Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities quantitative strategist Savita Subramanian published what I though was an extremely important report for investors, warning of a dramatic head-fake in inflation in 2021,
“Inflation will be noisy next year with likely head-fakes in the data. Base effects will result in a short-term inflation burst in 2021 but the medium-term trajectory is likely to be one of modest inflation pressures amid persistent labor slack and anchored inflation expectations. Risks to the outlook are balanced, but a positive surprise might be more impactful to markets. This scenario would likely be driven by a combination of overly stimulative fiscal policy, a slow acting Fed, and damage to the supply side … Our house forecasts of 1.8% in 2021 and 2.2% in 2022 would be positive for stocks, and we’re a long way from inflation being detrimental. Earnings tend to keep pace with inflation, but extreme inflation can hurt margins, consumption and growth. CPI of 1-3% has been the sweet spot for equities; anything lower tends to end badly … If inflation jumps above 3ppt, expect [PE ratios] to contract”
If Ms. Subramanian is correct, markets might experience an early-year freakout – particularly in dividend paying equities - because of temporary inflation pressure, which investors can ignore.
“@SBarlow_ROB From BoA’s “Who’s afraid of inflation?”” – (research excerpt) Twitter
Health care and cloud computing remain my favourite market sectors for investors with medium and longer time horizons.
Citi analyst Ralph Giacobbe published his top picks in the U.S. health care sector for 2021,
“After underperforming the last two years, we see a more favorable outlook for the healthcare sector in 2021 as we move beyond the election, and consider a likely split Congress. While the COVID pandemic will linger into 2021, we see a more stable environment for the second half as well as greater M&A. Moreover, the healthcare sector has posted generally positive results this year, and played an important role throughout the pandemic whether it be for treatment, testing, relief efforts, or vaccine, yet sector weighting sits near 5-year lows (13.8%) despite defensive characteristics of the space, and healthcare being a growing part of the economy (18% of GDP). As a result, we see outperformance next year. Top picks across the sector include ACAD, AVTR, AZN, CHNG, CI, HZNP, ZBH, RETA, VRTX.”
[Disclosure: I own a small speculative position in AVTR as a result of previous Citi research reports}
“SBarlow_ROB Citi: top picks in U.S. health care” – (research excerpt) Twitter
Scotia analyst Orest Wowkodaw published a report outlining his top picks in the surging mining sector (my emphasis),
“We have once again reviewed our forecast three-year net asset value (NAV) estimates for our coverage in the Second Edition of this annual report... For most miners, future NAV growth is largely a function of our commodity price outlook (we anticipate rising Cu, HCC, and U3O8 prices but declining Zn, Ni and Fe prices) in the context of current mine plans and development projects, which ultimately drive FCF generation or cash consumption, net of committed capital returns (as dividends erode cash)… Overall, we anticipate the following companies to demonstrate the strongest NAV growth profiles on a three-year view: (1) Large Caps: FCX-N, FM-T, and TECK.B-T, (2) Mid Caps: CIA-T, HBM-T, CCO-T, and ERO-T, (3) Small caps: CMMC-T and CS-T, (4) Developers: NCU-T and TRQ-T”
“@SBarlow_ROB Scotia’s top picks in the mining sector for 2021” – (research excerpt) Twitter
Diversion: “How Russian hackers infiltrated the US government for months without being spotted” – M.I.T. Technology Review
Tweet of the Day:
The 2020 recovery story in one chart: Industrial metals practically in line with precious metals as the year comes to an end pic.twitter.com/hCoChn1bvY— Mike Bird (@Birdyword) December 16, 2020
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