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Hello Trade Off friends,
Jon Erlichman here with another edition of Trade Secrets, our weekly newsletter for The Globe and Mail’s stock picking contest, Trade Off.
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The leaderboard
So far, season two of Trade Off has highlighted how volatility can skew performance in the short run. That choppiness can be sparked by macro events, such as the Iran war.
But it can also be influenced by company-specific news.
Let’s highlight a couple of examples since our competition began.
Starting with the macro, you may have noticed a big move in the shares of Avis Budget Group CAR-Q. The stock surged on bets that recent airport chaos in the United States would lead to more car rentals. Online trading community buzz added to the frenzy.
As for company-specific news, Apellis Pharmaceuticals Inc. APLS-Q was a huge winner after Biogen BIIB-Q announced it would acquire the company. Shoutout to biotech investor Eden Rahim who recommended Apellis on a recent episode of my investing show, Ticker Take.
Meanwhile, some of our top Trade Off players this week – “MagicPicks”, “Eisha” and “SKE&SLK” – had some common stock picks in their portfolios: Western Digital WDC-Q and Micron Technology MU-Q, which are both solid bets on expectations of significant growth for AI infrastructure companies.
Bottom line? In a competition like this, short-term themes definitely affect the leaderboard. Let’s hope that’s giving you a feel for how the markets work. As you’re learning, don’t forget that most successful pros like to ignore the short-term noise and focus instead on making sound picks for the long term.
This Week in Markets
Assuming we are steadily shifting away from geopolitical jitters in the Middle East (that’s a big if), one of the swing factors for Trade Off competitors could be earnings.
We’re starting to get quarterly profit results from big companies, and typically – but not always – businesses that beat analyst expectations and share positive outlooks get rewarded in the stock market.
Companies that fall short of expectations, meanwhile, sometimes play the blame game. That is, they blame things that were out of their control, such as the Iran war.
With that said, it’s worth tracking which industries analysts are betting will see better earnings since the war began.
Bloomberg recently broke it down and found that the biggest revisions have come in a couple of areas. The first – perhaps no surprise – is energy. That initial surge in oil prices meant more profit flowed to the bottom line of energy companies. The only thing investors have to be mindful of is that, given oil stocks have already rallied quite a bit, the earnings themselves may not spark as big a move in the stocks.
The second-largest sector increase in analyst profit revisions since the war began is technology. If that means tech companies are set to report better-than-expected results, it could spark some buy-the-dip action in tech names that have been beaten up this year. Just be mindful that some of the positive revisions are specifically within the semiconductor industry, where a number of companies that feed into the AI boom have already seen massive run-ups in their shares (think stocks like Micron.)
As for industries where earnings expectations have been weakening, Bloomberg’s analysis points to sectors like consumer discretionary. If consumers felt pain in their wallets owing to higher oil prices, it would be logical for them to cut back on their spending in other areas. That could hurt performance for a range of companies, including retailers.
Trade Secret tips
If you’re looking for some investing inspiration, check out this great read on a retired nurse who built up an impressive TFSA by playing the long game as an Apple investor. These are the case studies I love. The markets aren’t about suits getting rich on Bay Street. They are the great equalizer that, when approached responsibly, give the hardest-working members of our society the opportunity to grab their own piece of the Canadian dream – kudos!
If you’re looking for guidance on how to assess which companies (and their stocks) could be affected by AI, read Globe investment reporter Andrew Galbraith’s piece on how analysts are weighing the technology’s impact beyond the so-called “scare trade.”
That’s all for now. Happy trading!
Jon Erlichman is the founder of Ticker Take on YouTube and a contributor to BNN Bloomberg.