Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Two Canadian stocks are recommended after BofA Securities’ Global Metals and Mining conference,
“We think that “Decarbonization means increased metal intensity”. Quite often, replacing hydrocarbons means electrification = copper. Renewables, EVs and other “new uses” of copper (data centres, AI) combined with supply side issues are driving tight markets. A copper stock with growth is a rare thing. 3 Buy-rated focus stocks: Antofagasta is a large cap with c. 30% volume growth. Freeport is a ‘go-to’ blue-chip copper exposure. TECK’s sale of its coal assets turns it into a new, cheap, copper ‘pure play’ with growth options. Uranium = Low(er) carbon. Market to stay tight. We hosted a uranium panel which included key global producers Cameco and Kazatomprom (Kazakhstan c. 40 per cent of global mined supply). Uranium is fast regaining credibility as a solution to the twin challenges of decarbonization and energy security. On the supply side, Kazatomprom is struggling to ramp up production due to acid shortages. On the demand side, China’s nuclear build out could see it increase from c. 13% of global demand today to over 30% within 10 years. We rate both Cameco and Kazatomprom as Buy. Other Buy-rated stocks: Boss Energy, Paladin, Yellowcake Plc.”
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BMO senior economist Robert Kavcic details the most common questions he’s getting from institutional money managers about the domestic economy,
“Interest rates—Will they, or won’t they? The market is currently pricing in less than 50-per-cent odds of a Bank of Canada rate cut on June 5th, and a 25 bp move at that meeting has been our call for a long while. The April CPI report on May 21st could be the deciding factor … The loonie—Sinking or swimming? A sturdy U.S. economy has helped support Canada, but much more stubborn inflation trends south of the border mean later and less easing by the Federal Reserve this year. So, will the loonie sink if the BoC moves first to cut rates? This has to be put in the context of what is already expected, and markets currently see roughly 60 bps of easing in Canada this year (first 25 bps priced by July) versus just over 40 bps in the U.S … Stocks—Can the dog still run? Canadian equities have been lagging for much of the past year-and-a-half, but the TSX has recently begun to break out of a long funk … To be sure, it’s really hard for Canadian stocks to outperform when the market is strong, simply due to lack of exposure to higher-beta areas like technology and communication services … Real estate—Will the BoC set it free? That’s the perception, but the reality might be a bit different. Based on weekly polling by Nanos, house price expectations haven’t been stronger since BoC rate hikes set off a correction in early 2022, and the boost to market psychology from the first ounce of rate relief should be noticeable. But, the impact of rate cuts on actual affordability and the calculus of investors won’t initially be enough to really light up the market”
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CIBC analyst Sumayya Syed provided top picks in domestic REIT sector,
“Q1 results highlighted fairly robust operational performance even as higher rates continue to suppress valuation. In retail, we like CRR for its defensive positioning and attractive valuation relative to concentrated-tenant peers. Industrial REITs are trading relatively in line with the broader sector; however, there is an argument for a narrower NAV discount given their FFO growth outlook is well ahead of peers. DIR is our preferred industrial name on comparatively better supply-demand dynamics in the near term. Of our small-cap coverage, PRV offers exposure to solid industrial fundamentals, trades below pure-play industrial peers, and offers an above-average yield”
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Diversion: “Is the internet bad for you?” – Marginal Revolution
Scott Barlow