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11 Top Blue Chip Canadian Stocks to Buy in October 2021

When investors think of blue chip Canadian stocks, they often think of some of the best Canadian dividend stocks. However, this isn’t necessarily the case.What…

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This article was originally published by Stock Trades

When investors think of blue chip Canadian stocks, they often think of some of the best Canadian dividend stocks. However, this isn’t necessarily the case.

What are Canadian blue chip stocks?

Our definition of a blue chip stock is simply one that has a large market capitalization and is a top company in its industry.

Typically I look for high quality stocks that are within the top three in terms of performance in the sector, but industries like Canadian banking can have a multitude of stocks I consider blue chip even if they aren’t a front runner.

Blue chip stocks are often the backbone of an investors portfolio, and are held for the long term. Investors, especially those just learning how to buy stocks in Canada, should make high quality blue-chip stocks their primary focus.

They provide long term stability and usually (but not always like I stated above) an excellent dividend.

Why is that?

Well, a “blue-chip”
stock is often well established and has been financially sound for decades. This differs from growth stocks, as an investment in them is often banking on the growth potential of the company, not its previous results and can have extensive swings in price over the long term.

An interesting piece of information before we move on to the best blue chips stocks in Canada though.

Did you know that the term blue chip, when it comes to the stock market, is derived from the game of poker?

Typically, blue chips held the highest value, and as such were the most important to hold in your stack.

With all that said, here is a list of high quality Canadian blue chip stocks you need to be looking at in 2021.

The list is dominated by energy, financial and railroad companies, but this is to be expected as they take up a large majority of the TSX.

What are the 11 best Canadian blue chip stocks?

11. Barrick Gold (TSE:ABX)

After a bear market that lasted the better part of the last decade, gold has finally regained its shine.

During the last bull market, gold companies were irresponsible and scooped up assets at high prices. This led to record-high debt loads, and once the price of gold crashed, they were ill prepared.

This was a factor in a number of defaults, write-downs, and dividend cuts.

Fast forward to today, gold producers are much better prepared. They are leaner and are taking a much more disciplined approach to capital investments. This bodes well for the long-term future of gold stocks regardless of the volatile price of gold.

Barrick (TSX:ABX) is one of the biggest gold stocks in the world, and it has emerged stronger than ever. It is one of the most diversified stocks in the industry and generates considerable cash flow.

Based out of Toronto, Barrick is one of the world’s largest producers, with 2020 production coming in at nearly 4.8 million ounces of gold, and 460 million pounds of copper. The company also has nearly 68 million ounces of gold reserves and is well positioned to grow its production profile over the next decade.

Furthermore, it has been laser-focused on reducing its debt burden recently – down by more than 50% over the past handful of years.

The company is making decisions based on $1,200 gold prices, which should insure strong cash flow generation while providing a large margin of safety. It has also returned to dividend growth, a strong sign of confidence by management that the worst is behind them.

All in sustaining costs hover around the $1,030 an ounce level and it is among the best valued in the industry.

There are plenty of other gold companies on the TSX Index, but when we’re looking at blue chip options here in Canada, none of them compare to Barrick in terms of size and stability.

However, the company has significantly underperformed the TSX Index over the last decade, and as a result it’s number eleven on this list.

10 year returns of ABX vs the TSX:

TSE:ABX Vs TSX Returns

10. Brookfield Asset Management (TSE:BAM.A)

Brookfield

Brookfield Asset Management (TSE:BAM-A) is one of the largest asset management companies in the country. It’s business structure is quite complex, and many beginner investors don’t know where to start.

This is because Brookfield has a multitude of subsidiaries, ones that investors can purchase on their own. In fact, we’ve often called BAM.A the “ETF” of Brookfield companies. 

This is because Brookfield Asset Management contains exposure to the real estate, infrastructure, private equity and even renewable energy sectors.

But, investors can instead purchase a subsidiary of the company like Brookfield Renewable Partners (BEP.UN) to get exposure to its renewable energy assets or Brookfield Infrastructure Partners (BIP.UN) to gain exposure to its utility, transport and energy assets, among others.

So, why buy Brookfield Asset Management instead? It yields less, and is growing slower than a company like Brookfield Renewable Partners? Well, the simple answer to this is you want exposure to all of the company’s assets, and instead of seeking out a higher yield, you instead want overall returns.

$10,000 invested into Brookfield Asset Management a decade ago is now worth $67,000. Although Brookfield Property Partner is no longer traded, this return would have outperformed both BPY and BIP. Brookfield Renewable Partners has outperformed BAM.A, but this is only due to a recent surge in renewable energy popularity.

The company’s assets are primarily located in the United States and Canada, but it does have exposure in both Brazil and Australia as well. With a market cap in excess of $110B, this is one of the largest companies in the country and is certainly worth of  its blue-chip title.

Brookfield is a Canadian staple, and has consistently rewarded shareholders with market beating growth. This is due to outstanding management and operating performance.

Although many investors will not be seeking out BAM for its dividend as it yields less than 1%, it does have a 9 year dividend growth streak, making it a Canadian Dividend Aristocrat and it has grown that dividend at a near double digit pace (9.85%) over the last half decade.

10 year return of BAM.A vs the TSX:

TSE:BAM returns vs TSX 10 year

9. TC Energy (TSX:TRP)

TC Energy

The oil & gas industry was decimated in 2020. However, we’re slowly seeing it recover and Canadian investors are looking for blue-chip stocks to gain exposure.

And in our opinion, you may be wise to avoid producers and stick to pipelines. Why?

Whether it be TC Energy (TSX:TRP), Pembina Pipeline, or Enbridge (TSX:ENB), these are companies that transport various commodities. They are less susceptible to damage due to fluctuations in the price of oil.

One of the best in the industry is TC Energy (formerly TransCanada). The company was the best performing pipeline by quite a wide distance in 2020 up until the end of the year, when the rumored and eventual confirmation of the cancellation of the Keystone XL.

However, the company has plenty of growth projects, and we don’t view the cancellation as an issue at all.

In terms of the pandemic, TC Energy didn’t face any significant impacts. In fact, the company stated:

“despite the challenges brought about by COVID-19, our assets have been largely unimpacted”

It went on to say that its outlook remained unchanged as 95% of EBITDA is underpinned by regulated assets and/or long-term contracts. This was a very strong indicator of the company’s financial health.

The company has critical infrastructure across North America and it expects to spend $37 billion on growth projects through 2023. The majority of which will be spent on natural gas pipelines.

Further highlighting its resilience, the company re-iterated dividend growth guidance of 8-10% annually through 2021. Post 2021, it expects the dividend to grow at a compound annual growth rate of 6% at the mid-range.

If you are looking for a best-in-class energy company, TC Energy certainly fits the bill. It is trading at cheap valuations, the company’s juicy dividend yield is well covered, and it has a robust pipeline of growth projects.

This isn’t a blue-chip Canadian stock that is going to blow you away with outstanding returns. But, it’s going to provide a consistent growing passive income stream.

10 year returns of TRP vs the TSX:

TSE:TRP Vs TSX Returns

8. Canadian Pacific Railroad (TSX:CP)

CP Rail

Railroads are the bellwether for economic activity, and Canadian Pacific Railway (TSX:CP) has made a dramatic move forward.

Pre-2012, the company was having significant operational issues which led to many tough decisions. The turnaround has been nothing short of astounding.

Over the past five years, it has outperformed its larger peer (CN Rail) and it transformed itself from the lowest-margin railroad to the highest of all publicly listed North American railroads.

With its operational issues in the rear-view mirror, the railroad has returned to dividend growth.

In July 2020, the company extended its dividend-growth streak to five years when it raised the dividend by 15%. It was a notable raise as it was declared at a time in which many other companies either cut or suspended dividends as a result of the pandemic.

Over the course of the streak, it has consistently raised the dividend by double-digits.

With July’s raise, CP Rail once again earned Canadian Dividend Aristocrat status in 2021. This is important as it will be added to funds that track the Aristocrat Index and it will regain credibility among dividend growth investors.

Over the next handful of years, the expectation is for earnings growth in the high single digits. This growth actually has a chance to accelerate, but the company is currently in a feud with Canadian National Railway over a purchase of Kansas City Southern.

The recent events have actually led to CP Rail being a frontrunner over CN Rail. But, this is a situation that is still likely going to go on for quite some time.

The deal, Had Canadian National not stepped in to interrupt it, would have been comprised of share issues and debt, and would have created a railway that spans from Canada all the way down to Mexico.

There isn’t much not to like about CP Rail. It forms a duopoly with CN Rail, and rail is the primary means of transporting goods across the country. It is also proving to be a strong defensive stock in light of the current pandemic.

It recently underwent a share split, and is also more attractive to retail investors who couldn’t afford the lofty $400+ price tag it used to trade at.

10 year returns of CP vs the TSX:

TSE:CP Returns Vs TSX

7. Canadian Apartment Properties REIT (TSX:CAR.UN)

canadian apartment properties reit

You might be thinking, how can a REIT make a list of blue Chip Canadian stocks in light of the current pandemic? Let us explain.

Although the sector as a whole is under pressure, there are certain industries that are more stable than others – that includes those that operate multi-unit residential properties.

Although there are better performing names in this area, Canadian Apartment Properties (CAP) REIT (TSX:CAR.UN) provides excellent value here. It has a suite of affordable rent portfolios that is proving to be quite resilient.

CAP REIT is also in strong financial shape. It has a debt-to-gross book value of only 36.4% (a rate below 50% is considered strong), one of the lowest in the industry.

Furthermore, the company’s 2.50% dividend yield is well covered, accounting for only 73% of adjusted funds from operations. Once again, this is in the top tier of TSX-listed REITs.

The company is currently trading at a 17% discount to cash flow value, and a 14% discount to net asset value. In June of 2020, the company was added to the S&P/TSX 60 Composite Index which tracks the largest companies by market cap on the TSX Index. In fact, it is the only REIT among the Index constituents.

Although it does carry greater risk than most on this list, the risk-to-reward proposition is attractive. Now is the perfect time to start accumulating Canada’s largest residential REIT.

10 year returns of CAR.UN vs the TSX:

CAR-UN Vs TSX

6. BCE Inc (TSX:BCE)

BCE dividend

BCE Inc (TSX:BCE) is one of the largest telecom companies in the country and is often grouped together with the “Big 3”, being Telus, Rogers, and Bell.

In terms of Blue Chip stocks, you can’t really go wrong with any of the three, but what sets BCE apart is its ability to generate new subscribers in a mature market, and its sheer size.

The company’s strength is product innovation, and providing the fastest network possible to Canadians. Its success in this department is reflected with a customer base that exceeds 9 million subscribers. 

The company states that 99% of Canadians have the ability to gain access to BCE’s services, which is an industry leader in terms of coverage. This is exactly why it deserves the title of blue-chip stock over its counterparts Rogers and Telus.

Don’t get us wrong though, all 3 are outstanding companies. Why?

The Canadian telecom industry is somewhat of a regulated monopoly. The three big players dominate the industry and the regulations make this unlikely to change anytime soon.

Canadian’s pay some of the highest phone and television bills out of all the developed countries, and strict regulations make it nearly impossible for new players to try and penetrate the market.

The one company that was having some success at breaking through is Shaw Communications (TSX:SJR.B), but they were recently acquired (pending approval) by Rogers.

BCE is one of the best income stocks in the country, with a dividend yield north of 5.5% and an 12-year dividend growth streak. Although it may seem like a short streak, the streak was interrupted by an impending purchase by the Ontario Teacher’s plan that ultimately fell through.

With a market capitalization of more than $54B, the company is one of the largest in the country and is a Blue Chip stock that has provided consistency and reliability for over a decade.

Although it may not provide the best growth out of the Big 3, it has the widest reach across the country and commands the title of blue chip Canadian stock when it comes to telecommunications.

10 year returns of BCE vs the TSX:

TSE:BCE Stock Vs TSX Index

5. Metro (TSX:MRU)

metro dividend

A quick look over the sectors in 2021 and you will find only one that has consistently been among the top performers – consumer staples.

Not surprisingly, as the economy shut down, we still needed our basic necessities and this sector remained strong, particularly among grocery stocks.

One of the country’s best is Metro (TSX:MRU).

A quick look at its long term chart will tell you everything you need to know. Metro is a pillar of consistency. Nothing flashy here, just consistent and reliable growth.

The company’s low yield may be a turn-off for some, but it is one of the best dividend growth stocks in the country.

Metro’s 26-year dividend growth streak is tied for the 7th-longest streak in the country and it is one of the few in the leading 10 to have consistently raised by double-digits over the past three, five, and ten-year periods.

Even in a post-pandemic and post-shutdown environment, we feel that consumer activity and purchasing habits have changed forever.

It’s likely that Metro could see less foot traffic through it’s doors, but a higher amount of volume per purchase as consumers have learned over the pandemic to shop more efficiently.

Another habit? E-commerce. And this is a space that Metro is growing in rapidly. In fact, the company’s online sales saw a 240% increase year over year.

This growth is likely to slow as the pandemic subsides, but there is no question that consumer habits have changed and some will make a permanent shift to e-commerce ordering due to convenience. As a result, we’d still expect significant growth in the company’s online sales moving forward.

And finally, in periods of rising inflation, a company like Metro has the chance to outperform. Consumer defensive stocks like Metro tend to outperform pure-growth plays in rising rate & inflationary environments.

10 year returns of MRU vs the TSX:

TSE:MRU Vs TSX Index

4. Constellation Software (TSX:CSU)

Constellation Software

Although it is starting to make headway, the technology sector is still under-represented on the TSX Index.

Unlike south of the border where tech makes up almost a quarter of the markets, the sector still accounts for only a single digit weighting on the TSX Index.

This is up notably from the 3% it accounted for a couple of years ago, yet there is arguably only one company that could qualify to be a true blue chip Canadian stock.

And that is Constellation Software (TSX:CSU). Constellation is one of the best-managed companies on the TSX Index.

Over the past ten years, its stock price has soared by over 3600% and it has one of the best track records in the industry. It pays a modest dividend, but what it lacks in income, it more than makes up for in capital appreciation.

A $10,000 investment in the company 10-years ago would be worth over $350,000 at the time of writing – and this is without commanding some of the crazy valuations of today’s high-growth tech stocks.

Constellation is simply put, the best consolidator in the industry. It has a knack for acquiring companies and seamlessly bringing them into the fold. It is also important to recognize that tech is becoming a defensive play in this new environment.

The pandemic has accelerated the shift to technology and Constellation has been one of the best performing tech stocks over the last year.

It is however, a company that requires full trust in management. It does not hold quarterly conference calls, and only provides an annual letter to shareholders. You are putting your trust in management, and thus far, it has proven to be a winning proposition.

It also has a high share price, frequently trading in the $1900+ range. This does make it extremely hard for beginner investors with a small portfolio to purchase the stock. If you only have $5,000 or $10,000 to start out with, it presents somewhat of a concentration risk.

Fractional shares, or a potential share split, could make Constellation more attractive to those just starting out.

10 year returns of CSU vs the TSX:

TSE:CSU 10 Year Returns vs TSX

3. Canadian National Railway (TSX:CNR)

CN Rail dividend

Canadian National Railway (TSX:CNR) is the largest railway company in Canada, and as such has become a no-brainer when referencing the top blue-chip stocks here in Canada.

With over 33,000 kilometers of track, CN Rail is engaged in the transportation of forest, grain, coal, sulfur, fertilizer, automotive parts, and more.

CN Rail is a company that is growing the dividend at an impressive pace. It has a dividend growth streak of 25 years and a five-year dividend growth rate of 12.97%, the stock’s consistent rise in price has resulted in a low yield.

Don’t fret. The company may lack in yield, but it makes up for that in capital appreciation.

Over the past decade, it has returned more than 386% to investors. This type of performance out of a large cap, blue chip company is quite impressive.

Simply put, CP Rail and CN Rail are some of the best railways in North America, which is why they’re both on this list. In fact, they’re the only sector that features two companies on this list, that is how strong they are.

Prior to the Kansas City Southern fiasco, CN Rail had been performing exceptionally over the last year. And, now that things seem to be settling in terms of the deal, it’s starting to get back to its outstanding performance despite a short term slump.

The KC Southern situation will likely take a year at minimum to resolve, and the feud between Canada’s railways will likely continue. However, the acquisition attempt by CN Rail has been shut down, and it’s very likely the railroad will not make the acquisition.

The dip in price because of the acquisition new reminded us exactly of the Alimentation Couche Tard failed acquisition attempt of Carrefour. It took Couche-Tard a little over 3 months to recover from the 20% dip in price after the acquisition was released.

Moving on, despite its size, CN Rail has been able to adapt, re-route and focus operations on those customers that ran essential services.

The company’s handling of the pandemic has been rightfully lauded by industry experts. Investors are in good hands with CN Rail, and the short term negative sentiment due to the acquisition attempt will, in our eyes, be quickly forgotten.

Right now, Canada’s railways look expensive. However, they’ve always looked expensive. If you’re looking to add, timing the market on either CN or CP Rail will likely be a wasted effort. Just scoop them up and tuck them into the core holdings of your portfolio.

10 year returns of CNR vs the TSX:

TSE:CNR Vs TSX Returns 10 Year

2. Royal Bank of Canada (TSX:RY)

Royal Bank dividend

The Royal Bank of Canada (TSX:RY) is probably one of the most popular stocks here in Canada.

The company is a global enterprise, with operations in Canada, the United States, and 40 other countries.

The company has been named one of Canada’s most valuable brands for 6 years running, and its reputation is second to none in terms of customer satisfaction. With a market capitalization of nearly $180B, Royal Bank is one of the best Blue Chip stocks to add to your portfolio today.

The company’s dividend is strong, with a yield of over 3% and an ten-year dividend growth streak. The dividend is also growing at an impressive pace, with a five-year growth rate of over 6.5%.

The Canadian banking industry is one of the strongest sectors in the country, if not the world. While banks around the world were slashing dividends and closing their doors during the 2008 financial crisis, all of the Canadian banks held strong. Although their share prices fell considerably, recovery was quick and their dividends were never cut.

Although banks struggled during this pandemic, a similar theme is occurring – reliable dividends and better than expected earnings.

While many countries are asking banks to cut the dividend, or some are being forced to as a result of the pandemic, Canada’s big banks remain among the safest income stocks on the planet.

The Feds have asked the banks not to raise dividends, a small and reasonable ask considering the current environment.

However, now that we are getting to the other side of this pandemic and restrictions are easing, it is very likely we see restrictions on dividend growth removed. And, Royal Bank, along with all of the other Canadian major banks, will likely raise dividends very soon after given the green light.

Royal Bank’s international exposure and sheer size was brought to light during the COVID-19 pandemic, and it ended up being one of the more reliable Canadian stocks of 2020. As such, it’s worthy of its blue-chip title.

You can’t go wrong with any of the Big 5 banks here in Canada. They are all excellent Canadian Blue Chip stocks, and we could just as easily include all 5 on this list.

However, Royal Bank is certainly one of the best.

10 year returns of RY vs the TSX:

TSE:RY Vs TSX Returns

1. Fortis (TSX:FTS)

Fortis dividend

You won’t find a Blue Chip stock list that doesn’t contain Fortis (TSX:FTS) – at least you shouldn’t. If you do, maybe keep looking.

This Canadian company is among the top 15 utilities in North America, and has over 10 utility operations under its belt in Canada, the United States, and the Caribbean.

The utility industry is highly regulated, which often leads to consistent cash flows. As the population keeps growing, energy demands will grow right along with it and utility companies are positioned to profit.

Fortis has the second longest dividend growth streak in the country at 48 years. This has cemented the company as one of the best investments in Canada and definitely worthy of its blue-chip title.

Yielding over 3.5%, the company has grown the dividend at a 5 year rate of 6.79% with a payout ratio of under 60%. The good news?

Fortis recently extended its targeted annual dividend growth rate of 6% to 2025. That means investors can expect a 6% annual raise to the dividend in each of the next five years. That type of transparency and reliability is rare.

Utility companies rely heavily on debt to finance capital investments. As such, these companies are prone to setbacks when interest rates rise. This is something you need to keep an eye on if you’re looking to invest in a Canadian blue chip stock like Fortis.

The Bank of Canada has changed its tune on interest rates, and we could see them rise as early as 2022 to prevent the economy from overheating as a result of reopening’s on the back end of the pandemic.

However, even if the BoC were to raise interest rates, it will likely take many subsequent raises to get back to even pre-pandemic rates.

And in addition to this, rising interest rates seemed to have no negative consequences for the utility giant’s stock price over the last couple of years.

Fortis’ stock is as close to a set and forget investment as you can get.

10 year returns of FTS vs the TSX:

TSE:FTS 10 Year Returns vs TSX









Author: Dan Kent

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Economics

Plunge In Exports Sparks US GDP Downgrades, Economy On Verge Of Contraction

Plunge In Export Shipments Sparks US GDP Downgrades, Economy On Verge Of Contraction

US economic data took a double hit this morning with…

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Plunge In Export Shipments Sparks US GDP Downgrades, Economy On Verge Of Contraction

US economic data took a double hit this morning with a contraction in durable goods orders and perhaps even more notably, the US merchandise-trade deficit widened to a fresh record in September as exports retreated for the first time in seven months.

The goods trade deficit increased by $8.1bn in September (mom sa), much more than expected, to $96.3 billion.

Source: Bloomberg

It appears the container ship crisis is starting to blowback into the economy as the value of imports rose 0.5% to $238.4 billion, spurred by a 3.6% increase in the value of capital-goods shipments, while exports fell 4.7% from a record high in August to $142.2 billion, driven by a 9.9% decline in the value of outward shipments of industrial supplies and a 3.6% drop in capital goods.

Source: Bloomberg

This prompted Goldman Sachs to reduce their Q3 GDP tracking estimate by 0.5pp to 2.75% (qoq ar) ahead of tomorrow’s advance release.

But, at a time when the Wall Street banks are scratching their heads for credible explanations why they are keeping (or raising) their year-end S&P targets at a time when economic growth is in freefall and inflation is soaring (read: stagflation), an unexpected source of honesty has emerged – the Atlanta Fed, which now sees the US on the verge of contraction.

In its latest GDPNow forecast published moments ago, the Atlanta Fed slashed its estimate for real GDP growth in the third quarter of 2021 to just 0.2%, down from 1.2% on October 15, from 6% about two months ago, and down from 14% back in May.

Remarkably, the GDPNow tracker is about to turn negative even as the average “blue chip” Wall Street bank has a Q3 GDP forecast of just below 4%…

The collapse in the Atlanta Fed tracker has correlated almost tick for tick with Citi’s US macro surprise index which has also plunged in recent months…

… which in turn is the inverse of Citi’s inflation surprise index:

According to the Atlanta Fed economists, after releases from the US Census Bureau, the National Association of Realtors, and the US Department of the Treasury’s Bureau of the Fiscal Service, a decrease in the nowcast of third-quarter real government spending growth from 2.1 percent to 0.8 percent was slightly offset by an increase in the nowcast of third-quarter real gross private domestic investment growth from 9.0 percent to 9.3 percent. Also, the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth decreased from -1.56 percentage points to -1.81 percentage points.

In short, everything is slowing and it is the consumer – that 70% driver of GDP growth – that may be about to hit reverse.

Tyler Durden Wed, 10/27/2021 – 11:45

Author: Tyler Durden

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Economics

Oil declines, gold under pressure

Oil slips after API inventory report The oil price rally has been losing momentum recently after making large gains over the last couple of months and…

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Oil slips after API inventory report

The oil price rally has been losing momentum recently after making large gains over the last couple of months and Tuesday’s API inventory data may have been the catalyst for the start of the correction. Needless to say, crude oil has looked like an overcrowded trade over the last couple of weeks and has been running on fumes.

After API reported a surprisingly large build on Tuesday, WTI and Brent both fell and that has continued today, with prices down more than 1%. The EIA report piled further pressure on after reporting an even larger build but quickly recovered. Price may remain volatile for the rest of the session.

Any correction will likely be limited though by the tight energy markets we’re seeing and will continue to see over the coming months. The winter months may further squeeze supplies and as we’ve seen this past week, colder weather warnings will likely see prices spiking which will support prices in the near term.

Gold under pressure as US yield curve steepens

Gold continues to trade below USD 1,800 and the steeping yield curve appears to be dragging on the yellow metal as markets price in more action from central banks to address the “transitory” inflation they’re apparently not concerned about. The price movements continue to be choppy as traders wrestle with inflationary pressures, central bank expectations and a softer dollar.

The yellow metal finds itself caught between support around USD 1,780 – where a rising trendline over the last few weeks intersects a recent support zone – and USD 1,800-1,810. That range is narrowing which suggests a breakout isn’t far away, at which point we’ll have a better idea of the direction of travel.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/






Author: Craig Erlam

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Economics

Peter Schiff Warns Of Irrational Exuberance In The Stock Market Casino

Peter Schiff Warns Of Irrational Exuberance In The Stock Market Casino

Via SchiffGold.com,

The Dow Jones and the S&P 500 hit new all-time…

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Peter Schiff Warns Of Irrational Exuberance In The Stock Market Casino

Via SchiffGold.com,

The Dow Jones and the S&P 500 hit new all-time records on Tuesday (Oct. 26). In his podcast, Peter Schiff focused on a few speculative stocks that have had meteoric rises (and in some cases crashes) over the last few days. He said this is evidence of the speculative fervor in this massive bubble.

What we’re seeing today is just another indication of the casino-like nature of today’s stock market that is completely the byproduct of artificially low interest rates, the inflation that the Federal Reserve and other central banks have created.”

So far, this latest round of speculative excesses has not marked the top of the market. After all, the markets continue to set new records.

I don’t know that this latest iteration of the speculative fever means that the markets have topped out. But it does provide additional evidence of the bubble-like nature of this market. And eventually, it’s going to come crashing down. If not now, sometime soon. And if it doesn’t come crashing down, it’s only because the dollar came crashing down instead.”

If we end up going down the hyperinflation route, we won’t see a stock market crash in nominal terms in dollars.

But everything will crash even faster and further in terms of real money. So, if we have hyperinflation, yes, these bubbles will implode, but you won’t be able to see the implosion if your prism is the US dollar. But it will be far more visible if you’re looking at it through the lense of gold.”

The first stock Peter discussed was Tesla. The stock hit an all-time high interday Tuesday although it closed off that mark. Nevertheless, the market cap is over $1 trillion. Only four other stocks in the world have market caps of over $1 trillion. Apple and Microsoft have market caps of over $2 trillion. Google is at $1.8 trillion, and Amazon has a market cap of $1.7 trillion.

That means Tesla is the fifth most valuable company in the world even though its earnings pale in comparison to those other four companies.

None of this would be possible but for the monetary policy of the Fed.”

So, why did Tesla stock go up so much?

The stock price surged after Hertz announced it would buy 100,000 cars from Tesla. The projected revenue for the contract is $4 billion. That means even if Tesla makes a 25% margin (an unlikely scenario), the profit would be just $1 billion. Meanwhile, the value of Tesla stock increased by over $100 billion on the news.

It makes absolutely no sense. It went up by more than 20 times the added revenue of the deal, 100 times the added profit of the deal. Why is that sale so valuable to Tesla? Does the market just believe that everybody is going to give Tesla these kinds of orders, like all the rental car companies? But even if they got all the rental car companies’ orders, it still isn’t going to be worth the increase in the market cap of the stock. This is just pure speculative frenzy.”

The point to understand is the increase in the market cap of Tesla stock has no relationship to the news that drove the price up. Nobody cares. It’s “buy now and ask questions later.”

Peter discussed some other stocks with crazy valuations, including Donald Trump’s company Digital World Acquisition Corp. and Bakkt Holdings, which saw a big rise on news of a crypto partnership with MasterCard.

In this podcast, Peter also talks about Jack Dorsey’s hyperinflation warning, Stanley Druckenmiller’s failure to understand the Fed is the problem, and how politicians aim their weapons at billionaires but end up hurting the middle class.

Tyler Durden
Wed, 10/27/2021 – 11:25












Author: Tyler Durden

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