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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

The red-hot rally in video game stocks has stalled in recent weeks, but Morgan Stanley analyst Brian Nowak believes this is a good time for investors to buy,

"Why are Video Games Trading So Poorly and Where Would We Deploy Capital? Video game publishers haven’t traded well lately (down 1-6% since 2Q earnings) because we think the Street largely categorizes them as shelter-in beneficiaries with large drop-offs expected in ’21. We disagree; as detailed in Which Publishers Will Be Most Durable Post Shelter in Place? while we expect some player churn next year, we think the market is under-appreciating the structural pull forward in gaming from shelter-in. We remain most bullish ATVI [Activision Blizzard] due to Call of Duty Warzone and mobile monetization this/next year and Diablo on deck . We are also bullish ZNGA [Zynga] with the stock pricing in ’21 core bookings to fall below ’19 "

"@SBarlow_ROB MS: “Why are Video Games Trading So Poorly and Where Would We Deploy Capital?”' – (research excerpt) Twitter

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Scotiabank strategists Hugo Ste-Marie and Jean-Michel Gauthier previewed the upcoming domestic earnings reporting season where a strong recovery is expected (my emphasis),

“Strongest Earnings Rebound Since Tech Bubble. Bottom-up consensus peg TSX Q3/20 EPS at C$207 (+33% QoQ, -24% YoY, 55% above Q1/20 lows). We believe there is a strong macro and commodity tailwind supporting this recovery. Miners' bottom-line is pegged to be up 104% in aggregate since Q1/20, contributing to 18% of the total rebound (banks contribute to 35%, insurance 25%)… Look to Banks and Miners for Positive Earnings Revisions. We believe the sell-side might still be underestimating future profitability potential of key sectors. Banks (provisions for credit losses) and Base Metal Miners (spot commodity prices > consensus) could enjoy a revision tailwind”

"@SBarlow_ROB Scotiabank; “Look to Banks and Miners for Positive Earnings Revisions” as TSX earnings seasons begins" – (research excerpt) Twitter

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Investors confident in a distributable COVID-19 vaccine in the near term and willing to withstand some shorter term portfolio pain should consider buying potential winners now. Credit Suisse global strategist Andrew Garthwaite picks the sectors with the most to gain,

" We look at the correlations since the market peak (20 February) and since 1 September (when infections started to rise again in Europe) between sector performance and the COVID-19 case count. The most sensitive sectors over both periods have been mining, autos, insurance and energy. In some areas (banks, hotels, media and airlines), sensitivity seems to be falling, possibly implying more of the bad news is in the price…Stocks that could benefit from vaccine approval: i) Alcoholic beverages (which are abnormally cheap versus food producers, relatively cyclical and provide cheap indirect GEM exposure); Carlsberg and Heineken are rated Outperform; ii) P&C, as there are signs of improving pricing because of a sharp rise in trapped capital, P/Es at strong buy signals; Zurich is rated Outperform; iii) Budget airlines – you can’t holiday via Zoom; EasyJet, Ryanair and Wizz Air are rated Outperform; vi) Mining – IP will normalise versus retail sales if we get a vaccine'

" @SBarlow_ROB CS(Garthwaite): Vaccine winners" – (research excerpt) Twitter

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Newsletter: Biologists or physicists: who are the better investors? – Globe Investor

Diversion: “The Best Things We’re Missing This Movie Season” – The Ringer

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