Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC analyst Sumayya Syed surveyed the REIT sector and offered some top picks,
“We estimate 2024 FFO [funds from operations]/unit growth to average approximately 3 per cent, led by industrial REITs at 6 per cent, and office REITs trail the group at a 4-per-cent AFFO [adjusted funds from operations] decline. We lowered our NAVs by 8-9 per cent … Interest coverage ratios are in better shape, averaging 3.5 times vs. 2.5 times historically. PMZ [Primaris REIT] stands out for its better-than-average balance sheet and FFO/unit growth, yet it trades at one of the highest implied cap rates (10 per cent). Dream Office trails the group at 11.6 times D/EBITDA and 2.1 times interest coverage… Industrial REITs continued delivering sector-leading SP [single-property] growth of 8 per cent on average, followed by retail REITs at 3 per cent. For industrial, though year-over-year rent growth is moderating, 2024 renewals have achieved strong spreads, positioning GRT and DIR to deliver another year of above-average SPNOI [single property net operating income] growth … Industrial REITs are trading at a 5-per-cent premium to the sector. Defensive names continued to be favoured, as CHP [Choice Properties REIT] and CRT [CT REIT] trade at much smaller 12-per-cent discounts. Office rounds out the bottom at a 35-per-cent discount as sentiment remains negative”
The analyst has “outperformer” ratings on these stocks:
- H&R REIT (HR.UN-T)
- Automotive Properties REIT (APR.UN-T)
- Granite REIT (GRT.UN-T)
- Crombie REIT (CRR.UN-T)
- Dream Industrial REIT (DIR.UN-T)
- Primaris REIT (PMZ.UN-T)
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Goldman Sachs U.S. equity strategist David Kostin summarized his S&P 500 forecasts in a way I found instructive,
“Our 2024 baseline forecast assumes the US economy expands at a 2-per-cent pace, earnings rise by 5 per cent, and the S&P 500 P/E multiple equals 18 times, near the current level. The so-called ‘Magnificent 7′ stocks have returned 73 per cent year-to-date compared with just 6 per cent for the remaining 493 firms. We expect the mega-cap tech stocks will continue to outperform given their superior expected sales growth, margins, re-investment ratios, and balance sheet strength. But the risk/reward profile is not especially compelling given elevated expectations. In an upside scenario, the benchmark could climb by 11 per cent to 5000 if growth is resilient and inflation and bond yields fall. Alternatively, in a recession scenario, the index could drop by 18 per cent to 3700″
Market projections are always based on economic and interest rate assumptions for the base case. Providing the expectations in the upside and downside scenarios highlights this.
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BMO senior economist Art Woo sees OPEC + ‘back in the hot seat’,
“[Oil] is well down from its pre-October 7 high, when it briefly touched $95 in late-September. Since then, it’s been all downhill as fears over a weakening global economy and, in turn, slowing global oil consumption have risen to the fore. Although such concerns are understandable, as a sharp economic downturn would alter the global oil supply/demand balance, we think rising production may actually be the bigger drag these days. Circling back to the demand picture, it’s proven to be quite resilient … we would be surprised if demand from China, which has surged this year thanks to the petrochemical industry, continues at the same pace … it may come as a surprise to see that global oil supply is estimated to climb by 1.7 mb/d to average 101.8 mb/d in 2023, which will be a record high despite the large rollback in OPEC+ production. Robust output gains from the United States, Brazil and Guyana have helped offset the cartel’s cuts. Taking a step back, just imagine where the price of crude oil would be if the cartel was not curtailing production by roughly 5 mb/d … Further supply cuts [by OPEC +] are not a slam dunk, as tensions within the cartel and geopolitical pressures are likely to continue mounting (e.g., Saudi-U.S. relations), which means more volatility ahead for the oil market”
“Crude Oil Outlook: OPEC+ Back in the Hot Seat” – BMO Economics
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Diversion: “ChatGPT Is Apparently a Great Surveillance Tool” – Gizmodo
Scott Barlow