consumer that is heavily indebted just doesn't cut it.
There is safety in playing the dominant franchises in our Canadian sandbox, but as a long-term equity holder in a large cap company, you would expect an evolution of the enterprise into North American or global excellence. What are some of the highly recommended companies in Canada that fit this profile? Names that we cover include Alimentation Couche Tard, Hudson's Bay, Gildan Activewear, Magna International, Bombardier, Linamar, etc. Granted each one of these names packs their own risks and attributes, but you start to get the idea... and that sets us up for the perfect punchline for our new advertising campaign here at Canaccord Genuity Wealth Management:
"This new campaign articulates the idea that today, the world is our market.
It says our expertise covers every inch of our planet. By asking clients and prospects alike,
“Where will your investments take you?”