Skip to main content
top links

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

The alpha generation research team at BofA Securities updated their list of top ten U.S. investment ideas for the second quarter of 2022, nine buys and one short,

“Our ‘house view is for 225 basis points of Fed hikes in ‘22, including two 50bp hikes in June and July. Our year-end US10-yr yield forecast is now 2.50%.’ Recession risks are the topic du jour, but we view that as more of a risk for 2023 … The BofA Bull & Bear Indicator, run by our Investment Strategy team, flashed a contrarian ‘buy signal”” on 24-March, triggered by a surge in BofA FMS cash, equity/credit outflows, poor equity breadth … Our 2Q22 list includes 9 Buys and 1 Underperform across 10 industries. Our Buys are Alaska Air Group, Advanced Micro, Camden Properties, D.R. Horton. Lululemon athletica, Signature Bank, Teledyne Tech, Target Corp, and Valero. Our Underperform is AutoZone.”

The report did not include trailing performance data and I admit this makes me suspicious.

“BofA’s top ten U.S. investment ideas for Q2″ – (table) Twitter

***

BMO chief strategist Brian Belski has turned more cautious on markets and continues to recommend domestic dividend growth stocks to combat inflation pressure and volatility,

“To be clear, we remain bullish on both Canadian and US equities; however, we believe price swings and bouts of volatility will become more frequent in the coming months and quarters as the market struggles with rising interest rates, inflationary pressures, supply chain issues, and geo-political tensions. As such, we believe investors should look toward dividend growth strategies as a potential way to navigate these risks while maintaining a more bullish outlook and without tilting to more of a defensive sector positioning. Yes, while rising inflation and interest rates certainly pose risks to more simplistic yield strategies, our work shows dividend growth can outperform in these environments. In fact, companies that consistently grow their dividends above the market often produce the strongest relative returns when inflation is above 4% and can outperform 3, 6, and 12 months after the initial US Federal Reserve rate hike. Furthermore, these strategies are not pure defensive positioning – after all, dividend growth traditionally outperforms when the market is posting double-digit gains and during periods of heightened volatility.”

Mr. Belski provided an extended list of 25 dividend growing stocks for investors to research further. Notable names include, in alphabetical order, Artis REIT, Brookfield Business Partners, Cenovus Energy Inc., Dollarama Inc., Granite REIT, Interrent REIT, Methanex Corp., Stelco Holdings Inc., Tourmaline Oil Corp., Thomson Reuters and West Fraser Timber

***

U.S. earnings momentum is slowing and this will remain an important trend to follow in the coming months.

Citi strategist Hong Li provided an in-depth look at changes in consensus forecasts for the first quarter,

“We expect only 62% of Russell 1000 companies to beat their earnings expectation, well below the 70%+ positive surprises observed since late 2020. Consensus earnings growth expectation has also been revised down to 6%, from 7.2% when the quarter began … Seven sectors are expected to report positive earnings growth (year-over-year), led by Energy and Materials, and followed closely by Utilities and Industrials sectors with similar growth rates. Financials and Consumer Discretionary lead the four sectors expected to record a decline in YoY earnings growth.”

Mr. Li provided a list of under-owned stocks where Citi expects earnings to exceed consensus estimates and these include Kellogg Co., Netflix Inc., Rockwell Automation Inc., Avantor Inc. (disclosure: I own that one, based on earlier Citi research ), and Ross Stores Inc.

Mr. Li also provided a list of widely-held stocks where Citi is concerned profits will disappoint. This list includes Keurig Dr Pepper Inc., Proctor & Gamble Co., McDonalds Corp., Southern Copper Corp. and Realty Income Corp.

“Citi: “Earnings Surprise (SUE) Forecast with Citi Rating by Most/Least Crowded” – (tables) Twitter

***

Diversion: “It’s Easy to Blame Mental Health Issues on Tech. But Is It Fair?” –Wired

Tweet of the Day:

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.