Markets This Week (Nov 12, 2023): Movers, Trends, Outlook

Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.

Disney (and most U.S. companies) surprise to the upside

With roughly 88% of S&P 500 companies having reported, nearly nine in ten have beaten earnings estimates. At the same time, consumer sentiment remains weak, underscoring the odd disconnect where households feel worse off while many corporations continue to deliver stronger profits. That mixed backdrop makes interpreting market moves challenging for investors.

Disney’s stronger-than-expected quarter was driven largely by growth in ESPN+ subscriptions and continued gains at its theme parks. Management under CEO Bob Iger also raised its cost-cutting target to $7.5 billion, up from $5.5 billion earlier in the year — a move investors rewarded with a roughly 4% bounce in after-hours trading.

“As we look forward, there are four key building opportunities that will be central to our success: achieving significant and sustained profitability in our streaming business, building ESPN into the preeminent digital sports platform, improving the output and economics of our film studios, and turbocharging growth in our parks and experiences business.”

— Disney CEO Bob Iger

Uber’s results were more muted: a slight EPS miss but meaningful top-line growth in core areas. CEO Dara Khosrowshahi highlighted a 31% year-over-year increase in people-moving gross bookings and an 18% rise in Uber Eats bookings, which helped the stock gain about 3% despite the earnings shortfall.

Canadian fossil fuels profitable—for now

Despite a United Nations report urging that Canadian fossil fuels be kept in the ground, several energy companies reported solid quarterly profits. The sector remains profitable in the near term, even as climate and policy debates continue.

Keyera’s EPS missed expectations after accounting adjustments, but management emphasized operational progress — including the near-complete Pipestone expansion — and the company’s conservative leverage. Net debt to adjusted EBITDA sat at about 2.5 times, on the lower end of its stated target range.

TC Energy’s results were well received, helped by the early mechanical completion of the Coastal GasLink project. The company also announced plans to strengthen its balance sheet, including $5.3 billion in asset sales earmarked to reduce debt, supporting a modest share-price gain.

Suncor topped EPS forecasts despite lower production volumes, with shares rising roughly 3.7% after the report. Management attributed weaker adjusted earnings to lower crude prices, higher royalties and the impact of divesting some international assets. Total upstream production fell from 724,100 to 690,500 barrels of oil equivalent per day year over year.

For further reading on Suncor, see the external write-up on investing in the company referenced in the original coverage.

Canadian financials largely tread water

The big Canadian financial institutions that reported this week produced steady results but little market-moving surprise. Overall, the sector’s earnings were in line with expectations, with pockets of growth and some investor caution.

Manulife’s outperformance was driven primarily by growth in Asia, where core earnings climbed about 33%, versus 4% in Canada and a 2% decline in the U.S. Despite the beat, the stock was essentially flat on the day.

Great‑West Lifeco reported largely as expected and saw modest gains, while Brookfield’s unique reporting style and complex corporate structure made its quarter harder for investors to parse — the stock fell a few percent despite the company highlighting roughly $120 billion of deployable capital ready for new investments.

A God-given gift: Berkshire’s treasure hoard keeps growing

Berkshire Hathaway (BRK.A, BRK.B/NYSE) reported quarterly results showing the mixed nature of the conglomerate’s business: impressive insurance operating profits but a headline net loss for the quarter due to swings in its investment portfolio. The insurance operations, Buffett’s original cash engine, remain a core source of strength.

Operating profits rose about 40% year over year, and cash and short-term investments swelled to approximately $157 billion. Berkshire has been allocating some of that cash into high-quality fixed income, including U.S. Treasuries yielding around 5%.

The investment portfolio experienced a sizable unrealized loss — more than $24 billion — primarily due to weakness in certain equity holdings, including Apple, and reduced earnings at BNSF Railway. Still, some of Berkshire’s major holdings have recently shown strength: Occidental Petroleum reported strong results, helping Berkshire’s portfolio rebound somewhat. Berkshire now owns a significant stake in Occidental, and the company beat consensus estimates with EPS of about $1.18 versus $0.86 expected and revenues around $7.40 billion versus $6.96 billion expected.

Longtime Berkshire partner Charlie Munger praised past investments like those in Japan as extraordinary opportunities, calling them “a gift from God” and comparing them to having “God just opening a chest and just pouring money into it.”

Despite market fluctuations, Berkshire Class A shares are up over 12% year to date. Canadian investors can gain exposure through a Canadian Depositary Receipt on the NEO exchange (BRK, CAD‑hedged), which mirrors the U.S. listing in a Canadian-dollar format.