In the Money: 5 Things to Know
Futures wilt, IBM sinks, Teck Resources mixed, TFI disappoints, Chipotle cuts
Not even 9am and I’ve already had to break up an attempted homicide in my own basement. Child 1 and Child 3 had a *disagreement* over whose turn it was with a toy. Instead of heeding repeated instructions to “use your words” they resorted to “using blunt objects.” On a related note, I have a doctor’s appointment today. Something about elevated cortisol levels.
Are Canadian stocks finally having their moment? In this episode of In the Money with Amber Kanwar, Garey Aitken, Head of Canadian Equities at Franklin Templeton’s ClearBridge Investments. He manages an $8 billion fund dedicated to Canadian stocks. He breaks down the "sell America, buy Canada" trend, shares 8 Canadian stocks he believes have a clear edge right now, and gives his perspective on the upcoming proxy battle at Parkland (he’s a major shareholder). Tune in! Listen on Apple, Spotify or here.
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Antsy: The futures are mixed this morning after the rip roaring rally yesterday. US Treasury Secretary Scott Bessent threw cold water on the idea that progress was imminent between the US and China (yes, the same guy who told a group of investors tariffs were unsustainable in a close-door meeting and induced a market rally). China says they won’t engage in trade talks until unilateral tariffs are removed and that “any reports on developments in talks are groundless.” Alrighty then. Gold is up again and the dollar is under renewed pressure. Today we will continue to get c-suite perspective on the tariff war as earnings roll on. There are 42 S&P 500 companies reporting today and four TSX companies. Let’s pick away at some of the most notable so far.
Big blues: Shares of IBM are plunging 6% this morning even as profit and sales beat expectations. Keep in mind the stock has held up very well against a weaker market, so the bar was high going in to the quarter. Software revenues were a bit lighter than expected and that is being used as an excuse to sell. There are also lingering concerns that cuts to government spending and tariffs will weigh on demand. The federal government is about 5% of total revenue, but Stifel says vulnerable contracts (like USAID) have an “immaterial impact” on current revenue. AI was a fast growing part of the business with $1 billion added from last quarter. But it is still a smaller piece of the overall pie. Overall, analysts are positive on the results especially as the company maintained its profit forecast and said they aren’t seeing a material change in consumer buying behaviour.
All about that base: Teck Resources reported higher than expected profit in the quarter offset by lower than expected production. “We expect the earnings beat could drive a slight outperformance today,” wrote TD’s Craig Hutchison. A lift in copper prices helped to boost the bottom line despite persistent production delays at their key Quebrada Blanca mine. Teck warned QB production was tracking the low-end of their production forecasts due to extended shutdown times. However, Hutchison says this was expected. I’ll keep my eyes on First Quantum at the open after it reported a narrower loss than expected and higher copper sales and production. The real story of First Quantum remains the prospect of its Panamanian mine re-opening after the government shut it down. “We believe investors view the mine as likely to return to production, with the primary market debate being the fiscal arrangement under which it can restart,” wrote BMO’s Matthew Murphy.
Transport: Tariff uncertainty is showing up in a major way in TFI’s quarterly results. The trucking and logistics company reported much lower than expected profit and revenue fell 12% when you exclude the impact of an acquisition. “Although expectations were low heading into the print, we do not believe investors were pricing in a ~20% EPS miss,” wrote Desjardin’s Benoit Poirier. He says the conference call could turn things around, which begins at 9am this morning. TFI’s shares have been walloped, down more than 40% so far this year, but most analysts still rate the stock a buy. “Although trucking market conditions remain soft and the tariff uncertainty and associated impact on North American economic growth is likely to remain a headwind for the broader freight markets, the significant sell-off in TFII shares the past several months largely reflects the pessimism and has created a more compelling entry point for patient investors, in our view,” wrote National Bank’s Cameron Doerksen. Keep on eye on Cargojet at the open after it reported significantly higher than expected profit although sales were worse. The company is talking up its ability to benefit from redirected trade flows. “We expect a neutral market response given the mixed results and constructive outlook,” wrote ATB’s Chris Murray.
On a diet: Shares of Chipotle are lower this morning after the fast-food chain cut its full-year outlook. Sales declined this quarter for the first time in 5 years. Analysts were expecting modest growth. Chipotle may be a harbinger of things to come as it is the first restaurant chain to report quarterly results. Their customer surveys indicate that people are worried about tariffs and looking for ways to save money. Chipotle will also take a hit on the cost side when it comes to tariffs but says they won’t be passing those increases on to customers. Raymond James says this is a buy the dip opportunity. “We remain confident in Chipotle’s strong brand and value proposition (chicken burrito/bowl still < $10 in most markets), and are optimistic that traffic can rebound in 2H,” wrote Ray Jay’s Brian Vaccaro.
