Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
There are 17 changes to the ‘Best of BMO’ list of top analyst picks for the fourth quarter of 2023.
The individual names considered the firm’s “best ideas” for the coming 12 months.
The new picks are Canadian Natural Resources, Enerplus, SLB, Cameco, West Fraser Timber, Waste Connections, Jamieson Wellness, JBS SA, NFI Group, Walmart Inc., 4D Molecular Therapeutics, Disc Medicine, Brown & Brown, Sun Life Financial, Hudson Pacific Properties Inc., First Solar Inc. and NiSource Inc.
The holdovers are Parkland Corp., Agnico Eagle Mines, Avery Dennison, Capstone Copper, Constellium, Corteva Agriscience, Dundee Precious Metals, Hudbay Minerals, Oceangold, Wesdome Gold Mines, Air Canada, Canadian Pacific Kansas City, Bath & Body Works Camping World Holdings, Domino’s Pizza, Stride Inc., Eli Lilly, Goeasy, Mastercard, Boardwalk REIT, Equinix, Welltower, Adobe Systems, Constellation Software, Nvidia, Rogers Communications, Workday, and Altagas.
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The Goldman Sachs Briefings report, summarizing the high priority research at the firm, expressed concern over China’s property sector,
“The road to recovery for China’s property sector is expected to span multiple years, as China still faces the lingering aftermath of one of the largest recorded debt booms, explains Goldman Sachs Research’s Kenneth Ho, Asia credit strategist … Ho doesn’t expect the leverage to result in a financial crisis as past housing crises have done in other countries. “Policymakers in China [are] very focused on making sure systemic risks don’t emerge,” Ho says ... The impact of the downturn is far-reaching. ‘When you have this large segment of the economy contracting — and it’s going to take years to get back to normal — your potential growth takes a big hit,’ says Goldman Sachs Research’s Hui Shan, chief China economist, who estimates China’s potential growth at around 4%. The property downturn will also hit commodity markets. “Before the downturn, Chinese copper demand, just in the property sector, was even more than the entire copper demand from the US,” Hui notes”.
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HSBC analysts Phani Kanumuri, Madhvendra Singh and Davey Jose published a compelling argument for investment in data center stocks, particularly Equinix,
“The data center market could grow at 15% per annum through 2030, driven by demand for higher storage and computing needs as AI, cloud adoption, digital transformation and regulations, such as data localization, provide long-term tailwinds. Within the data center market, hyperscalers (typically public cloud companies, i.e. cloud services offered over public internet for anyone who can pay, such as AWS and Microsoft Azure) are likely to grow at 22% pa through 2030 and could gain more than 20ppts of revenue market share from captive or co-location data centers by 2030 (vs 2022e), with revenue market share reaching >60%. Despite aggressive investment by hyperscalers, we estimate that co-location operators will grow revenues at c9% pa due to their extensive presence in key markets and ability to act as partners for multiple cloud companies … initiate on Equinix Inc. (EQIX) at Buy with a USD875 TP: Equinix 1) has a strong balance sheet that provides capital flexibility in the current interest rate environment; 2) is the clear global leader in retail co-location and has built a strong ecosystem of services; 3) returns look attractive while its business model (i.e. retail co-location) is more resilient than others to disruption from public cloud; 4) strong execution is likely to drive >10% DPS growth over the next five years; and 5) valuation is in line with its historical average, but looks attractive due to its high DPS growth potential … "
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In a separate BMO report, senior economist Robert Kavcic detailed the decline in Canadian household balance sheets,
“Canadian real GDP growth has now slowed to 0.5% year-over-year and, with the population exploding by 3% over that period, real per-capita output is down a recession-like 2.5%. That’s overall economic output per person. But another view looks at real household disposable income per capita, and the results aren’t encouraging there either. While incomes got a temporary boost during the pandemic, and much of that is still on the balance sheet, per-capita disposable income after inflation continues to fall. In level terms, it’s now about back in-line with the pre-COVID bonanza. So, temporary boost aside, this measure has slowed to just a 0.3% annualized crawl over the past decade, and the only weaker period was the mean days of the mid-1990s. Aside from a pop in Q1, real household consumption has now crawled at less than 0.7% annualized in four of the past five quarters—and that’s not population adjusted”
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Diversion: “Three Ways to Tell if Research is Bunk” – The Atlantic
Scott Barlow