Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi analyst Prashant Rao is becoming more bullish on selected Canadian heavy oil stocks,
“A Reprieve for Canadian Heavy Oil: The market looks to be pricing in -1.6% terminal growth for oil equities at large . But Canadian heavy oil assets that sit lower on the cost-curve (i.e. developed SAGD) should first see demand growth into 2022, driven by share gains in US refining & higher oil price. Barrels supplied should come from the existing asset base; equity should continue to discourage new asset growth. The combination of these factors brings down target prices across the group, moving SU to Neutral. By contrast, despite its pending merger with HSE, CVE (now our sole Buy) retains heavy oil torque and equity upside… It seems longer than 9 months ago to many (including us) but prior to COVID-19 demand impacts on refining, Canadian heavy barrels were on target to fill the 700 mbpd net void left by the end of Venezuelan supply to the USGC. The underlying dynamics that drove this opportunity for WCS barrels are unchanged – on pause in the current environment… CVE’s and IMO’s high production mix of heavy crude should drive modest long-term growth for the companies. CVE’s low operating costs and sustaining capex should allow the company to conserve cash if needed, while offering best leverage to a better WCS environment. While the merger with HSE would dilute this somewhat, the core opportunity remains.”
"@SBarlow_ROB C: “A Reprieve for Canadian Heavy Oil” – (research excerpt) Twitter
“Wednesday’s analyst upgrades and downgrades” - Globe Investor
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Cloud computing and health care remain my favoured sectors for long-term profit growth.
In a Wednesday research report, Morgan Stanley analyst Katy Huberty provided an update on the former (my emphasis),
"Mircrosoft C3Q capex growth accelerated to 15% Y/Y, from 9% the prior quarter, and guidance points further acceleration to 22% growth in C4Q. We look to earnings from the 4 large hyperscalers this week to further our confidence in a stronger for longer cloud capex cycle … Following strong growth in cloud capex spending in 1H CY20, investors are concerned about a slowdown in 2H CY20. Although only one hyperscaler has reported earnings so far, Microsoft’s capex guidance and commentary on cloud demand point to continued strength in cloud data center spend – something we’ve been highlighting over the last several months … However, we see the potential for upward pressure on our forecasts [for cloud computing corporate investment] which currently imply 2H CY20 growth slows to 11% Y/Y from 24% in 1H in the scenario of strong guidance from other hyperscalers later this week.'
Ms Huberty’s highest rated stocks are Apple Inc., Seagate Technology PLC, Teradata Corp., Sonos Inc. and Dell Technologies Inc.
“@SBarlow_ROB MS: ‘Microsoft’s capex guidance and commentary on cloud demand point to continued strength in cloud data center spend’” – (research excerpt) Twitter
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Diversion: “A Canadian study gave $7,500 to homeless people. Here’s how they spent it” – Vox
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Scott Barlow