A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief strategist Brian Belski notes more difficult conditions for Canadian equity investors,
“While Canadian equities have certainly managed to escape a more protracted correction so far, like U.S. equities, the Canadian market has also been struggling with slowing earnings momentum and the normalization process … The market seems to be rewarding companies that are posting strong actual earnings growth and companies that are seeing positive revisions, while companies with high earnings and sales growth expectations have consistently underperformed. Interestingly, all our profitability factors underperformed in May, which we believe suggests investors are starting to believe we may be at peak profitability for many of these companies, especially in the face of slowing economic growth and rising inflationary pressures. Overall, we continue to believe the transition to more normalized earnings growth environment will likely remain bumpy and favour a more selective approach to investing. As such, we believe investor should remain focused on capital deployment strategies, including dividend growth, cash flow, and even GARP style strategies.”
Mr. Belski screened the domestic market for stocks with the highest 12-month growth in dividend yield.
The companies on the list that are “outperform” rated by BMO analysts are ARC Resources Ltd., Birchcliff Energy Ltd., Cascades Inc., Canadian Natural Resources Ltd., Crescent Point Energy Corp., Cenovus Energy Inc., Equitable Group Inc., goeasy Ltd., Hydro One Ltd., Lundin Mining Corp., Methanex Corp., Pan American Silver Corp., Prairiesky Royalty Ltd., SSR Mining Inc., Stelco Holdings Inc., Suncor Energy Inc., Teck Resources Ltd., Tourmaline Oil Corp., Whitecap Resources Inc., and West Fraser Timber Co. Ltd.
“BMO’s Canadian dividend growth screen results” – (table) Twitter
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Morgan Stanley energy strategist Martijn Rats grants that Russian oil can find its way to non-European destinations after trade sanctions, but that won’t help with diesel demand,
“We suspect that the EU ban on seaborne oil imports from Russia will keep the distillate market tighter-for-longer, supporting prices for diesel, and in the end, also crude … Much of the market’s focus has been on the implications for crude oil when considering the EU ban in seaborne imports from Russia. This makes sense as crude oil represents the majority of Russia’s oil export. We expect this ban to eventually limit Russia’s crude exports, but in principle, other buyers could take the EU’s place, even if only partially. ...but this is much less likely for diesel: The EU’s import ban also applies to oil products, such as diesel. Here, there is an important difference. Crude oil is a truly global market: about 50% of global crude oil supplies flows through the seaborne market, and the average tanker journey is a relatively long ~28 days. In contrast, only 25% of the world’s middle distillates (diesel + jet) are supplied via the seaborne market … risks to prices remain skewed higher: Our updated balances continue to show a deficit of ~0.5 mb/d during 2H22, which would take oil inventories to unusually low levels. We continue to see Brent reaching $130/bbl during 3Q in our base case, with upside to our bull case estimate of $150/bbl.”
“MS: Russian oil can divert to Asia but diesel a tougher issue” – (research excerpt) Twitter
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Also from BMO, economist Robert Kavcic emphasized a “Summer of Housing Discontent” in the greater Toronto area,
“The Toronto Real Estate Board’s monthly numbers dropped on Friday, and they now officially show what we have been shouting for a while—the housing market has weakened considerably on a dime. The reason? A simple nudge in interest rates by the Bank of Canada was enough to chill rampant demand, and continued aggressive tightening will weigh through the rest of the year. Consider that we’ve gone from a world where housing was priced at roughly 1.5% mortgage rates, to one later this year where both variable- and five-year fixed-rate mortgages could be in the 4-to-5% range (fixed already are). Prices are already under heavy pressure as valuations adjust to this new reality. It could be a long, cold, summer for housing.”
“BMO: “It could be a long, cold, summer for [GTA] housing.”” – (research excerpt) Twitter
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Diversion: “Everything Apple Tried to Kill at WWDC 2022″ – Gizmodo
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Scott Barlow