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

CIBC recently completed a virtual energy conference and analyst Dennis Fong came away more convinced of payout increases and buybacks in the sector,

“Capital discipline and maximizing free cash flow remain the core focus. Despite rising commodity prices, we found very little indication that producers are likely to meaningfully increase capital programs through the balance of 2021. Free cash flow generation, debt reduction, and returning cash to shareholders continue to dominate capital allocation decisions. We see improvements in commodity pricing accruing to shareholders through 2021 and into 2022. We would not be surprised to see dividend increases from royalty companies in particular (FRU/PSK/TPZ), along with producers (ERF/OVV/POU/TOU/WCP) or share buybacks (SU/CVE/IMO/CNQ) as price strength continues.”

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“@SBarlow_ROB CIBC sees shareholder-friendly developments in Canadian energy sector” – (research excerpt) Twitter

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Sticking with the energy theme, BMO sees better days ahead for the Calgary housing market,

“Home prices in the city have improved in the past year, rising 11% year-over-year in May (MLS HPI basis), and look to nearly repeat that pace in June. But even that sturdy gain trails well behind the rest of the country, and follows a long period of fallow for local prices. To cite but one extreme, prices in Windsor, Ontario have recently eclipsed that of Calgary for the first time on record. Five years ago, Calgary’s prices were more than double Windsor’s level (chart). (Windsor is chosen very deliberately, as its auto-driven economy is arguably the biggest winner from low oil prices.) However, the big recovery in oil prices (dot) suggest that better times lie ahead for the Calgary housing market — certainly relatively”

“@SBarlow_ROB Better days ahead for Calgary housing market (BMO)” – (research excerpt) Twitter

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Scotia strategist Jean-Marie Gauthier sees the TSX as much more attractively valued than U.S. equities,

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“Despite solid gains in the last 12M (+32% YoY in C$, +46% in US$), the TSX has not outperformed the S&P 500 all that meaningfully (+40% YoY). Considering the length of the previous underperformance cycle and current macro tailwinds, we would have expected a somewhat larger gap. Moreover, as shown in the upper Chart of the Day, the TSX’s valuation levels vs. the S&P 500 should have been a large boon in its favour: currently trading at 16.0x forward earnings and 2.2x book value, the discount vs. the S&P 500 (21.2x and 4.6x) stands at levels last seen during the tech bubble. In our view, the TSX has a large valuation rerating potential that could power an extended outperformance cycle, as it did post the tech bubble. Perhaps the missing ingredient of EPS growth will finally tip the scale in the TSX’s favour: our lower Chart of the Day illustrates relative earnings trends between the TSX and S&P 500. U.S. earnings have continuously outpaced those of the TSX from mid 2010 to 2020. Yet, Canadian earnings have now taken up leadership in the last few months (+6.7% YoY relative to the S&P 500)”

“@SBarlow_ROB BNS: TSX is cheaper than SPX and has better EPS growth” – (research excerpt) Twitter

“TSX outruns Wall Street on earnings growth prospects as global economy rebounds” - Reuters

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Diversion: “Some UFOs can’t be explained: U.S. intelligence report” – CBC

Tweet of the Day:

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