By Angela Harmantas
What exactly is a technical recession, and what does this mean for the Canadian economy? Today on SmallCapPower we analyze the official confirmation of two consecutive quarters of GDP contraction, and why this may not signal a negative outlook for the country. Also, our analyst tells us why we shouldn’t panic about China’s economic volatility, and we discuss the importance of a significant (if non-titillating) indicator of a stock’s health – here’s what you need to know today:
As expected, Statistics Canada gave us the official word on Tuesday that Canada is experiencing a “technical recession.” But using the dreaded “R” word in this case could be a bit misleading: yes, Canada’s economy contracted another 0.5 percent in the second quarter following a 0.8 percent contraction in Q1 2015; however, June saw the best monthly GDP growth in over a year. Philip Cross, the former chief economic analyst at Statistics Canada, puts forth a few compelling reasons why two consecutive quarters of contraction doesn’t entirely indicate that the country is in a recession in this Financial Post article – let me know what you think of his arguments.
When I hear a constant flow of bad news about China’s weakened economy, am I the only one who thinks of the famous Mark Twain quotation, “The reports of my death are greatly exaggerated”? In a new video, Gravitas Financial analyst Stefan Muchal gives us a number of factors to consider before we start to panic about China’s demise. I’ll give you the summarized version: China’s real estate market, which comprises nearly a quarter of the country’s GDP, remains relatively robust, and interest rates are still high so there is plenty of room to lower rates if necessary. But the elephant in the room, according to an article yesterday in the Wall Street Journal, is that the sharp rise and fall of China’s stock market may have a negative effect on investor sentiment going forward – and we all know that sentiment often trumps reason.
Yesterday we looked at a few companies on the Toronto Stock (and Venture) Exchange with growing cash flows. Today’s investing idea also looks at cash flow positive companies, but takes into account the enterprise-value-to-revenue ratio(EV/R), which can tell a very different story about a stock’s overall performance. As stated in the article, publicly traded companies selling below 1.0x revenues can signify either low profitability margins or a sign of poor future growth. Have a look at our selection of 5 companies to see if you can spot the weaknesses in each stock.
Do you have a burning question you’d like answered by an investment expert or analyst? Let me know and I can post the answer here in the blog. Contact me by email at angela@smallcappower.com or on Twitter: @aharmantas.
