Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief equity strategist Brian Belski believes dividend growth strategies are set to outperform again,
“We believe this “return to normalcy” places Canadian companies in a strong position to begin redeploying cash balances and cash flow in the form of both investments and cash distribution. Overall, we believe this more cautious fiscal positioning is set to or has already troughed. As such, as companies regain confidence in the earnings recovery and economic momentum, we believe their cash preservation strategies will subside, thereby providing a strong tailwind for dividend based strategies.”
Mr. Belski presented a long list of Canadian companies with dividend growth potential. These include: Barrick Gold Corp., Allied Properties REIT, Boyd Group Services Inc., Canadian Apartment Properties REIT, CCL Industries Inc., CI Financial Corp., goeasy Ltd., Linamar Corp., Metro Inc., Yamana Gold Inc. and Sleep Country Canada Holdings Inc.
“@SBarlow_ROB BMO: Canadian stocks with dividend growth potential” – (table, OP = outperform rated) Twitter
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Price momentum strategies have been hit hard in recent weeks and Citi strategist Hong Li believes he’s found a better way,
“Both Price Momentum and Short Interest have recently suffered the worst performance drawdowns since the GFC over ten years ago. This highlights the inherent risk of periodic pullbacks of these strategies … we have adopted an intersection approach to analyze the interaction between the two factors. Consistent with previous studies, stocks with high Short Interest and Low Price Momentum consistently underperform other cohorts over time. More interestingly and contrary to conventional wisdom, stocks with low Short Interest and low Momentum have outperformed the market since 2007 in the U.S.”
Mr. Li has collected a list of outperform rated stocks at Citi with low momentum and low short interest factors. These include Autozone Inc., Walmart Inc., Pepsico Inc., American Tower Corp., Johnson & Johnson, Abbott Labs, Bristol-Meyers Squibb Co. (disclosure: I own this stock personally), Boston Scientific Co, Baxter International Inc., and Mastercard Inc.
“@SBarlow_ROB C: “stocks with low Short Interest and low Momentum have outperformed the market since 2007 in the U.S.” – (table) Twitter
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The global macro strategy team at Morgan Stanley see the possibility of a taper tantrum in U.S. real yields and this is really important for reasons I’ll discuss at the end,
“The team continues to expect the Committee to move forward with its discussions on tapering in July and provide notice at the September FOMC meeting “far in advance” of a decision to taper once they “reach substantial further progress”. In the team’s forecasts, they are moving away from the peak rate of growth in the economy and as the data settles, the team does not think the Fed will feel rushed and expects it make a formal announcement of tapering in March 2022. Given the Fed’s hawkish turn, stretched real yield valuations, and extreme positioning in the TIPS market, the team sees risks increasing of a taper-tantrum-style move higher in real yields.”
Real U.S. yields, as represented by the yield on the ten year Treasury Inflation Protected Security, have underpinned higher S&P 500 price to earnings ratios in recent years – the forward PE ratio has climbed as real yields fell. A sharp jump in real yields could signal a sharp correction in U.S. equities,
“@SBarlow_ROB MS: “[global macro strategy] team sees risks increasing of a taper-tantrum-style move higher in real yields” – (research excerpt) Twitter
“@sbarlow_ROB This might get interesting” – (chart showing correlation between TIPS and PE ratios, June 10) – Twitter
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Diversion: “The Immune System’s Weirdest Weapon” - The Atlantic
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Scott Barlow