Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA analyst Ebrahim Poonawala entitled a research report on Canadian banks Dicey Proposition. Obviously, this is a short-term tactical view about relative performance, however, rather than a crisis. His focus was on headwinds caused by an expected negative economic backdrop instead of anything the banks themselves are doing,
“Our meetings with bank management teams and industry experts during BofA’s annual Canada Banks Day painted a picture of a worsening macro-economic backdrop. BofA’s Economics team forecasts GDP growth decelerating to 0.8 per cent in 2024 (1.1 per cent 2023) with risks skewed to the downside. In terms of fundamentals, an economy that is flirting with recession is likely to serve as a headwind to EPS growth and ROEs for banks while markets discount tail risk events stemming from higher for longer interest rates… A recurring theme during the day was expectations for increasing stress on unsecured lending and commercial, as borrowers begin to feel the impact from higher rates. Stagflation is the worst case scenario (= downside risks to our forecast), while our base case assumes that banks will muddle through what is likely to be an uncomfortable adjustment for the consumer to structurally higher interest rates … We forecast relatively anemic EPS growth 2.3 per cent year-over-year for FY24 with potential for higher credit costs (PCLs) likely the biggest wildcard … Stock valuations at 9.2 times 2024 estimated P/E vs 11.5 times pre-pandemic 5yr median and 1.3 times P/YE23 estimated Book value vs. 13.6 per cent 2024 estimated ROE forecast reflect EPS headwinds, macro uncertainties. TD Bank is our top pick and only Buy-rated stock in the group”
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The strategy team at Scotiabank made two changes to their quantitatively driven SQoRE Canada Top 30 list of best ideas.
Nuvista Energy Ltd and Precision Drilling Corp. were added at the expense of Kinross Gold Corp. and Athabasca Oil Corp.,
“Our Top ranked Growth names posted the best performance of our 4 style buckets in September. Nevertheless, its absolute performance remained negative. Meanwhile, if Quality’s long/short returns were solid, rising rates limited top Quality’s ability to offer protection in a down market. Value was also somewhat hit by this issue, especially in Canada where Real Estate rank high on Value. Still, Momentum was the worst performing style (both long only and long/short). Previous high-flyers in Tech and Discretionary suffered the most from negative sentiment”
The list now is Imperial Oil, Enerplus, Parex Resources, ARC Resources, Lundin Gold, Torex Gold Resources, Dundee Precious Metals, Lundin Mining, Alamos Gold, Stella-Jones, Finning, Russell Metals, Stantec, Mullen Group, Air Canada, Boyd Group Services, Linamar, BRP, Alimentation Couche-Tard, EQB, CI Financial, Fairfax Financial Holdings, Sun Life Financial, Manulife Financial, IA Financial Corp., Celestica, CGI, and Boardwalk REIT.
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RBC head of global energy research Greg Pardy made two changes to his Global Energy Best Ideas list, adding both Aker Solutions and Canada’s Obsidian Energy,
“In September, the RBC Global Energy Best Ideas List was up 1.0 per cent compared to the iShares S&P Global Energy Sector ETF (IXC) up 2.6 per cent and a hybrid benchmark (75-per-cent IXC, 25-per-cent JXI – iShares Global Utilities ETF) that was up 0.5 per cent on a sequential basis. Since its inception in February 2013, the RBC Global Energy Best Ideas List is up 158.3 per cent compared to the S&P Global Energy Sector ETF up 33.8 per cent”.
In addition to the stocks already mentioned, the list includes Topaz Energy, Callon Petroleum Co., Diamondback Energy, Permian Resources Co., ARC Resources, Tourmaline Oil, Canadian Natural Resources, Santos Ltd., SLB, Altagas Ltd., Pembina Pipeline, Targa Resources, Cheniere Energy, Energy Transfer LP, Superior Plus and PG&E Corp.
“Monday’s analyst upgrades and downgrades” - Globe Investor
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Diversion: Winners of the Nature TTL Photographer of the Year 2023 – The Atlantic
Scott Barlow