Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief investment strategist Brian Belski likes domestic consumer discretionary stocks as a contrarian play,
“We believe the Consumer Discretionary sector remains a classic contrarian call, exhibited by its surprising and doubted outperformance year to date. Yes, the Canadian consumer has certainly struggled and will likely continue to face challenges given elevated interest rates compared to the last three years, however, we believe much of these concerns are overstated and largely ‘priced in.’ To put interest rate concerns into perspective, household interest cost as a percentage of income has increased only modestly over the last few years. Furthermore, with interest rates likely peaking, this impact will stabilize over the coming quarters, in our opinion…. earnings growth likely troughed in early 2023, and appears set to rebound through 2024. This is further enhanced by the strong profitability metrics that highlight the significant operating leverage of the sector. Additionally, while cash flow fell sharply in 2022 and into 2023 from record levels, our models show cash generation has recovered back to the longer-term historical average”
Mr. Belksi manages a series if portfolios that include Aritzia Inc., Canadian Tire Corp., Dollarama Inc., BRP Inc., Gildan Activewear Inc., Linamar Inc., Magna International Inc. and Restaurant Brands International Inc..
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Citi analyst Patrick Cunningham warned investors in lithium miners that things will get worse before they get better,
“For [Albermarle Corp.] we are cutting our 2024 and 2025 EBITDA estimates 40 per cent on lower realized lithium prices and slightly lower volume expectations. Our updated estimates prompt a rating downgrade to Neutral. While we think prices are approaching the bottom, we see few near-term catalysts for price appreciation in 1H24. Supply response has been limited to date and we see downside to ALB’s realized pricing from current index prices and renegotiation risk. We expect ALB’s guidance construct will show the extent of realized price declines and potentially flag a weaker volume outlook. Share price reaction will likely hinge on ALB’s conviction on lithium prices and forward growth plans. We also lower our pricing forecasts for LIRC [Lithium Royalty Corp] on lower forecast volumes, resulting in our new target price of $10 (from $13.5)”
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BofA Securities Canada and Mexico economist Carlos Capistran published Canada: Top 5 questions for 2024 - population growth, GDP growth, Bank of Canada, rates, CAD. On growth, Mr. Capistran writes,
“We expect GDP growth to accelerate from 1.1 per cent in 2023 to 1.3 per cent in 2024 and to 2.4 per cent in 2025 (we expected 0.9 per cent for 2024 and 2.0 per cent for 2025 before). So, we expect the economy to accelerate but to still growth below potential this year (potential growth is about 2.0 per cent). We increase our GDP growth forecast following the strong GDP print in the US at the end of 2023 and the still tight labor market in Canada at the turn of the year. We still expect a relatively weak economy in the first half of 2024, but we expect growth to accelerate to above a 2-per-cent rate in the second half of the year, in part supported by looser financial conditions … We expect the Bank of Canada (BoC) to start its cutting cycle in June 2024 and to cut 25bp at every subsequent meeting to put the policy rate at 3.75 per cent by end-2024 (125bp total cuts this year). We then expect the BoC to continue cutting to put the policy rate at 3.00 per cent by April 2025 (terminal rate)”
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Diversion: “Nuclear Fusion Machine Smashes Energy Record, Clean Energy Now ‘Closer Than Ever” – Gizmodo
Scott Barlow