BMO chief strategist’s top picks for Canadian GARP stocks

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

Morgan Stanley U.S. equity strategist Michelle Weaver chose eight stock ideas for the quarter,

“We believe this earnings season has the potential to refocus investors’ attention on equity fundamentals. Can the market look through 2023earnings weakness to rosier ‘24 forecasts, or will the trough quarter be pushed out again to Q2? Consensusexpects5% sales growth for the S&P 500 but –9% earnings growth for 1Q as negative operating leverage cuts into margins. Expectations into reporting season have been lowered, a trend that has persisted for the previous three quarters. Expectations are down –6% YTD and –15% from the 2022 peak… eight sectors are expecting negative Y/Y earnings, with Energy, Industrials, and REITs as the exceptions … we highlight 10 names for which Morgan Stanley Research analysts expecta near-term catalyst that should drive a meaningful move in each stock — 8 that we expect to react positively, and 2that we expect to decline”.

The long ideas are AES Corp., Analog Devices, BellRing brands, CyberArk Software, Flowserve, Howmet, Motorola Solutions and NVIDIA. The short ideas are Digital Realty Trust and Hudson Pacific Properties.

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BMO chief strategist Brian Belski is positive on Canadian growth at a reasonable price (GARP) stocks,

“Growth at a Reasonable Price (GARP) remains one of our key style preferences for Canadian equities in 2023. Indeed, the TSX continues to exhibit a record valuation spread against the S&P 500, while still posting growth rates at or above global peers … the TSX in general and most sectors in the TSX show strong relative value compared to their US peers. Furthermore, earnings growth and revision trends are broadly consistent with the S&P 500, suggesting there are likely many opportunities developing in Canada to implement a growth at a reasonable price strategy … We believe [our] tactically diversified portfolio will capture the earnings rebound, while mitigating correction risk as markets navigate the end of the tightening cycle "

The stocks on the GARP list are Rogers Communications, Quebecor, Telus Corp., Canadian Tire, BRP Inc., Magna International , Restaurant Brands International, Saputo Inc., Loblaws Co. Ltd., ARC Resources, Canadian Natural Resources, Cenovus Energy, Enbridge, Parex Resources, Suncor Energy, Tourmaline Oil, TC Energy, Bank of Montreal, Brookfield Corp., CI Financial Corp., Canadian Western Bank, EQB, Manulife Financial, National Bank, Royal Bank, Sun Life Financial, TD Bank, CAE Inc., Canadian national Railway Co., Finning International, Stantec, TFI International, Evertz Technologies, CGI Inc., Open Text Corp., B2Gold, Equinox Gold, First Quantum Minerals [disclosure: I own a position in this one] , New Gold Inc., Nutrien Ltd., Teck Resources, Altagas Ltd., Emera Inc. and CT Reit.

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Scotiabank strategist Jean-Michel Gauthier sees lower profits ahead for the domestic banks,

“While Canadian banks are unlikely to face similar deposit outflows [ to regional banks in the U.S.], their cost of funding is also likely to rise… offered interest rates on chequing accounts (0%) and even 90-day term deposits (2.25%) have been lagging significantly rates offered elsewhere for similar risk/maturity levels. For instance, money market mutual funds offer 3.64% with low lock up periods. Meanwhile, money market ETFs (4.91%) and high interest savings ETF (4.91%) offer market beating interest rates on top of daily liquidity. Not surprisingly, depositors have been responding to these incentives… if money market mutual funds’ AUM are only somewhat past their 2020 peak at around C$41B, AUMs in money market ETFs and high interest savings ETF have grown exponentially from C$5.7B in mid-2021 to C$19.6B in April 2023. Hence, total cash held in money market funds and equivalent have hit their highest levels since late 2009. "

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Diversion: “The Death of the Chevy Bolt Is Bad News for Earth” – Gizmodo

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