With the economy overheating and the TSX in the red for 2022, a portfolio check may be in order.
According to Statistics Canada, the economy added 39,800 jobs in May, comfortably above the 27,500 it had anticipated. This caused the unemployment rate to fall to 5.1 per cent, which marks the lowest reading since 1976.
May’s gain is over 2x April’s 15,300 increase, though the overall trend is slowing as we approach half a million jobs above pre-pandemic levels.
As Canada nears maximum employment, firms are struggling to find workers without offering outsized wages, which are up 3.9 per cent YoY in May and 3.3. per cent from April – the highest move since the 1990s – serving as further motivation for the Bank of Canada (BoC) to continue its aggressive tightening policy.
Consensus is that the central bank’s policy rate will reach 3 per cent by October from its current level of 1.5 per cent in an effort to tame COVID-induced demand.
Under these difficult growth conditions, the TSX has begun to track losses in U.S., Developed International and Emerging Markets equities – all of which are down double digits for the year – as its financials, oil and materials exposure falls short of shielding it from excessive prices across the rest of the economy and the inevitable slow-down from rising rates.
While the index is far from the 20-per-cent drop required to qualify as a recession, certain companies will be more exposed to current dynamics than others, meriting a quick refresher to fortify your portfolio against greater pain to come.
Excessive dilution: If you hold interests in firms prone to private placements that dilute shareholders to raise capital, it may be time to re-evaluate their balance sheets to ensure they can carry on as going concerns over the next 1-3 years while still offering you sufficient upside. Generally speaking, equity issuance occurs when a firm isn’t in a position to be granted a loan, meaning more dilution is likely on the way as the BoC puts the breaks on productivity.
Excessive leverage: If some of your holdings already rely on heavy debt balances to stay afloat, it’s a valid question to ask if they can withstand a doubling of borrowing costs come October. Pay special attention to the quick and current ratios for an up-to-date picture of these firms’ near-term health, as well as their five-year trends in inventories and debt issuance for an indication of management quality into the future.
Narrative vs. tangible results: While every investment has a story to tell and participate in, plots turn sour in the absence of returns above their cost of capital. In other words, if companies in your portfolio are not making money, you should have a clear sense of their paths to profitability and scrutinize them if they lose their way. Red flags to watch out for include pretentious language without supporting figures, continuous delays in long-standing projects, and abrupt changes in leadership and/or business plan without sufficient justification.
With these headwinds to durable businesses now top of mind, let’s turn our attention to the top 5 stories motivating our investor community over the past week.
Hank Payments (TSXV:HANK) signs five-year enterprise licensing agreement
Hank Payments has signed a five-year licensing agreement with a U.S.-based consumer payments management company.
The client will utilize Hank’s platform and software to manage its enrolment and consumer servicing components. Its existing portfolio consists of over 20,000 active users.
Hank will receive a monthly recurring fee for all active users on its platform.
CEO Michael Hilmer sat down with Coreena Robertson to discuss the agreement.
Hank Payments (HANK) closed down by 7.69 per cent over the past week trading at $0.12 per share.
Euro Asia Pay Holdings (CSE:EAP) announces name change to Hero Innovation Group
The company’s trading symbol on the CSE changed from EAP to HRO.
The shares began trading under the new name and symbol at today’s market open.
The name change reflects the company’s goal of delivering innovative solutions for the next generation of consumers of financial services.
CEO Peter MacKay spoke with Coreena Robertson about the news.
Hero Innovation Group (HRO) closed up by 66.67 per cent over the past week trading at $0.15 per share.
Neptune Wellness (TSX:NEPT) announces a new strategic direction
Neptune Wellness has announced the launch of a new strategic plan focused on consumer packaged goods.
The plan’s goal is to reduce costs, improve profitability and enhance current shareholder value.
President and CEO Michael Cammarata joined Coreena Robertson to discuss the news.
Neptune Wellness (NEPT) closed down by 27.03 per cent over the past week trading at $0.14 per share.
ScreenPro Security (CSE:SCRN) provides update on Concierge Medical’s business operations
ScreenPro’s Concierge Medical Consultants is growing its client base to provide personalized health care for Canadians.
Dr. Jibran Sharif, President of Concierge and Chief Medical Officer at ScreenPro, sat down with Coreena Robertson to discuss the expansion.
ScreenPro Security (SCRN) closed down by 12.5 per cent over the past week trading at $0.035 per share.
Affinor Growers (CSE:AFI) announces share consolidation and welcomes new CFO
Affinor’s consolidation will be on a 10-1 basis.
Founder and CEO Nick Brusatore will serve as Interim CFO effective immediately. He replaces Sarj Dhaliwal.
Brusatore spoke with Coreena Robertson about the developments.
Affinor Growers (AFI) closed down by 20 per cent over the past week trading at $0.020 per share.
Tune in next Friday afternoon for a look at the week’s top trending stories on The Market Herald Canada.