Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets analyst Bish Koziol made four changes to the quantitatively driven Top 40 List of stock picks, removing Suncor Energy Inc. and ARC Resources Ltd. in favour of Exchange Income Corp. and ATS Corp.,
“Our Canada Overall Top 40 rose 2.8 % last month but underperformed the S&P /TSX Composite’ s 4. 1 % gain . Year -to -date the Portfolio advanced 7.9 % compared to the benchmark ' s 6.6 % increase. Gains in the Resource segment of the market were primarily attributable to the performance last month . Both buys this month realized improving Momentum scores and overall … ranks”
The two energy stocks sold from the portfolio registered weakening momentum and growth scores.
The stocks remaining in the portfolio are Canadian Natural Resources, imperial Oil, Pason Systems, Ovintiv Inc., Enerplus Corp., Trican Well Service, Cenovus Energy, Stella-Jones, Teck Resources, Labrador Iron Ore Royalty Corp., Toromont Industries, Thomson Reuters Corp., Richelieu Hardware, Ritchie Brothers Auctioneers, TFI International, Finning International, Loblaw Companies, Metro Inc., North West Company, Intact Financial, Fairfax Financial Holdings, EQB Inc., TMX Group Ltd., Bank of Montreal, Great-West Lifeco, TD Bank, Bank of Nova Scotia, Open Text Corp., Enghouse Systems Ltd., Constellation Software, Celestica, CGI Inc., Quebecor Inc., Cogeco Communications, Rogers Communications, TransAlta Corp. and Altagas.
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Scotiabank analysts Nicholas Yulico and Himanshu Gupta remain bullish on seniors housing,
“We remain Overweight on Seniors Housing in both U.S. and Canada. Our top picks within the sector are WELL [Welltower Inc.] and CSH.UN [Chartwell Retirement Residences] … U.S. Seniors Housing (SH) industry data showed stabilized occupancy growth of +20bp q/q and +220bp y/y for Assisted Living (AL) and Independent Living (IL) in primary markets, maintaining strong ~+200bp gains for 9 consecutive quarters. Results compared to the Q1/24 y/y occupancy gains of +310bp we estimated at WELL and +240bp reported at VTR [Ventas Inc.] in April. Y/Y rent growth was 4.4% (5.2% Q4/23); we continue to expect additional SHOP [seniors housing operating portfolio] occupancy upside into 2025 and similarly strong SSNOI [same store net operating income] growth in 2024/2025 of +19.3%/+15.0% for WELL and 12.3%/+12.8% for VTR”
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BMO bank analyst Sohrab Movahedi expects headwinds in the sector to fade during the current quarter, allowing stronger profit growth
“We expect the headwinds of double-digit expense growth against a more muted revenue growth, proactive reserve building against a back-drop of rising interest rates, and eroding ROEs given rising regulatory capital requirements which have weighed on the Canadian bank fundamentals and stocks over the past couple or so years to hit an inflection point in Q2/24. We see prospects of improving earnings trajectory helped by moderating expense growth and improving pre-tax pre-provision earnings growth, easing of further reserve building requirements and the potential for a recovery in ROEs (helped by the elimination of DRIP discounts) supportive of a higher valuation multiple for the Canadian bank index. As such we increase our target forward P/E multiple to 11.0x (middle of the historical 10–12x range) from 10.3x, and commensurately individual bank target prices for the large banks in our coverage. We also upgrade RY to Outperform”
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BofA Securities investment strategist Michael Hartnett’s weekly Flow Show report is succinct and quotable, as usual,
“The Price is Right: remains an ‘ABB’ (Anything But Bonds) bull market…buyers’ strike in government bonds potent factor behind 40-year equity high in Japanese stocks, 20- year high in Europe, new highs in US, outperforming commodities & crypto; Wall St (value of financial assets) back to 6x the size of Main St (GDP) … Tale of the Tape: 2020s era of higher inflation driven by fiscal excess, deglobalization, war (note Red Sea volumes still 60% below Nov’23 levels - Chart 8); that said, biggest Q2 tactical risk to consensus ‘ABB’ bull = decline in US payrolls (when cost of living high) signalling Fed needs (not just wants) to cut rates”
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Diversion: “Wait lists for hip, knee replacements, other priority procedures longer than before pandemic” – CBC
Scott Barlow