Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO economist Sal Guatieri is not convinced that U.S. inflation pressure is transitory,
“A day after a not-so-steaming-hot U.S. CPI report, investors will need to digest a sizzling producer price report. The headline index rose 1.0% in July, extending a string of scorching gains this year. Prices excluding food and energy rose similarly for a second straight month ... The continued heat at the producer level suggests CPI inflation may not have peaked. Also note that pressures in the pipeline continue to mount. The index of processed goods for intermediate demand is up 32.7% annualized in the past six months, and the yearly rate of 22.9% is the most since the mid-70′s oil price shock.”
“@SBarlow_ROB BMO on U.S.: “Peak Inflation? Doubt It”” – (research excerpt) Twitter
Citi strategist Mert Genk attempted to identify non-U.S. stocks with better growth and valuation profiles than the S&P 500,
“While US EPS momentum still looks strong, we think the 40% premium PE (21x) vs RoW [rest of world] (15x) could come under pressure as bond yields rise. S&P Beaters — Long-term US outperformance partly reflects superior EPS growth. However, it is possible to construct a Non-US portfolio where the fundamentals have been even stronger. We screen the MSCI AC World ex US index for large-cap companies that have beaten the US on EPS growth and profitability. We cross-check against Citi analyst recommendations and only include Buy rated stocks. This creates our list of 50 S&P Beaters. Performance & Valuation — Our S&P Beaters have grown EPS at 15% pa since 2013, compared to the S&P 500 at 7%. The list has returned an average 28% pa, twice that of the S&P. It trades on 21x 12m Fwd EPS, similar to the US market. However, the S&P Beaters are cheaper than the 34x PE MSCI US Growth index, which might be a fairer comparison.”
The list of 50 stocks includes Canadian Pacific Railway Ltd., but, beyond that, it’s difficult to find companies that will be of wider interest to domestic investors. I can’t, for instance, recommend the Chinese stock picks because of the ongoing regulatory crackdown occurring there. In Europe, Switzerland’s Julius Baer might be worth further study along with Denmark’s Novo Nordisk, France’s LVMH, and the Netherland’s ASML Holdings.
In Asia, Tokyo Electron may be of interest along with Hindustan Unilever in India and TSMC in Taiwan.
“@SBarlow_ROB Citi: “S&P Beaters: Non-US Stocks With Better EPS Growth And EBIT Margin Than US Market Screen”' – (full table) Twitter
BofA Securities quantitative strategist Savita Subramanian warns that “risks loom ahead” for U.S. equities,
“Forward S&P 500 EPS is tracking +27% YTD (see earnings note) and the 10-yr yield has dropped 40bps since March’s peak, pushing the ratio of S&P dividend yield vs. the 10-yr yield back up to 0.95x, its highest level since February, and back in-line with the post-GFC average. But risks loom ahead: earnings growth moderating in 2H amid inflation and a slowing economy, plus record equity duration pointing to painful downside if rates move even modestly higher. The market today is statistically expensive on almost every measure of the 20 metrics we track, except on growth and relative to bonds.”
The concept of equity duration is described in more detail here . In this case record duration indicates large and widespread overweights in high growth stocks that will be hit hardest if interest rates ( which form the discount rate for present value of future cash flow calculations) rise.
“@SBarlow_ROB BofA: ‘risks loom ahead” for SPX” – (research excerpt) Twitter
Diversion: “The big tech quest to find the metals needed for the energy overhaul” – M.I.T. Technology Review
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