Daily roundup of research and analysis from what The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Mario Saric reports on the firm’s recent office real estate conference,
“We note record registered client participation, despite (or perhaps because of) the worst Office market sentiment in a decade+ … The key takeaways ranged from severe lack of visibility to the need to differentiate (there is good, bad, and ugly in office today; won’t last forever) … Bottom-line, we think there is more pain in Private Office to come, particularly in a recession, but CAD Office REITs have already reflected a good amount of that. That said, near-term catalysts (pre-recession) are sparse, making CAD Office more of a 2024 value play, in our view. Our Top Pick = Allied [AP.UN-T] … With CAD Office REIT P/AFFO [price to adjusted funds from operations] multiple down 56 per cent vs. pre-COVID (vs. down 20 per cent for sector;), ‘how much lower can they go’ comes up quite often. Frankly, we lack good comparisons (i.e., when the structural future of the asset class has been in doubt), but we look to the GFC (admittedly more of a credit crisis than anything) due to the extremism … We note AP and D [Dream Office REIT, D.UN-T] are each down 66 per cent vs. pre-COVID vs. 57 per cent and 84 per cent corrections from peak to trough during GFC”
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Network security stocks remain among the most popular within the larger technology sector. Morgan Stanley analyst Hamza Fodderwala expects Palo Alto Networks (PANW-Q) to rise another US$50 in the next 12 months,
“MS Research Analyst Hamza Fodderwala believes PANW surpasses $100-billion market cap ($300+ stock) in the next 12 months, given accelerating share gain from vendor consolidation, an expanding TAM [total addressable market] and improving margins, with further upside as large unique data sets within a broad platform give PANW an advantage in AI-powered security. Hamza increases his PT to $302 from $255 and remains OW [overweight]”
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Also from Scotiabank, economist Jean-Michel Gauthier noted that recent global data points to a second half of 2023 slowdown,
“UK and Eurozone Manufacturing PMIs missed expectations and decelerated further. Eurozone weakness is particularly concerning given that it has only been as low three times since the series began: October 2001, 2008/2009, and H1/2020, hinting at strong odds of at least a small recession in the coming months. Service PMIs were just as negative, missing estimates and decelerating further, although they remain above 50 for now. While investors await the ISM Manufacturing/Service next week, our regional trackers which have a decent track record of calling them ahead of time isn’t hopeful for any sort of rebound (see lower Chart of the Day). Not only did the S&P Manufacturing PMI tumble back to its December low points, but several of the regional PMI measures were quite weak (Philadelphia, Kansas). Regional Service PMIs are also pointing to a lower ISM Services. At this stage, a soft-landing scenario would require a quick rebound in these indicators to avoid a full-blown recession. In our view, the current contradiction between recessionary PMIs and resilient economy in the U.S. likely stems from companies’ workforce hoarding behaviour: few large-scale cuts outside of Tech likely explains why consumption has remained strong. Still, companies facing an entire year of economic headwinds will likely consider right sizing at some point, in our view”
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BMO senior economist Robert Kavcic made an important observation about the resilience of the Canadian consumer – the spending per person has remained stagnant,
“The resilience of retail sales in Canada is a bit surprising given some of the stress currently on households (e.g., the surge in interest rates and overall deteriorating affordability). But the headline sales numbers mask a multiyear stagnation in spending at the individual level. Consider that while headline retail sales in dollars are up almost 14% since 2020Q4, the volume of spending in per-capita terms is unchanged. That’s approaching 2½ years of stagnation by that measure. With inflation and strong population growth in mind, this boils down to more people, each spending more money on the same amount of stuff”
“BMO: “More People Paying More”” – (research excerpt) Twitter
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Diversion: “It’s the malaise and gloom, not the anger” – Marginal Revolution
Tweet of the Day:
Scott Barlow