Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Barclays analyst John Aiken believes the upcoming bank earnings seasons will be “The Last Hurrah,”
“Q2-23 Preview - The Last Hurrah Ahead of a Potential Recession? Although we are anticipating a reasonably solid quarter, we believe that the market will be forward, not backward, looking. Consequently, solid results will take a back seat to management commentary on the outlook, particularly for credit and revenue. Unfortunately, we see more downside risk than upside … Downgrading our Outlook to Neutral from Positive: While we do not anticipate that the Canadian banks’ second quarter will demonstrate much earnings weakness, we believe that cracks in the foundation will become evident. Further, with an uncertain outlook and a looming recession, we anticipate that there will continue to be pressure on the banks’ valuations and declining confidence in their earnings outlook. Consequently, we are lowering our target multiples for the group to reflect a much wider dispersion of potential earnings outcomes and have reduced our ratings on several banks: BNS moves to Underweight from Equal Weight, Royal Bank moves to Underweight from Overweight, and TD moves to Equal Weight from Overweight. We are maintaining our ratings on BMO (Overweight), CIBC (Equal Weight), National Bank (Underweight), and the regional banks, Canadian Western (Overweight) and Laurentian Bank (Equal Weight)”
RBC Capital Markets analyst Geoffrey Kwan sees increasing stress in the domestic mortgage market,
“Q4/22 results in the mortgage insurance industry demonstrate delinquency rates remain low, helped by low unemployment rates. However, despite loss ratios at the 3 mortgage insurers remaining low by historical standards, in most cases, they meaningfully increased Q/Q (partly due to seasonality). Furthermore, there is further evidence of potential risks ahead (see our “Interesting stat this quarter” below). Ultimately, Q4/22 mortgage insurance industry results support our view that uncertainty remains elevated regarding the near-term outlook for the Canadian mortgage market, reflecting still healthy employment data, softening economic data, and unclear impacts of significantly higher interest/mortgage rates … Interesting stat this quarter: as of Q4/22, 6.5% of net insurance-in-force (IIF) in the mortgage insurance industry had effective loan-to-values (LTVs) >95% (i.e., using updated home prices), up from 3.6% in Q3/22 and 2.3% Y/Y” .
BofA Securities’ Research Investment Committee (RIC) report predicts a new bull market for uranium and nuclear power,
“The third bull market for uranium We are bullish on uranium and nuclear power. After a decade of underinvestment, a shortage is visible; our strategists forecast 20-40% upside. Global demand is also rising, with 60 new reactors being built & 100 more approved. Resource nationalism, energy security, war and inflation echo the nuclear build-out of the 1970s/80s … From the raw matter to the end user, BofA global analysts are bullish. Cameco (CCO) is a disciplined miner with the largest production capacity in the West. Constellation Energy (CEG) and pro-forma Vistra (VST) have the two largest US generation fleets. BWX Technologies (BWXT) is the sole provider for US Navy nuclear subs & carriers. For diversified access to the commodity, miners, and others, the URA ETF (1-FV) trades at 1.7 times book value”
“BofA’s RIC likes uranium and nuclear power” – (research excerpt) Twitter
Goldman Sachs chief U.S. equity strategist David Kostin sounded a note of caution surrounding the mega-cap stock rally as he sees them over-owned by hedge funds and expensive ,
“Mega-cap tech (AAPL, AMZN, GOOGL, META, MSFT) has collectively risen by 29% YTD, outperforming the S&P 500 by 23 pp [percentage points] and causing a sharp narrowing of market breadth. These stocks trade at a P/E of 25x, a 49% premium vs. the rest of the S&P 500. Arguments supporting this valuation premium include improving earnings growth outlooks, “quality” attributes, and a macro backdrop of slow GDP growth and falling interest rates. However, If the economic outlook improves and rates rise, further valuation expansion will be challenging, and more cyclical stocks will likely outperform. If the economy enters a recession, the popularity of mega-cap tech in hedge fund long portfolios leaves the stocks vulnerable "
“GS’s Kostin sounds note of caution on mega-cap tech” – (research excerpt) Twitter
Diversion: “Meta Doubles Down on Threats to Block News on Facebook and Instagram in Canada” - Gizmodo
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