Biotech stocks were left for dead — written off after years of brutal bear markets, failed trials, rising rates, and policy shocks. But what if the sector is quietly waking up? On this episode of In the Money with Amber Kanwar, Amber sits down with Eden Rahim, Portfolio Manager at Next Edge Capital, to unpack why one of the market’s most volatile and misunderstood sectors may be entering a new bull cycle.
Here are five things to know today:
Petty: US futures are generally higher as continued weakness in tech continues to push investors toward other areas of the market. This morning we got a read of jobless claims which were slightly higher than expected but below the previous week. The Trump administration was dealt a blow by his own party with House Republicans passing legislation aiming at ending tariffs on Canadian imports. This could signal some fraying within the party ahead of midterm elections in November. If Democrats really wanted to crawl under the President’s skin they could point out the US is falling behind in a key metric that is near and dear: the stock market. Sure the S&P 500 is near record highs, but it is not really budging. In fact, the US markets are lagging nearly every major global market including Canada. Of the 92 indices tracked by Bloomberg, the S&P 500 ranks 69th for performance so far this year. And with the number of government officials trading their books, you’d think they would have noticed by now!
Victor on line one: The former CEO of CIBC Victor Dodig will replace Telus long-time CEO Darren Entwistle effective July 1st. It’s a stunning second act for a bank CEO that we rarely see in Canada. Dodig, who is 59, will be replace Entiwstle, who is 63, at a time when the stock has been languishing around a 13-year low and there are concerns about the dividend sustainability (8.6% yield). The news came amidst quarterly results in which profit and sales both missed expectations. Dodig retired from CIBC in October overseeing a 280% total return of CIBC shares over his 11 years as CEO which outperformed the TSX Bank Index by 50 percentage points. Entwistle briefly stepped down as CEO when Joe Natale was named CEO in 2014. But that only lasted a year and Entwistle stepped back in after Natale left to run Rogers (where he was fired and sued for wrongful dismissal). This time around Entwistle isn’t sticking around and will be stepping down from the board as he hands Dodig the reins. Conference call is at 1pm ET and you can bet attendance will be high! I’m seeing shares of Telus down in US trading.
Panic at the Cisco: Shares of Cisco are down 7% after warning that profit and margins in the upcoming quarter will be lower than expected because of soaring memory chip prices. This overshadowed better than expected sales and profit growth. The maker of networking gear also offered an optimistic sales outlook driven by AI. Sales of AI infrastructure doubled to $2.1 billion from the previous quarter and Cisco said would reach $5 billion this year. “Execution remains crisp with strong AI orders, good FCF, cost controls, margin strength (even in light of higher input costs) and buy-backs,” wrote Simon Leopold at Raymond James, however “Cisco seems fairly valued.”
App-hating: Shares of Applovin are down 7% despite a much better than expected quarter and a strong forecast. The mobile-app marketing company has fallen victim to the SaaS-pocalylpse (software stock sell off on AI fears) and is down 30% so far this year. Despite higher sales, profit and margin forecast investors are dumping the shares. “…The Q4 beat was more subdued than a typical APP print (e.g, Q4 revenue +3% vs. Street, compared to an average revenue beat of ~5% over the trailing eight quarters),” wrote Robert Coolbrith at Evercore. Despite the strong results, price targets are pretty much universally moving down.
Insurance: We’ve got a firehose of life insurance companies who reported last night: Sun Life, Manulife and Great-West Lifeco all reported better than expected earnings but analysts are noting the gap between core earnings and reported earnings was larger than they’d like. Sun Life was a mixed bag with improvement in its US stop loss business which has been a problem. Canada and Asia were strong contributors. However, outflows at MFS were a whopping $18 billion which was much more than expected. I asked the CEO in the summer about the chronic outflows at MFS and he basically said the business prints money for Sun Life to fund other investments. “Earnings quality was weak,” said TD’s Mario Mendonca, “Reported earnings were 34% lower than underlying.” Manulife results are also being called mix as earnings beat expectations aided by buybacks while new business in Asia and wealth management appeared softer. Manulife increased its dividend by 10%. Great-West Life delivered the best of the bunch with strong earnings up 14% and higher return on equity of 19%. Here too investors can quibble about quality. “The gap between base and reported EPS was wider than we anticipated, driven by management actions and a larger negative impact from market items (eg interest rate shifts),” wrote Doug Young of Desjardins.
What to do with the beaten up software stocks? Get your questions in NOW!!! Email questions@inthemoneypod.com
