A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
JP Morgan reported earnings growth well above expectations Tuesday morning, but analysts, like Merrill Lynch’s Savita Subramanian, are still predicting a year-over-year profit decline for the U.S. equity market as a whole.
Helpfully, Goldman Sachs equity strategist David Kostin has produced a list of 50 stocks with the most stable profit history - companies that should be able to weather the storm of an earnings slowdown,
“As economic activity slows, stocks with volatile growth tend to experience earnings weakness and falling valuations, and investors gravitate towards stocks with more stability. We prefer growth over value unless the economic growth outlook changes materially. Focus on 50 stocks with most stable EBITDA growth during past 10 years”
I’ve posted the stock list in two parts. The first has prominent names like Walt Disney Co., McDonald’s Corp. and Alphabet Inc. The second part includes Waste Management Inc., Visa Inc., and Automatic Data Processing Inc.
“@SBarlow_ROB GS: 50 stocks with highest EBITDA growth consistency over past decade (part 1)” – (table) Twitter
“ @SBarlow_ROB GS consistent growers part 2” – (table) Twitter
An interesting Merrill Lynch report argues that what’s bad for oil prices – notably environmental-driven decarbonization – is a positive for global metals demand.
Metals strategist Michael Widmer writes,
“MIFTs (metals important for future technologies) have become a focus in recent years. To that point, raw materials including copper, nickel, lithium and cobalt are all essential to making the global economy greener. Indeed, nickel is the go-to-raw material to gain exposure to electric vehicles (EVs), a reason the metal has risen sharply of late. A lower carbon economy is a higher metal intensity economy… Switching to low-carbon fuels and alternative energies are critical; incidentally, they will have a profound impact on copper consumption.”
“@SBarlow_ROB ML: what’s bad for oil is good for metals” – (research excerpt) Twitter
“ Oil prices fall nearly 2 per cent on China data, trade war jitters” – Report on Business
Also from Merrill Lunch, analyst Jared Woodard wonders whether the traditional 60 per cent bonds/40 per cent equities asset allocation benchmark is outdated,
“The relationship between bond and equity returns is one of the fundamental building blocks of modern financial portfolios. It drives conventional ideas about benchmarks such as a 60% allocation to equities and 40% allocation to fixed income. Today, that relationship is changing, raising the question: is 60/40 dead? … Three threats to bonds. We argue that there are good reasons to reconsider the role of bonds in your portfolio: the diversification they have provided in recent decades is declining, bonds are becoming more volatile, and positioning is very crowded.”
Mr. Woodard suggested lowering bond allocations in favour of higher yielding, stable earning stocks in unloved market sectors
“@SBarlow_ROB ML: the end of 60/40” – (research excerpt) Twitter
Tweet of the Day:
Extreme “uncertainty” hurts capital formation. Not being political but “Phase 1” seems highly unlikely to remedy the historical #uncertainty surrounding #global #trade (see chart). pic.twitter.com/n4KPISDdse— Richard Bernstein (@RBAdvisors) October 14, 2019
Diversion: “A village in Switzerland named Lauterbrunnen looks like it’s straight out of fairytale” – The Unexplained