Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley analyst Jens Spiess lists Canada’s own First Quantum Minerals Ltd. among the world’s most attractive mining stocks,
“While residual concerns around Zambia exposure remain, FQM’s proactive balance sheet measures (bond refinancing, copper price hedging, covenant relaxation) as well as its solid operational momentum of late across Zambia and Panama are hard to ignore. Spot valuation remains undemanding with 2021 spot FCFY [free cash flow yield] at 14%, pointing to a risk-reward that is skewed to the upside”
The other picks are KAZ Minerals PLC, China Molybdenum, Glencore PLC, Freeport-McMoRan Inc, Grupo Mexico S.A.B. de C.V. and Polyus Gold.
“@SBarlow_ROB MS lists Canada’s First Quantum Minerals among the world’s most attractive mining stocks” – (research excerpt) Twitter
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Goldman Sachs U.S. equity strategist David Kostin is concerned about the pandemic-caused deterioration in corporate profitability (as measured by return on equity) and provides stock picks to protect investors from further damage,
“The S&P 500 has returned 4% YTD, driven entirely by valuation expansion. While the FY2 [two-year forward] P/E multiple has expanded from 16x at the start of the year to 20x today, company fundamentals have collapsed. Trailing 4-quarter S&P 500 return on equity (ROE) dropped by 150 bp to 14.9% in 2Q 2020 vs. 1Q 2020 and now ranks in the 45thpercentile vs. the past 40 years. ROE declined by nearly 600 bp in Industrials, Discretionary, and Energy. However, investors remain focused on the profitability outlook for 2021. We expect a sharp rebound in S&P 500 net profit margins in 2021, but tax reform remains a key risk. We rebalance our ROE Growth basket (GSTHGROE) of stocks with the highest expected NTM ROE growth.”
The ROE growth basket is huge, so I tried to pick out a few names that might be more interesting for Canadian investors. These are Facebook Inc., Nike Inc., Coca-Cola Co., American Express, Dow Inc., Zimmer Biomet Holdings, FedEx Corp., Corning Inc., Visa Inc., and Micron Technology Inc.
“@SBarlow_ROB GS’s Kostin concerned about ROE deterioration” – (research excerpt) Twitter
“@SBarlow_ROB GS’s ROE growth basket” – (table) Twitter
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With U.S. President Donald Trump falling in the polls, JP Morgan strategist John Normand finds markets “unevenly prepared” for a Democratic sweep of the White House and Congress,
"A flip in White House Control usually comes with a flip in Congressional control; and a Democratic sweep is the only scenario likely to deliver meaningful fiscal stimulus over the short and long term. Markets appear unevenly prepared for this outcome based on positioning and valuation measures covering the most impacted markets like US curve steepeners, inflation breakevens, Gold, Materials & Healthcare Equities and China Equities, Bonds & FX. ... Democratic sweep is the only election scenario guaranteed to address the short term issue of the fiscal cliff … If Biden is true to his platform that envisions roughly $3trn of tax hikes and $5trn of spending increases over ten years, then current concerns about fiscal drag should quickly morph into discussions about fiscal thrust and its implications for inflation, corporate earnings and asset prices. "
"@SBarlow_ROB JPM: “If Biden is true to his platform that envisions roughly $3trn of tax hikes and $5trn of spending increases over ten years, then current concerns about fiscal drag should quickly morph into discussions about fiscal thrust and ... inflation, corp earnings and asset prices"” – (research excerpt) Twitter
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Newsletter: “Life is weird but markets are actually acting normal” – Globe Investor
Diversion: “Led Zeppelin emerges victor in ‘Stairway to Heaven’ plagiarism case” – Reuters
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Scott Barlow