Jun 11, 2019: The Future of Nova Scotia (TSX:BNS)

Jun 11, 2019: Oil is having its worst economic situation since 2008

There are many fears of an economic downturn for oil. Oil has entered a bear market (a market in which prices are falling, encouraging selling). The supply and demand situation is beginning to look more negative. The EIA (Energy Information Administration) has weekly petroleum status reports. Here is some information from the summary of weekly petroleum data for the week ending May 31, 2019. U.S. crude oil refinery inputs averaged 16.9 million barrels per day. This was 171,000 barrels more than the previous week’s average. Refineries operated at 91.8% of their operable capacity. Gasoline production increased, averaging 10.0 million barrels per day. Distillate fuel production increased, averaging 5.4 million barrels per day. U.S. crude oil imports averaged 7.9 million barrels per day, up by 1,065,000 barrels per day from the previous week. At 483.3 million barrels, U.S. crude oil inventories are about 6% above the five year average for this time of year. Total commercial petroleum inventories increased last week by 22.4 million barrels last week. Total products supplied over the last four-week period averaged 20.0 million barrels per day, down by 0.6% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.4 million barrels per day, down by 1.3% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day over the past four weeks, down by 0.8% from the same period last year. Jet fuel product supplied was up 2.0% compared with the same four-week period last year.

The EIA report was weak, showing a strong build in crude oil (+6.8 million barrels), gasoline (+3.2 million barrels) and distillates (+4.6 million barrels). The combined builds across many different products gave something unexpected to the market. Sometimes, these figures offset each other. For example, if refiners are running very hard, they tend to build up gasoline stocks, but they use up crude oil in the process, so crude inventories decline even as gasoline stocks rise. This time there was no such thing. Increases across the board led to a decline in oil prices.

Oil is extremely bear market. There hasn’t been such a negative four-week run since 2008, the measurers of bull-bear markets say. Oil market is heading in a really bearish direction and the last time things looked this bad was during the financial crisis. Oil prices are now around USD 10 per barrel. This is too low. Demand is starting to weaken. Weakness is mostly confined to distillates (i.e., weaker activity in manufacturing and agriculture), with consumption in May dropping 9 percent, year-on-year. While gasoline demand has held up, it is still off 1.7 percent from a year ago. There are issues with supply conditions due to declines in Venezuela, Iran, potentially Libya and temporary outages from Russia. An economic downturn would undercut demand, leading to a supply/demand mismatch. The pending US tariffs on Mexico, should they go forward, would create a worse situation. Fears of an escalating trade war have shattered confidence. The supply position, while currently tight, could also flip from a bullish outlook to a bearish one.

A recent Libyan oilfield fire adds to oil outages in Iran and Venezuela. The Sarir oilfield in Libya decreased in oil production by 30,000 bpd since June 9 when a fire broke out in a power generator. The oilfield is Libya’s largest with proven reserves of 4.8 billion barrels. Current oil production at the oil field is around 155,000 bpd.

Jun 11, 2019: It Makes Sense to Buy Suncor Energy (TSX:SU) Stock

Suncor Energy has a $60 billion valuation. Suncor Energy (TSX:SU)(NYSE:SU) has become one of the largest energy companies in Canada. The path was long and difficult. In 1967, Suncor was the first to commercially develop Canada’s oil sands. These expensive oil sands remain some of the largest oil reserves in the world. The company has become an oil sands giant with controlling interests in mega-projects like Fort Hills and Syncrude. It is likely than Suncor has even better days ahead. Recently the company raised the dividend and continued a share-buyback program. The richest investors are attracted to this company. After a small decline, Suncor’s dividend is now up to 4.2%. That is above the industry average. It is also one of the most sustainable. Suncor currently has an investment-grade rating because of $1.9 billion in cash and $3.4 billion in available credit lines. Even at oil prices low as US$45/barrel, the company can break even. That breakeven level includes the dividend payment, so there’s a lot of cushion. Growing the payout is one of the most important objectives of the company. As long as oil prices are good, expect this dividend to grow in future years. In 2014, the dividend was $1.02 per share. Suncor has increased the payout each year since, hitting $1.68 per share in 2019. This happened even though oil prices went up and down unpredictably. Growth would have been even higher if the company hadn’t opted to buy back shares through a repurchase program. Repurchasing shares is one of the best methods a company can use to create shareholder wealth. In not exactly the right moves, some companies buy back stock at expensive prices, which ultimately destroys value. Suncor does not do this. If the management plans and expectations can be indeed real, production growth and cost cuts should boost cash flows by 5%. This company has a great rich balance sheet. A low breakeven price point is one of the main advantages of Suncor. Suncor is predicting that over the next five years fund flows will grow by 4-5% per year. Management repurchased $5 billion in stock since 2017, nearly 10% of the entire company. This year, the company expects continuing the repurchases. In February, Berkshire Hathaway’s Warren Buffett revealed a 10.8 million share stake in Suncor, roughly 0.7% the float. Suncor produces oil. It also has refining that can process its output into marketable products. Because it owns its own refineries, Suncor can get a global price for its output without ceding value to a middleman. This helps Suncor take advantage of rising oil prices.

On May 22, 2019 Suncor announced that it would issue $750 million of senior unsecured Series 6 Medium Term Notes due on May 24, 2029. The Notes had a coupon of 3.10% and have been priced at $99.761 per $100 of Notes to yield 3.128%. Suncor intended to use the net proceeds from the sale of the Notes to refinance or repay existing debt of Suncor and its subsidiaries. The Notes were offered through a syndicate of dealers led by CIBC Capital Markets, RBC Capital Markets, and TD Securities Inc. under Suncor’s short form base shelf prospectus dated June 8, 2018 and a related pricing supplement dated May 22, 2019.

Jun 11, 2019: The Future of Nova Scotia (TSX:BNS)

Bank of Nova Scotia is Canada’s 3rd-largest bank by market capitalization. (TSX:BNS)(NYSE:BNS) reported its 2nd-quarter earnings for the 2019 fiscal year. Earnings in Q2 were $1.73 per share, up compared to earnings of $1.70 per share from the same period a year ago. Returns on equity (ROE) were down from 14.9% a year ago to 13.8% for the quarter ended April 30. Bank of Nova Scotia has continued expansion into international markets. Canadian banks have continued to successfully use the strength of their collective reputations to expand. In the second quarter, BNS completed its acquisitions in Peru and the Dominican Republic. It continues to work on its acquisitions of BBVA Chile that closed in the third quarter of last year and its acquisition of Citibank’s (owned by parent company Citigroup Inc) Columbian personal and small business division. Foreign jurisdictions represent a growth opportunity for BNS to get into. They help diversify the bank’s risk exposure to the Canadian market. BNS is investing in a digital future. Beyond expanding internationally, BNS also makes investments in technology back home. During the second quarter, the Scotiabank launched two new online platforms, “Healthcare + Physicians” and “eHome.” Scotiabank is doing well by continuing to invest in international markets and digital supply chains. Investing into new areas of growth is a smart move.

Jun 8, 2019: How Airbnb’s IPO Would Be Better Than Uber and Lyft

Airbnb is a sharing-economy firm. The sharing economy is an economic model often defined as a peer-to-peer (P2P) based activity of acquiring, providing or sharing access to goods and services that are facilitated by a community based on-line platform. Not all sharing-economy firms are created equal. The invention of the Internet has made it easier for asset owners and those seeking to use those assets to find each other. This can be referred to as the share economy, collaborative consumption, collaborative economy, or peer economy. This allows people to profit from underused assets. For example, car sharing services like Lyft and Uber exist. Private vehicles could go unused for 95% of their lifetime. Airbnb has cost advantage over the hotel rooms, because homeowners put their spare bedrooms to use. Airbnb rates are usually 30% - 60% cheaper than hotel rates around the world.

Even after Uber's stock recovery, there are still doubts about the future of sharing economy companies. Investors are thinking about the soon coming Airbnb IPO. The usual Uber car ride is not a luxury ride. You would usually get a room-temperature bottle of water. But, Airbnb has very expensive exotic options: horse farm cottages, sailboats, tree houses, houses on the beach and mansions. You can choose from a wide variety of unique rentals. Users can choose based on the location they desire. The value of a house generally goes up over time. But, a car depreciates over time. Just in the first year, a new car loses about a fifth of its value. Some progress has been made on self-driving cars, but cars still require a human driver. This can be exhausting for the driver. On the other hand, an Airbnb stay has economies of scale for the home-sharing host. The seller observes the host checking in, sometimes with lock boxes and digital devices. The seller does not have to be at the location - another advantage for Airbnb. Uber is not as economically efficient. Uber expenses are usually higher with insurance, maintenance and gas. Drivers usually get about $15/hour profit. A home-sharing host usually gets 85% of a stay’s revenue and Airbnb continues to try to stay competitive. There is also an opportunity for more revenues with meals, laundry and guided tours. Uber and Lyft could become more profitable if they offer a monthly subscription service to drivers and passengers. Airbnb shows a huge network with almost six million listings and 150 million engaged users. Airbnb’s expansion to other countries like Cuba could greatly increase profits. When Airbnb goes public, investors will see how good this investment is.

There are other types of sharing economy companies. B2B are business to business interactions. Co-working Platforms provide shared open work spaces for freelancers, entrepreneurs, and work-from-home employees in major metropolitan areas. Peer-to-Peer Lending Platforms allow for individuals to lend money at rates cheaper than usual credit lending. Fashion Platforms allow for individuals to sell or rent their clothes. Freelancing Platforms offer to match freelance workers across a wide spectrum ranging from traditional freelance work to services traditionally reserved to handymen. Businesses offering rental services are often regulated by federal, state or local authorities. Unlicensed individuals offering rental services may not be following these regulations, giving them an unfair advantage that enables them to charge lower prices.

Shares of Best Buy fell 15.8% in May 2019

Shares of Best Buy (NYSE: BBY) fell 15.8% in May. At first, Best Buy shares fell around 5% on May 13, 2019 when China introduced plans for retaliatory tariffs in response to the Trump administration's decision to increase U.S. tariffs. Best Buy stock dropped another 5% on May 23, 2019, when the company released its first-quarter 2019 results – the results were not necessarily bad. Quarterly revenue climbed a small 0.4% year over year to $9.14 billion, helped by a better-than-expected 1.1% increase in comparable-store sales. That created a 24% increase in adjusted earnings per share to $1.02. Best Buy investors know that the broader market also fell hard last month - including a nearly 7% decline from the S&P 500. This is due to escalating trade wars and a possible macroeconomic slowdown. At least, the shares are still up more than 16% so far (at June 8) in 2019. Best Buy's drop last month could feel much less serious.

Jun 7, 2019: Raptors take 3-1 series lead in NBA Finals with win over Warriors

June 7, 2019: NBA: Toronto 105, Golden State 92. The venue was Oracle Arena at Oakland, California. Kawhi Leonard scored 36 points as the Toronto Raptors defeated the Golden State Warriors in Game 4 of the NBA Finals. The Raptors now hold a 3-1 lead in the best-of-seven series. The Toronto Raptors are 1 win away from their first NBA championship in the team's 24-year history. Leonard also created a team-high 12 rebounds. Serge Ibaka added 20 points. Pascal Siakam added 19 points. Kyle Lowry had 10 points and 7 assists.