This week in Canadian markets is ending with concerns about inflation and rising interest rates.
Inflation hit 5.7 per cent in February, the largest gain since August 1991. This includes a 32.3-per-cent YoY rise in the price of gasoline, a 7.4-per-cent rise in the price of groceries, and a 6.6-per-cent rise in shelter costs.
Raw materials like lumber and base metals are also growing increasingly expensive due to COVID and the Russia-Ukraine war, forcing companies to lock in supply agreements to protect their bottom lines into the future.
Understandably, investors are wondering if their portfolios are well equipped to withstand rising prices, as well as the economic slowdown that will likely arise when increased borrowing costs get those prices under control.
To that end, here are a handful of rules of thumb to navigate the current investing climate, as opposed to sitting on the sidelines and interrupting the magic of long-term compounding returns:
First off, it’s important to note that capital intensive businesses – such as mining, oil and gas, real estate and manufacturing, can face higher costs during inflationary times, which can negatively affect stock performance. The exception to this rule is if capital expenditures have already been made, allowing miners, for example, to reap the rewards of rising metals prices with drilling equipment already in place.
Conversely, companies that have low overhead, such as those in the tech space, tend to retain more of their earnings – which will accumulate more interest as rates rise – and invest it back in the business.
Then we have banks, whose business model is directly tied to how much they can charge for loans. As the Bank of Canada (BoC) institutes rate hikes to rein inflation down toward its 2-per-cent target, banks will in turn raise their prices for borrowing money, resulting in increased revenue. Responsible lenders with prudent capital reserves are likely to benefit the most over the medium term.
Speaking of debt, companies that rely on borrowing to operate are currently scrambling to lock in the most favorable terms before conditions worsen. Sectors most at risk here include utilities, energy and telecommunications, as well as high-growth companies, largely depending on expansion plans, required upgrades and previously arranged financing. Even a single percentage point more in interest can divert million of dollars from shareholders, who would be best served to consider a company’s debt-to-equity ratio before making an allocation decision.
Lastly, let’s imagine a scenario, a year or two into the future, where the BoC has done its job and normalized prices through dynamic and considerate monetary policy.
With inflation effectively curbed, wages and raw materials will be more affordable for companies to shoulder, supposing they generate enough cash from operations. That means capital intensive companies with reasonable to no debt will have an easier time surpassing investor expectations.
That said, with interest rates considerably higher than they are now, growth companies – especially small and micro cap ones – face a greater hurdle to gaining traction as consumers increase savings and cut back on spending, unless they provide essentials like housing, food and health care, which remain in demand regardless of economic conditions.
With these principles in mind, let’s take a closer look at five stories in commodities, tech and consumer staples that have earned the most reader interest over the past week.
Argentina Lithium (TSXV:LIT) closes option agreement for Rincon West and Pocitos properties
Argentina Lithium has closed its previously announced exploration and purchase option agreement to acquire the Rincon West and Pocitos properties.
The 2,370-hectare Rincon West and 15,857-hectare Pocitos properties are located in the heart of the prolific lithium district in Salta Province.
Argentina will issue 750,000 shares on signing plus US$500,000 in shares over a 12-month period and cash payments totalling US$4.2M over 36 months.
VP of Exploration Miles Rideout sat down with Shoran Devi to discuss the acquisition.
Argentina Lithium & Energy (LIT) is up by 3.61 per cent over the past week trading at $0.43 per share as of 10:50 am EST.
Givex Information Technology Group (TSX:GIVX) begins trading on the OTCQX (OTCQX:GIVXF)
Givex Information Technology Group has begun trading on the OTCQX Best Market under the symbol GIVXF.
The uplisting provides Givex with increased visibility to U.S. institutional and retail investors.
CEO Don Gray spoke with Shoran Devi about the news.
Givex (GIVX) is down by 3.3 per cent over the past week trading at $0.88 per share as of 11:12 am EST.
Else Nutrition (TSX:BABY) announces upcoming launch of Toddler Omega
Else Nutrition is set to launch its Toddler Omega complete and balanced nutrition drink.
The product will be available on Amazon followed by the company’s e-store and select retail locations.
Co-Founder and CEO Hamutal Yitzhak sat down with Shoran Devi to discuss the release.
Else Nutrition (BABY) is up by 18.58 per cent over the past week trading at $1.34 per share as of 10:41 am EST.
Nextech AR Solutions (CSE:NTAR) (OTCQB:NEXCF) reports record FY 2021 results
Nextech AR Solutions has reported financial and operating results for the full year and fourth quarter of 2021.
Highlights include annual total revenue of C$25.9M (up 47 per cent from 2020) and total gross profit of C$9.8M.
CEO Evan Gappelberg joined Dave Jackson to discuss the results.
Nextech AR Solutions (NTAR) is up by 4.76 per cent over the past week trading at $1.10 per share as of 11:00 am EST.
Talon Metals (TSX:TLO) announces high-grade intercepts from Minnesota
Talon has yielded high-grade nickel-copper intercepts at its Tamarack Nickel Project in Minnesota.
Highlights include 15.09 m grading 5.96 per cent nickel equivalent starting at 202.87 m.
VP Geology Dr. Etienne Dinel joined Dave Jackson to discuss the findings.
Talon (TLO) is up by 2.82 per cent over the past week trading at $0.73 per share as of 11:00 am EST.
We’ll see you next Friday afternoon for your survey of the week’s top trending stories on The Market Herald Canada.
