Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities (formerly BoA Merrill Lynch) analyst Anthony Cassamassino published a list of the firm’s top 10 stock ideas for the first quarter of 2021, which features eight long positions and two potential shorts,
“Our Buys are Citigroup, Foot Locker, Kansas City Southern, ServiceNow, Occidental, T-Mobile US, Tapestry Inc, and Raytheon Tech. Our Underperforms are Hexcel Corp and Iron Mountain … We view ServiceNow as a top-pick on the large cap group. ServiceNow screens well in our 4M’s framework for software investing – Market, competitive Moat, Management strength, and Margin potential. With a combined market share of only 7% in these markets and a formidable competitive moat stemming from 1) large installed base of over 6,200 mid and large enterprise customers (including 80% of F500), 2) distribution channel of ~4,600 sales and marketing personnel … Raytheon’s diversified and platform-agnostic defense portfolio should continue to grow mid-single digits, most likely outpacing the US defense budget and generating stable FCF [ free cash flow] . RTX’s resilient defense cash flow would help offset commercial aerospace headwinds in the mid-term and better position [the aerospace division] for the mid-2020s recovery.”
“@SBarlow_ROB BoA: 8 longs, 2 shorts among top 10 trade ideas for Q1′ – (table) Twitter
Morgan Stanley as a firm is adamant about rising inflation pressure in 2021, an event that would have negative effects of returns for dividend and income investors.
Chief economist Chetan Ahya published Don’t Underestimate Inflation’s Upside Risks Tuesday morning,
“We have increased confidence in our out-of-consensus call … that US core PCE inflation will overshoot 2% in this cycle. We believe the key difference between us and consensus is the assumption around strength of private sector risk appetite… We see US core PCE inflation ending the year at 2%Y and staying above 2% on a sustained basis from 2022 … we have seen limited signs of stress in household and corporate balance sheets. Demand should therefore rebound sharply once restrictions on mobility and spending opportunities are lifted. The stronger growth outcome we expect also means that unemployment rates will decline faster than the consensus expects. Moreover, since job losses are concentrated in the lower income segments, the headline unemployment rate overstates the economic loss.”
“@SBarlow_ROB MS’ inflation call:” – (research excerpt) Twitter
See also: “@SBarlow_ROB MS: “the Fed may no longer be in control of the velocity of money and that is exactly the kind of sea change that can lead to unexpected outcomes in the financial markets.” – (research excerpt) Twitter
Citi U.S. equity strategist Tobias Levkovich sees ample signs of “forceful risk-on mindsets” among investors, suggesting near-term caution,
“Bitcoin’s tripling over the past three months, American Association of Individual Investors net bullishness and SPAC [special purpose acquisition company] issuance all suggest forceful risk-on mindsets. Notably, we could look to other signs, including individual investor account openings and IPO one-day price spikes, which infer reasons for worry, but thus far the Street has ignored them all, preferring to go with the flow. While the specific catalyst for an adjustment is generally hard to identify, we think the chances of a significant pullback is growing and investors need to address extended exposures.”
“@SBarlow_ROB C’s Levkovich sees froth” – (research excerpt, chart) Twitter
Newsletter: “TINA is making life complicated for investors” – Globe Investor
Diversion: “Los Angeles Is the Most Climate-Vulnerable County in the U.S.” – Gizmodo
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