Citi’s top picks in the surging U.S. small cap sector

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

National Bank Financial economists Kyle Dahms and Alexandra Ducharme detail a strong improvement in domestic housing affordability,

“Housing affordability in Canada`s large urban centers improved in the third quarter of 2020, a second improvement in a row. Higher incomes helped in Q3, but the largest portion of the improvement came in the form of lower interest rates. Indeed, our 5-year mortgage benchmark rate declined 43 basis points in the quarter, driven by central bank easing and improving financial conditions. Combined, income and mortgage rates were more than enough to offset the slight increase in home prices. Our benchmark rate experienced a 62 basis point decline since the start of the pandemic, but that was the second leg of a decline that started in early 2019. As a result, affordability improved substantially in Canada with Toronto, Montreal and Vancouver being now the cheapest since 2016 and the Calgary market being the least expensive on record”

“@SBarlow_ROB NBF: “[housing] affordability improved substantially in Canada with Toronto, Montreal and Vancouver being now the cheapest since 2016″” – (research excerpt) Twitter

“@SBarlow_ROB National Bank: Calgary housing record cheap” – (chart) Twitter

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U.S. small cap stocks have been on a tear recently as the Russell 2000 index has outperformed the S&P 500 by a whopping 15.2 per cent since Sept. 24 (27.3 per cent versus 12.1 per cent). The trend makes Citi’s Value Creators list of top small and mid-cap U.S. stocks a lot more interesting than even a year ago.

Analyst Scott Chronert recently added Polaris Inc to the 18 member list, removing Knight-Swift Transportation Holdings Inc.. Familiar names among the top picks include Etsy Inc., PulteGroup Inc., Epizyme Inc., Oshkosh Corp., Logitech International SA, Dropbox Inc., Eagle Materials Inc. and Surgery Partners Inc.

“@SBarlow_ROB Citi ‘Value Creators’ list of top U.S. small and mid cap stocks” – (table) Twitter

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Also from National Bank, economists Matthieu Arseneau and Alexandra Ducharme describe what has been a full recovery in global trade activity,

“The atypical nature of this recession has been repeatedly emphasized… one particularity of this recession is the unusual behavior of personal consumption expenditure on goods and services in advanced economies. In a “normal” recession, consumers tend to reduce their consumption of goods more than their consumption of services. In the current downturn, however, it is consumption of services that has in many cases taken a hit from shutdown measures…According to [U.S.] data released this morning by the Bureau of Economic Analysis, real household spending on serviceswas still down 6.8% in October compared to February level, while spending on goods was up a massive 8.4%... global trade volume in September had fully recovered from the pandemic and that only 7 months after the start of the recession. This is four times faster than the 29 months it took for commerce to recover in the wake of the 2008-2009 financial crisis.’

“@SBarlow_ROB NBF: “Global trade has fully recovered from the pandemic” – (research excerpt) Twitter

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Diversion: “World Chess Champion Garry Kasparov on What The Queen’s Gambit Gets Right” – Slate

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