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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Scotiabank analyst Mario Saric has released a report outlining his top picks in the REIT sector based on capitalization rates or cap rates. Cap rates are basically the income yield on a property – the expected income divided by the cost of buying the asset,

“Private cap rates were +1 bp q/q … to an avg. 6.20%, almost all of it from Calgary (Exhibits 6-7). YTD private market cap rate expansion of 4 bp is well below the 61bp YTD REIT implied cap increase (to 6.3%) … We think HR, REI, and CRR locations have notable exposure to the Q3 cap rate jump (approximately 5 basis points) … We still think accelerated private market activity (into 2021) at pre-COVID valuations is positive for REIT unit prices given a hefty 16% avg. NAV discount. Top Value Picks = AP, APR, BAM, BPY, CSH, CRT, DIR, ERE, FCR, SRU. Top Growth Picks = BAM, GRT, IIP, NWH, SMU, SVI, TCN”

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“@SBarlow_ROB BNS: cap rates, top REIT picks” – (research excerpt) Twitter

***

Bank of America U.S. quantitative strategist Savita Subramanian published a report called Tech Bubble déjà vu: beats penalized, misses rewarded where she noted some earnings report reaction similarities to the late 1990s,

“Stock reactions to surprise thus far smack of the Tech Bubble, the only earnings season in history when surprises saw perverse rather than intuitive reactions - beats were not rewarded and misses were not penalized. And the market cracked after the 2Q earnings season when this happened. So far this quarter, companies that beat on both top and bottom line have underperformed the S&P 500 by 5bps the day after (worst in history), and misses outperformed by 60bps, highest in history (Chart 12). Our bear market signposts include this factor (alpha from beats) and while they are still below the 80% threshold of indicating a potential bear market (63% triggered), this factor suggests that the good earnings news has largely been priced in, and macro factors (election, stimulus, virus, etc.) supersede a big 3Q earnings beat.”

“@SBarlow_ROB BoA’s Subramanian sees signs of ‘tech bubble deja vu’” – (research excerpt) Twitter

***

A team of analysts from Morgan Stanley led by Adam Jonas have published a mammoth report – 179 pages – outlining the bullish case for electric vehicles. There is a table of 64 stocks that will benefit from the trend that is unfortunately too big to post anywhere. The team, however, highlighted a few names to start looking at first in the excerpt below (my emphasis),

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“We publish this list shortly after the Morgan Stanley Global Autos & Shared Mobility team raised its global EV penetration forecast to 31% (from 26%) by 2030 … What has changed since the beginning of the year for EVs? While global EV penetration remains at 2-3%, there have been many significant “industry moving” implications for EVs. 1) Tesla has grown to a >$450bn market cap (from <$100bn at the start of the year). 2) Auto Original Equipment Manufacturers (OEMs) are accelerating EV targets, launching new BEV models (recently VW has launched its BEV ID.3 and GM has announced its BEV GMC Hummer Pickup), investing in new plants and increasing BEV capex and R&D spend (GM plans to spend $20bn on EVs over the next 5 years). Further, investors are also calling for legacy automakers to spin EV assets as a way of extracting value for shareholders.”

“Certain stocks – Albemarle, Umicore and Samsung SDI – have lofty multiples, where the analysts have affirmed their Underweight ratings. At the same time, we believe the market has underappreciated the ability of certain stocks to re-rate (e.g. Aptiv, GM, VW, Nissan) or generate significant growth in excess of expectations (e.g. Nio, Li Auto). We also highlight other select OW [overweight] such as in the Batteries space (CATL and LG Chem), Chemicals and Materials space (HuayouCobalt, Iljin Materials, Posco Chemical and Zeon), and Semiconductors space (Cree, Infineon, NXP and STM).'”

“@SBarlow_ROB MS is bullish on electric vehicles, raising penetration targets” – (research excerpt) Twitter

***

BMO economist Sal Guatieri pointed to a Federal Reserve indicator suggesting slower U.S. economic growth,

“The Chicago Fed’s National Activity Index—a weighted average of 85 monthly indicators, with a reading of zero consistent with long-run potential growth—fell to 0.27 in September from 1.11 in August. This still indicates positive GDP growth of around 2%. But the trajectory is clearly breaking hard, flagging a material downshift in growth after an estimated 30% a.r. [ annual return] in Q3. From the Great Shutdown to the Great Reopening to the Great Slowdown, all in the span of one year”

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"@SBarlow_ROB BMO notes “The Great [U.S.] Slowdown"” – (research excerpt, chart) Twitter

***

Newsletter: “Morgan Stanley says it’s time for rotation out of stay-at-home stocks” – Globe Investor

Diversion: “Individuals with higher education experienced a greater increase in depressive symptoms and a greater decrease in life satisfaction from before to during COVID-19 in comparison to those with lower education” – Marginal Revolution

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