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The wise investor | Investing in the stock market in an inflationary period



Every Sunday, we shine the spotlight on financial and stock market news items that may be useful to the investor, but which may have passed under the radar.

Investing in the stock market is the best way to protect yourself against long-term inflation, Cote 100 experts said this week during a conference organized for clients of the Saint-Bruno-de-Montarville firm.

The key is to identify companies with the ability to raise prices while maintaining long-term operating margins.

A company may have this ability to raise prices if it has a loyal customer base (Starbucks, netflixetc.), if the price to be paid by customers for abandoning this company is high (NC, Enghouse, Cognizantetc.), if the products sold are essential (Subway, Couche-Tardetc.), if the products and services offered have a low cost and a price increase generally has no effect on demand (General Dollar, MTY, Richelieuetc.), or if the service offered provides the client with a significant return (CGI, Fiservetc.).

Whether the company needs to invest large sums of money to generate growth is another consideration, according to Cote 100, because in times of inflation the cost of investments increases. In this regard, the NCfor example, is an exception because its operating margin is large even though it must constantly invest large sums in its activities.

Investor negativism is likely to persist, which will certainly create new investment opportunities, says Tonus Capital.

“Over time, investors will recover their optimism and see beyond the current pressures to focus on earnings growth and attractive valuations,” reads the quarterly letter from the Montreal-based asset manager.

Tonus recently sold some of its shares in Dollarama and of Couche-Tard. “These are great companies, but their valuation already reflects the quality of their business model. These stocks are now trading at the peak of their historic earnings multiples. We will take this cash to invest in other securities which have been sold strongly and which themselves are trading near the bottom,” comments portfolio manager Philippe Hynes.

He also specifies that the mere fact that a stock is trading at its recent peak is not a reason to sell and cites the auto parts distributor Uni-Select as an example.

Lightspeed lost support this week after the presentation of its quarterly results. Analyst Clarke Jeffries, of Piper Sandler, no longer suggests buying the action of the Montreal company specializing in cloud computing. They are now 11 out of 13 analysts recommending the purchase.

Opinions are divided on Bay Street about Cogeco Communications. If the Desjardins Securities analyst sided with the Quebec telecommunications company on Monday by now offering to buy the stock, his Scotia counterpart did the opposite at the start of the week by withdrawing his purchase suggestion.

Jérôme Dubreuil of Desjardins admits his decision may be hasty given the uncertainty associated with possible wireless investments, but he believes the market will begin to price the stock for its fiscal year performance 2024 when, he says, the company’s investments in its traditional business will begin to contribute to profitability.

At Scotia, Maher Yaghi particularly fears the intensification of competition in cable television in the United States and points out that even if the title is not expensive, the prospects for growth are relatively tenuous.

The title of the Montreal retailer DavidsTea has now closed more than 30 consecutive sessions below US$1 on the NASDAQ, putting the stock at risk of being delisted. To comply with NASDAQ rules, the stock must now rally to US$1 or more for at least 10 consecutive sessions over the next six months.

An administrator of Theratechnologies has just bought a small block of shares in the Montreal biopharmaceutical company. Joseph Arena bought 2,500 shares on October 21. He was elected to the board last year.

The management of the Montreal transport company TFI will host an Investor Day at the New York Stock Exchange on Thursday. The event will start before the markets open and will end at noon.

The Quebec titles of Stingray, BMTC, Market good food, Havision and Bitfarms all reached a new 52-week low on the Toronto Stock Exchange this week. In contrast, Supremex and Food Couche-Tard reached another peak this week.

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