A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
There is a lot of optimism for profits and global growth in 2020 but as the IMF’s list of most important charts of 2019 show, the trajectory of the global economy remains relatively dire. Investment in machinery and equipment, in part due to trade uncertainties, has been particularly terrible,
“With the economic environment becoming more uncertain, firms turned cautious on long-range spending and global purchases of machinery and equipment decelerated. Household demand for durable goods also weakened, although there was a pick up in the second quarter of 2019. This was particularly evident with automobiles, where regulatory changes, new emission standards, and possibly the shift to ride-shares weighed on sales in several countries.”
“The Global Economy Explained in 5 Charts” – IMF
“IMF: Weaker spending on machinery and equipment has been a big contributor to global slowdown” – (chart) Twitter
“ @SBarlow_ROB contributors to global slowdown (IMF)” – (chart) Twitter
See also: “The 14 charts that explain tech in 2019” – Recode
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UBS strategists asked all of the company’s analysts to provide their top investment idea and from that have generated a list of 20 ‘high conviction’ stock ideas for 2020. There are 15 buy ideas -ranked by potential price upside to the analyst target - and five short ideas. The buys are led by Tenet Healthcare Corp., T-Mobile U.S., General Electric (a bit of a surprise), Catalent Inc., (I’ve never heard of it) and Citigroup. The short ideas are Cummins Inc., Walgreens-Boots Alliance Inc., Ciena Corp., Seagate Technologies and United States Steel Corp.
“@SBarlow_ROB UBS: Top 20 high conviction stock ideas (5 shorts)” - (full table) Twitter
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Some larger than expected draws on U.S. oil reserves have spurred some optimism on the commodity price. At the same time, BMO notes that U.S. oil production continues to climb,
“There has been some talk lately of tighter credit in the space, and falling rig counts. Yet, the four-week average production level in the U.S. just rose to an all-time high (of 12.9 million barrels per day). True, the growth rate of production from year-ago levels has “cooled”, to 10% y/y now versus more than 20% earlier in 2019. But output is still up a towering 1.2 million barrels per day from last December.”
“@SBarlow_ROB Inventory draws lately sure, but U.S. production continues to climb (BMO)” – (research excerpt) Twitter
Earlier in the week, the Financial Times also discussed energy markets in “Five things to watch in the oil industry for 2020”. The five things are U.S. shale production, slowing global demand growth, OPEC’s battle to contain global oil production, the U.S. presidential election, and climate change. The section on demand growth includes the following,
“Oil demand has struggled in 2019 as the US-China trade war threatened to derail a decade-old economic expansion. It is still expanding, however, averaging close to 100m barrels a day for the first time, but analysts predict an annual rate of growth of below 1 per cent for the first time since prices crashed in 2014. Demand has not been helped by an economic slowdown in India, which is second only to China in driving consumption growth”
“Five things to watch in the oil industry for 2020” – Financial Times (paywall)
“Oil patch woes: Amid downturn, Alberta rages at Canada’s Trudeau” - Reuters
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Newsletter: “The top 10 investing themes of the past decade” – Globe Investor
Diversion: “'I’d be dead': Renowned scientist gets experimental brain surgery to fight alcoholism” - CBC
Tweet of the Day: “@carlquintanilla CREDIT SUISSE: “While P/Es are one standard deviation above normal, P/FCF is at long-term averages, the result of abundant free cash flow. Given historically low interest rates and risk premiums, we believe valuations have further to run” – (chart) Twitter
Scott Barlow