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

BofA Securities Research Investment Committee’s monthly report is more definitive about asset allocation than usual,

“Our preferred allocation remains cash > credit > equity > gov’t bonds. Rate hikes cause crackups (SVB, Silvergate, private REITs, UK gilts…) and after >$30tn in stimulus, more risks remain. Bear market rallies, especially in growth stocks, VC/PE [ venture capital/private equity] & Treasuries should be sold. After the recession, [economist] Ethan Harris expects structurally higher rates & bond yields. Buy staples, sell tech for the bear finale. US households bought $4.4tn of equities the past two years and never sold, an anomaly versus other bear markets; but also sensible while earnings were rising. Falling profits (-9% in ‘23), higher discount rates, and tempting cash yields should spark outflows. Note when lending standards tighten this much, a recession has always followed. Buy staples (IYK) & sell tech (QTEC) for the reset”

“BofA’s RIC report a bit more definitive than usual” – (research excerpt) Twitter


Scotiabank mining analyst Orest Wowkodaw is bullish on copper prices and picked a related stock for all kinds of investors,

“After further downgrading both our 2023 consumption and supply expectations, we continue to forecast a copper (Cu) market largely in balance near-term with very low visible inventories, before the emergence of large structural deficits in the medium-term driven by a lack of meaningful supply growth. Despite the obvious near-term demand risks, we believe that Cu prices near ~$4.00/lb remain well-supported due to struggling supply, critically low inventories, and a large looming projected structural deficit ahead…Overall, we have made material target price revisions (average increase of +8%) with one rating change (FCX upgraded to Sector Outperform)… Value. At spot prices (~$4.00/lb Cu), GMEXICO, HBM, LUN, and TECK trade at attractive 2023E EV/EBITDA multiples of <5.0x … Growth. Relative to achieved 2022 levels, we forecast TECK, IVN, and CS to grow their Cu production by +24%, +23%, +19% this year. On a three-year view, we anticipate ERO, IVN, TECK, and CS to grow Cu output by +110%, +95%, +74%, and +70% by 2025… Leverage. CS, IVN, FM, FCX, LUN, ERO, and ANTO have the greatest 2023E EBITDA leverage to higher Cu prices … Capital return potential. At spot prices, we forecast HBM, GMEXICO, ANTO, and SCCO to generate the highest 2023E FCF yields at 13%, 11%, 6%, and 6%. In 2024E, HBM, TECK, GMEXICO, CS, and SCCO top the group at 26%, 20%, 14%, 8%, and 7%. In our view, TECK appears best positioned to continue returning meaningful capital to shareholders.”

“Scotiabank likes copper stocks” – (research excerpt) Twitter


RB Advisors deputy chief investment officer (along with company founder Richard Bernstein) correctly predicted the current banking crisis and provides important context for the market backdrop,

“What’s happening to Silicon Valley Bank is exactly what we warned about in a report from over a year ago, The Biggest Risk to Portfolios Today … Here’s the bottom-line: This is not a hair-on-fire event for the overall economy. It is for some banks, for the Technology sector, and for venture capital speculators, but the overall economy likely won’t be ruined. The whole point of Fed tightening is to slow the business of the banking sector… Zero interest rates and 27% M2 money supply growth caused some VERY speculative behavior. Unfortunately, speculators rarely believe they are speculating and think there’s a “new world order” of some sort… This isn’t likely to be the end of venture capital/Technology/startup problems. Although there have been problems popping up, this is only the first to gain national attention. RBA’s positioning is very defensive relative to the speculative aspects of the market and the economy. Our portfolios are generally quite shielded from these issues, having sold out of Regional Banks and Global Financials last year, we are underweight banks in general.”

“Some thoughts on the banks” – RB Advisors


Diversion: “See the Captivating Winners of the British Wildlife Photography Awards” – Gizmodo

Tweet of the Day: “Rule of 20 (combines S&P 500′s P/E and CPI y/y) thru February continues to suggest stocks are overvalued” – Twitter