Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
It’s “Outlook 2022″ season on Wall Street and Goldman Sachs’ chief U.S. equity strategist David Kostin is the latest to contribute,
“We forecast the S&P 500 index will climb by 9% to 5100 at year-end 2022, reflecting a prospective total return of 10% including dividends. Profit growth has accounted for the entire S&P 500 return in 2021 and will continue to drive gains in 2022. S&P 500 EPS will grow by 8% to $226 in 2022 and by 4% to $236 in 2023. Our EPS estimate is 2% above 2022 bottom-up consensus. Companies have consistently expanded profit margins despite input cost pressures and supply chain challenges … The S&P 500 P/E multiple will remain roughly flat, ending 2022 at 21.6x. After two years of near-zero interest rates, the Fed will likely begin hiking in July … SECTOR RECOMMENDATIONS: Our earnings forecasts coupled with our macro model indicate investors should overweight the Info Tech, Financials, and Health Care sectors. Raise Financials to overweight on expectations of rising interest rates and strong economic growth in the first half of the year. Raise Health Care to overweight as declining policy uncertainty should help close the sector’s record valuation discount. Maintain long-term overweight in Information Technology on strong secular growth, high margins, and valuations in line with historical averages. Underweight ‘bond proxy’ Consumer Staples, Utilities, and Telecom Services as well as the expensive Autos industry group.”
“Goldman Sachs: “overweight the Info Tech, Financials, and Health Care sectors” and avoid bond proxies” – (research excerpt) Twitter
BMO chief economist Doug Porter believes demand, not supply shocks, are behind U.S. inflation pressures,
“The key point here is that retail sales (i.e., demand) took a huge step above trend in March 2021 — precisely when the latest stimulus cheques went out — and has never looked back … [Manufacturing activity] topped expectations with a strong 1.6% advance, with gains in each of utilities, mining, and manufacturing. It’s now up 5% year-over-year, even with the well-advertised challenges in the auto sector. Strong gains in the tech industry, as well as some metals, and machinery have offset softness in other sectors. The key point here is that this particular measure of supply — manufacturing output — is back above prepandemic levels, and in-line with trends seen in 2016-18. So, it’s not the outlier. Verdict: Demand forces are much more out of line with historical norms than supply is—this is fundamentally a demand shock, not a supply shock. Supply is doing what it can, but it is under extreme stress from soaring demand. For policymakers, the takeaway is that to control inflation, look more at the demand blade of the scissors.”
My question here is that if retail sales surged on the back of fiscal stimulus, will it not fall back as stimulus ends?
“BMO sees inflation as primarily a demand shock” – (research except) Twitter
Citi analyst P.J. Juvekar is recommending a pair trade in the renewables sector – long Plug Power against a short position in Ballard Power,
“LUG and BLDP both missed consensus EPS for 3Q, but PLUG raised FY22 sales guidance to $900-925mm. This compared to our initial $700mm FY22 sales estimate with upside driven by new potential forklift orders in its Materials Handling business and rapid growth in the electrolyzers business. We think PLUG will outperform BLDP in the near term with its “hydrogen ecosystem” strategy providing hydrogen (H2) fuel, electrolyzers and fuel cells (FC). We downgrade BLDP to Neutral/High risk due to disappointing sales in China and expected delay in meaningful fuel cell adoption in heavy-duty applications until 2023+. Based on these factors, we initiate a pair trade O/W PLUG and U/W BLDP. … There are several share catalysts [ for PLUG] including: 1) the ramp-up of its green hydrogen network beginning in 2H22 with a 500 TPD production target by 2025, 2) fuel gross margins are expected to improve to breakeven levels by 2023 and >30% by 2024, and 3) projected electrolyzer sales growth from 100 MW installed capacity in 2022 ramping up to ~1.5 GW to external customers by 2025 on top of its own internal demand.”
“Citi pair trade idea: Long PLUG/short Ballard Power” – (research excerpt) Twitter
“Wednesday’s analyst upgrades and downgrades” - Globe Investor
Diversion: “Winners of the 2021 Natural Landscape Photography Awards” – The Atlantic
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