It was the year that cannabis stocks went up in smoke, Canada Goose was grounded and Warren Buffett got a generous squirt of ketchup in his face. But 2019 will also be remembered as the year that renewable energy stocks had the wind at their back and Shopify investors made a fortune.
So sit back, grab a rum and eggnog – or light up a reefer – and enjoy the Stars and Dogs of 2019.
Restaurant Brands International (STAR)
For fast-food giant Restaurant Brands International, it was the best of times and the worst of times. Popeyes’ fried-chicken sandwich was so popular it caused massive lineups and sparked fistfights that went viral on YouTube. Burger King’s plant-based Impossible Whopper was also a hit with customers, helping the chain achieve its best sales in years. But even as Burger King and Popeyes were serving up tasty results, Restaurant Brands’ other chain, Tim Hortons, continued to struggle. The coffee and doughnut purveyor posted a string of weak same-store sales, including a third-quarter decline of 1.4 per cent that reflected soft demand for lunch wraps and iced cappuccinos. Tims’ new loyalty program didn’t help, either, as customers get a free coffee or baked good on every eighth visit. But Restaurant Brands’ stock still posted solid returns, and if Tims can turn things around, the shares might really start to sizzle. -John Heinzl
BRP (STAR)
BRP’s all-terrain vehicles take a lot of punishment. The same goes for BRP’s investors, who suffered through the stock’s spectacular wipeout in 2018, triggered by trade jitters and a $400-million secondary offering by BRP’s controlling shareholders. But with the company’s sales kicking into high gear this year and North American trade uncertainties now resolved, investors who held on for the ride have been rewarded: Through the first nine months of 2019, the maker of ATVs, Ski-Doos and Sea-Doos posted 18.7-per-cent growth in revenue, driven by surging sales of multiseat “side-by-side” off-road vehicles and the launch of the Can-Am Ryker – a three-wheeled roadster with a lower sticker price than the Can-Am Spyder. The year ended on a slightly sour note, as the stock skidded on news of another insider share sale of more than $300-million. But this time, the stock was able to quickly steer itself back on course. -JH
Target (STAR)
You’re not so tough, Amazon.com. Even as the e-commerce giant was crushing many bricks-and-mortar retailers, some stores were fighting back – none more successfully than Target. The discounter’s shares soared as sales and earnings beat expectations, driven by higher store traffic and surging online orders. Target’s secret? It provides customers with a range of options, including same-day delivery, in-store pickup and a curbside service that lets people shop online then pull up to designated spaces at their local store where a Target employee brings the merchandise to their vehicles. Apart from being convenient, in-store and curbside pickup are more cost-effective than delivering merchandise from a warehouse, giving Target an edge in the war with Amazon. Customers “absolutely love the ease and convenience of drive-up,” Dawn Block, Target’s senior vice-president of digital, said when Target announced it was rolling out the service to all 50 U.S. states. And investors absolutely love the massive gains in Target’s stock price. -JH
Brookfield Renewable Partners (STAR)
For investors concerned about climate change, the options are few. Pipelines? No way. Burger chains? Think of all that methane cows emit. Heavy industry? Nope. But renewable energy is something even Greta Thunberg can rally behind. Shares of renewable power producers soared in 2019, propelled by low interest rates and strong growth in wind, solar and hydro generation. Brookfield Renewable Partners LP – controlled by Brookfield Asset Management Inc. – owns renewable power assets in North America, South America, Europe and Asia. Its growing generation portfolio – about three-quarters of which is hydroelectric power – has translated into steady increases in cash flow, distributions and the partnership’s unit price. And with Brookfield Renewable poised to create a publicly listed Canadian corporation next year that will trade on the TSX and NYSE alongside the limited partnership units, investor interest in the company will likely continue to power up. -JH
Home Capital Group (STAR)
The year featured some amazing comebacks in the world of sports: The Toronto Raptors’ recovery from a 2-0 semi-final deficit to win the NBA title, for example, and the St. Louis Blues’ unlikely run from last place to Stanley Cup champions. But the world of investing also had its share of comebacks – none more dramatic than the resurgence of Home Capital. A few years ago, the alternative lender seemed to be in a death spiral when allegations that executives misled shareholders about fraud perpetrated by some mortgage brokers led to a run on deposits. But since the company received a lifeline from Warren Buffett’s Berkshire Hathaway in 2017, Home Capital’s stock has come roaring back, fuelled by low interest rates and Canada’s resilient housing market. The stock’s comeback continued after Home Capital’s third-quarter adjusted earnings jumped 76 per cent to 72 cents a share – blowing away the average analyst estimate of 56 cents. Home sweet home, indeed. -JH
Cineplex Inc. (STAR)
As a movie plot device, the deus ex machina can be as cheap as they come. Just when everything seems hopeless, our heroes hemmed in and no plausible escape is available, out of nowhere, a conspicuously convenient solution arrives. Look, a bomb shelter, exactly where we need it! Cineplex’s timely saviour arrived in the form of a corporate acquirer. For two-and-a-half years, its stock struggled in vain as its competitive landscape was rendered unrecognizable by the rise to power of streaming services. The approach of winter brought new despair and an eight-year low in share price. But here comes the cavalry, just in the nick of time! In December, Britain’s Cineworld Group PLC struck a $2.2-billion deal for Cineplex that would form North America’s largest movie-theatre chain. For Cineplex’s shareholders, it’s certainly a welcome plot twist, as the stock rose by more than 40 per cent in a single day. But in terms of storytelling, it’s all just a little too Hollywood. -Tim Shufelt
Greek stocks (STAR)
ASE Index
As investors, it’s not that we don’t appreciate that Greece invented representative democracy, trial by jury and the Olympic Games. Thanks, Greece, those things are super! But what are any of them going to do for our portfolio returns? Well, now you can add tidy profits to the list of Greece’s contributions to the world. After a decade of financial and economic crises, the Athens Stock Exchange General Index has returned a whopping 45 per cent this year, making it the single best performing national index in the world. Throughout the year, Socrates Lazaridis, the president of the ASE, has been promoting Greek stocks to media around the world, stressing the progress made by Greek banks in confronting their bad loans, as well as a dramatically improved national fiscal position. And whether he’s wearing a tunic or a business suit, whether he’s touting self-examination or equity investment, it’s hard not to heed the words of a Greek man named Socrates. -TS
Shopify Inc. (STAR)
Canadian investors, it’s time we talked about who hurt you. First, it was Nortel Networks Corp. It dazzled you with its fancy fibre optics, and you wanted to believe a Canadian tech champion could compete with the big guns. And when it all blew up, you thought you learned your lesson. Then came Research In Motion Ltd., later named BlackBerry Ltd., which practically invented the smartphone, and you thought things would be different. Even president Barack Obama was a diehard. And then you got burned a second time and the trauma set in. Now here’s Shopify. You’re not even really sure what the company does, but it apparently made Kylie Jenner a billionaire by selling lip gloss. And the stock just won’t stop going up. Now it’s the 10th-largest company on the Toronto Stock Exchange, and you’re starting to get those old feelings. Still not ready to love again? Maybe stick with a reliable old Canadian utilities stock, like a warm hug that also pays a dividend. -TS
Saudi Aramco (STAR)
In the long lead-up to the biggest IPO in history, Saudi leader Crown Prince Mohammed bin Salman predicted the market would value the national oil company in excess of US$2-trillion. Global bankers demurred, suggesting that was far too generous. But then the Crown Prince insisted, and the world said: “You know, US$2-trillion sounds about right.” In its second day of trading, Saudi Aramco hit that coveted valuation, through no small amount of coercion. Saudi families were pressed to invest, while the country’s banks were encouraged to extend loans to retail investors to support the IPO. Although it’s arguably a hollow victory, the country has realized its US$2-trillion dream, and can boast of the world’s most valuable company. On the eve of the IPO, the Crown Prince called out the skeptics. “I wouldn’t call them by name, but I think they would probably like not to have written those pieces that they have written,” he said. Considering his history, that sentiment ranks about a nine on the menacing scale. -TS
Cogeco Communications Inc. (STAR)
The cloud just isn’t for everybody. Elderly relatives who aren’t that great with tech stuff, for example. I’m sorry, Aunt Rita, I can’t help you upload all your photos to iCloud right now, I’m at work. Cogeco is another example. In 2012, the company purchased a cloud services division for $526-million, building up a collection of 16 data centres in Canada, the United States and the United Kingdom. That proved to be a bad fit, as Cogeco struggled to generate revenue growth in a fast-consolidating segment. So when the company unloaded the division in February for $720-million, shareholders breathed a sigh of relief. The funds would help reduce debt, and allow Cogeco to focus on its strengths – cable and internet. Unlike other players, Cogeco has also taken a pass on the mobile space. Instead, it has stuck with good old wired connections, solidifying its status as the Aunt Rita of the Canadian communications sector.
NFI Group (DOG)
For years, shares of bus manufacturer NFI Group had the pedal to the metal. But since peaking in early 2018, the stock has gone into a nasty skid that has wiped out more than half its value. North America’s largest transit bus and motor-coach manufacturer, NFI – formerly New Flyer Industries – has struggled with falling deliveries, as supply hiccups, missed production days and delayed customer inspections have put the brakes on the company’s formerly impressive growth. New orders have also fallen, in part because municipalities transitioning from gas and diesel buses to electric vehicles are making smaller orders to test the new technology. All of this has contributed to a string of quarterly revenue and earnings misses, including a disappointing third-quarter report that sent the shares to a one-day decline of 12 per cent. As the stock has tumbled, NFI’s dividend yield has climbed to more than 6 per cent – which is attractive, unless you believe the stock’s skid isn’t over yet. - John Heinzl
Horizons Marijuana Life Sciences Index ETF (DOG)
What investors thought would happen: After recreational marijuana was legalized in the fall of 2018, a vast network of retail stores would spring up, allowing customers to indulge in a broad selection of competitively priced cannabis products, which in turn would generate huge profits for the industry and send stock prices ever higher. What actually happened: Marijuana stocks got crushed, as the rollout was marred by shortages, delays in store openings and a still-thriving – and cheaper – black market. With industry growth falling short of expectations, it wasn’t long before heads started to roll. In July, the founder and chief executive of Canopy Growth was ousted after major investor Constellation Brands Inc. grew impatient with Canopy’s continuing losses. Weeks later, CannTrust Holdings Inc.’s CEO and chairman were both shown the door after Health Canada discovered plants in unlicensed rooms at its greenhouse in Pelham, Ont. As the year drew to a close, the industry – as measured by the Horizons Marijuana ETF – had seen about two-thirds of its market value go up in smoke since legalization. -JH
Kraft Heinz (DOG)
It’s a well-known fact that a squirt of ketchup makes everything taste better. But nothing can cover up the putrid flavour of Kraft Heinz’s stock. With consumers increasingly turning away from packaged foods and seeking healthier alternatives, the owner of brands including Heinz ketchup, Philadelphia cream cheese and Maxwell House coffee struggled with slumping sales and an accounting scandal that sent its stock price tumbling. The turmoil claimed the company’s CEO, Bernardo Hees, who stepped down in June, a few months after Kraft Heinz slashed its dividend by 36 per cent, wrote down its Kraft and Oscar Mayer brands by US$15-billion and disclosed an investigation by the Securities and Exchange Commission. Kraft Heinz’s lousy results also left a stain on owners Berkshire Hathaway and 3G Capital, whose relentless cost-cutting was seen as a major miscalculation at a time when the company should have been investing in its brands to make them more competitive in a rapidly changing food industry. -JH
SIR Royalty Income Fund (DOG)
You’ve probably seen them pedalling through the rain and the snow, large backpacks strapped to their shoulders, and wondered: What on Earth are they doing out here? They’re destroying the restaurant industry, that’s what they’re doing. Food-delivery services such as Uber Eats and Skip the Dishes may be great for consumers, but they’ve become a menace for sit-down restaurants who depend on a steady flow of consumers to eat – and, just as important, drink – at their establishments. SIR Royalty Income Fund, best known for its Jack Astor’s sports bars, cited “an increasing number of consumers choosing to order through meal delivery services … which has impacted beverage sales” when it announced that same-store sales at restaurants in its “royalty pool” plunged 9 per cent in the third quarter. The grim results were announced weeks after SIR Royalty cut its monthly distribution by about 17 per cent, a move that sent the stock into a steep decline. Investors could probably use a drink. -JH
Macy’s (DOG)
News flash: Department stores are in trouble. That shouldn’t surprise anyone, but it probably comes as a disappointment to shareholders of Macy’s. In what appeared to be the start of a comeback for the U.S. retailing icon, the company had put together a nearly two-year string of quarterly same-store sales gains, only to report a drop of 3.5-per-cent in that key measure for the third quarter ended Nov. 2. Warm fall weather, lower spending by international tourists and weak traffic at lower-tier malls all contributed to the sales decline. In an age when more consumers are shopping online and in specialty stores, department stores have struggled to remain relevant, and investors in Macy’s have paid a steep price. Over the past five years, the shares have tumbled about 63 per cent. Unless the company can get sales moving in the right direction again, there could be more downside for the stock ahead. -JH
Encana Corp. (DOG)
The details are painfully familiar – a storied Canadian asset is strategically moved to the U.S., sparking national outrage and calls for the government to intervene. Indeed, the trade of Wayne Gretzky to the L.A. Kings in 1988 can still dredge up hard feelings. Many Edmontonians never forgave then-Oilers owner Peter Pocklington, the architect of the deal, who was burned in effigy outside that stadium that day. And then Doug Suttles decided to follow in his footsteps, more than 30 years later. In October, the American CEO of the Calgary-based Encana announced a plan to move the headquarters of one of Canada’s oldest energy companies south of the border. The move confused analysts and shareholders for a couple of reasons. First, Encana’s dismal performance in recent years seems to have little to do with its Canadian domicile. Second, the renaming of the company to Ovintiv seems to suggest the relocated entity will be in the fertility drug business. To borrow a joke that made the rounds on Twitter: “Ovintiv. Ask your doctor if it’s right for you.” -Tim Shufelt
L Brands Inc. (DOG)
Are you a PR professional looking for a serious challenge? Then perhaps a career with us at L Brands is for you. As the purveyor of women’s lingerie under the Victoria’s Secret brand, our company is wildly out of sync with the times. Prioritizing sex appeal over comfort, our products are primarily marketed at men rather than the women who wear them, and are showcased in a national televised runway show featuring a parade of supermodels wearing angel wings. We have come under attack from an activist investor for our failure to evolve with the times and our inability to revive the brand. Financially, our heavy dependence on bricks-and-mortar retail means we’re losing ground to e-commerce, and we were forced to cut our dividend in half. Oh, and our company has a deeply uncomfortable history with accused child sex-trafficker Jeffrey Epstein. Welcome aboard! -TS
Canada Goose Holdings Inc. (DOG)
Canada, the country, is a big part of the identity of Canada Goose, the purveyor of $1,000 parkas. It’s cold here, so we must make good coats. And we like to think the rest of the world loves Canada. It all seems to be wrapped up in a strange national pride over a tendency to frequently apologize. But having “Canada” right there in the name turned into a liability last December, when Canada raised the ire of the Chinese by arresting Huawei CFO Meng Wanzhou. A boycott campaign against Canada Goose arose on Chinese social media, complicating the company’s entry into the Chinese market. The sell-off that began about a year ago has wiped out nearly half of the company’s market capitalization, as trade tensions have clouded the company’s expansion prospects. Such are the risks of pegging your fortunes to the reputation of an entire country. Maybe a swift rebranding is in order: Norway Goose, perhaps. They have geese in Norway, right? -TS
Cameco Corp. (DOG)
After a decade or so of shaky results from mining uranium, Cameco thought it would try not mining uranium. That didn’t work either. Nearly two years ago, the company shut down its McArthur Mine in northern Saskatchewan – the largest uranium mine in the world – in an effort to spur uranium prices. Ever since the meltdown at the Fukushima Daiichi power plant in 2011 crippled the Japanese nuclear industry, the global uranium market has been mired in a perpetual slump. Even with Cameco’s production curtailments, the metal’s price has gone nowhere, and the mine remains offline. Of course, as far as nuclear-related calamities go, holding shares in Cameco over the past several years would certainly rank at the lowest end of the scale. It’s nothing like being trampled by a prehistoric monster awakened by nuclear radiation, but still unpleasant. -TS
Occidental Petroleum Corp. (DOG)
Desperate businessmen in urgent need of cash may find themselves going down a dark path, whether it’s paying a visit to an underworld loan shark, or taking a luxury private jet to Omaha. Either way, that money is going to come with certain, let’s say, “hazards.” In April, Warren Buffett told the board of Occidental Petroleum that he could make their problems go away. With his US$10-billion contribution, the company could make itself too big to be taken over, by acquiring Anadarko Petroleum. Of course, that loan would come with terms, let’s say an 8-per-cent dividend – a little higher than market, but old Warren’s got to put food on the table, too. The thing is, when Occidental went into Mr. Buffett’s debt, it went against another man who shouldn’t be crossed – Carl Icahn. With a nine-figure stake in Occidental, Mr. Icahn wasn’t terribly thrilled when the company’s stock tanked. Unwilling to be bested by Mr. Buffett, Mr. Icahn vowed to retaliate by the most violent possible means – a proxy contest. -TS
John Heinzl
Tim Shufelt