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

CIBC analyst Paul Holden reviews the recent earnings reports from the major Canadian banks and assesses the extent of further upside,

“Bank stocks have handily outperformed the TSX Composite YTD. Investors are rightly asking if all the optimism has been priced in. F2022 consensus EPS certainly looks more appropriate as it has only now pushed above prepandemic levels (1% higher on average). However, we see potential upside to EPS from NIM [net interest margin] expansion and capital deployment, which we believe are high-probability scenarios. We also think valuation multiples, which are only a snick above average, could have more to give given the positive backdrop. We continue to like potential upside for the banks broadly and have a preference for names where consensus remains conservative, with visible potential catalysts. This points us to TD, BNS and CWB … All of the banks have built excess capital and deployment of that capital towards share repurchases and/or acquisitions represents potential upside to EPS estimates. We estimate upside at 3%-6% for most banks and TD closer to 8%.”

“@SBarlow_ROB CIBC’s top picks in Canadian banks” – (research excerpt) Twitter

See also: “Why Canadian bank stocks have further to run” - Barlow, Globe Investor (June 3)

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BMO economist Sal Guatieri noted rapidly rising U.S. wage costs. Further increases, which are welcome to the extent they address overall wealth inequality, could threaten corporate profit margins. Investors will have to pay attention to stocks with high labour concentration (employees divided by revenues),

“No matter how you slice and dice the latest U.S. unit labour costs data, they suggest a rising trend and possibly an accelerating one. Revised Q1 data show a 1.7% annualized gain instead of a small decline previously, and the Q4 figure was ratcheted up to 14.0% from 5.6% initially. That leaves ULC up 4.1% y/y, or 3.3% on a 2-year a.r. [annual return] basis, and 4.7% on a y/y four-quarter average basis. Note that the latter figure is the highest since 1983 and up from 1.9% in 2017-19. While productivity is also up 3.4% on this basis, hourly compensation has blasted 8.3% higher, the most since 1982”

" @SBarlow_ROB BMO covers rising U.S. labour costs’ – (research excerpt) Twitter

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I don’t usually fret about stocks I was thinking about buying and didn’t, and then watched them outperform. That said, NVIDIA Corp is one case where I’m kicking myself for not owning. I even wrote a column about them in 2017. The semiconductor provider is a top computing pick at Bank of America according to a Thursday research report,

“We believe investors underappreciate the size/growth of NVDA enterprise [business]. Enterprise is actually the largest piece of NVDA’s data center which can be broken into 3 categories: hyperscale (<50%), enterprise (>50%, incl. healthcare, autos, retail, financials, etc.), and supercomputing (low-single digit). While hyperscale has ~8 customers, enterprise has hundreds of Fortune 500 companies, most of which are in early stages of deploying AI. NVDA AI Enterprise (EGX) is about building ready-made, fully certified and optimized AI solutions for the enterprise. NVDA estimates the # of servers sold each year can grow by 100x (from 25mn today) as AI expands into retailers, banks, etc … "

At US$800, B of A Securities has the highest NVIDIA stock price target on Wall Street. The stock price was $683 at Thursday’s close.

“@SBarlow_ROB B of A: NVIDIA is a top computing pick” – (research excerpt) Twitter

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Canadian Pacific Railway Ltd. is among Wells Fargo’s top picks for North American stocks. The firms’ Focus list is designed to outperform the S&P 500 over 12-month periods.

The list includes 30 stocks. Names most likely to be of interest to domestic investors include Activision Blizzard Inc., The Walt Disney Co. , Netflix Inc., General Motors Co., Danaher Corp., Parker-Hannifin Corp., Adobe Inc., Mastercard Inc., Microsoft Corp., Air Products and Chemicals Inc. , Sherwin Williams Co and Alphabet Inc.

“@SBarlow_ROB Wells Fargo Focus List includes CP Rail” – (full table) Twitter

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Diversion: “Wealthy KPMG clients continued to dodge taxes for years after CRA detected offshore ‘sham’” – CBC

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