Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities U.S. quantitative strategist Savita Subramanian provided a list of 11 stock picks for 2022, one for each U.S. sector,
“These stocks have 23% implied upside, on average, to our analysts’ price objectives (as of December 16, 2021), plus an average dividend yield of 2.2% (vs. 1.7% for the 11 sectors on average). These stocks are mostly neglected by active funds and benefit more from inflation, higher GDP, higher interest rates, higher oil prices and wage growth than an equal-weighted 11 sector portfolio, all of which we expect will occur in 2022. See inside for more details. This list is intended for the full year, meaning we do not provide updates intra-year.”
The stocks are Walt Disney Co. (communications services) BorgWarner Inc. (consumer discretionary), Mondelez International Inc. (consumer staples), Exxon Mobil Corp. (energy), Wells Fargo & Co (financials) CVS Health Corp. (health care), Eaton Corp. PLC (industrials), F5 Inc. (information technology), Eastman Chemical Co. (materials), Welltower Inc. (real estate) and NRG Energy Inc. (utiltiies). Click through for brief rationale for each company.
Ms. Subramanian’s list from 2020 had an off year, underperforming the S&P 500 by 13 per cent on average.
" BofA: “Our one stock pick per sector for the year ahead”” – (table) Twitter
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Morgan Stanley biotechnology analyst Matthew Harrison, a former health care hedge fund manager, is among the most credible sources of analysis for the pervasiveness of the pandemic. He published Three scenarios for the upcoming Omicron wave on Friday,
“Our base case is Omicron will peak in 10-12 weeks with daily cases ~2-3x the Delta wave. If the current rate of new case growth deceleration in South Africa persists, the time to peak could be as short as 5-6 weeks. However, given the high absolute transmission rate we assume a slower decline. Omicron is becoming the dominant global strain ~2x faster than Delta and we expect it to drive an accelerating global wave of new cases: Based on data from Denmark and the UK, we fit the Omicron trajectory to an exponential growth curve and estimate it is taking ~11-12 days to become dominant (i.e., ≥50% of COVID cases, ). In comparison, Delta took around 18-20 days to become dominant once it crossed the ~5% case threshold (ref) … Bull case: Assuming R will go up quickly and then start to decline at the current rate in South Africa (-0.2/week), we predict Omicron cases will peak in 5-6 weeks compared to 8-10 weeks for Delta … Bear case: If R reaches an elongated plateau as the virus infects a significant portion of the susceptible population, we predict Omicron cases will reach a peak in 3-3.5 months. The peak daily cases would be 3-5x higher than the Delta wave or ~500-750K daily US cases. In this bear case the majority of people will eventually get infected with Omicron.”
“From MS’s “Three scenarios for the upcoming Omicron wave” – (research excerpt) Twitter
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Citi analyst Daniel Grosslight provided his top picks in the topical U.S. health care technology and distribution sector,
“What a year we have had in Healthcare Technology! As we anticipated in our 2021 review, the capital markets and M&A activity notched record years and provider-oriented HCIT outperformed. However, we did not anticipate the massive rotation out of high-growth, unprofitable HCIT that started mid-year and accelerated into year-end. We think negative sentiment surrounding these stock will continue which will constrain multiples in the near-term. Therefore, for 2022, we now favor companies that are within 1-year of profitability (even if that means titrating growth down). As such, our top pick for Value is OMI [Owens and Minor] and Our Top pick for Growth is TDOC [Teledoc Health Inc.] … OMI ($55 PT, 35% upside): We are convinced that OMI has turned the corner in its core distribution business, with … new business wins coming to fruition. In 2022, the return of elective procedures, continued Byram strength, proprietary product expansion, and PPE stockpiling/non-healthcare demand should offset the PPE headwinds inherent in a waning pandemic. While the stock has had a nice run this year (+46% to date), valuation remains attractive … Despite the significant virtual health tailwinds brought about by COVID-19, TDOC is trading at 6x NTM [next 12 months] sales vs ~9x pre-pandemic. Much of the sell-off this year is due to concerns surrounding increased competitive intensity … we do not want to downplay … concerns [but] we think this largely misses the forest for the trees, as in our view TDOC has built a platform unrivaled in scope and scale which will serve as a durable moat as competition intensifies”
“Citi: top picks in health care technology and distribution” – (research excerpt) Twitter
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Diversion: “We’re in the Middle of a Pandemic, So Why Do We Love ‘Station Eleven’ So Much?” – The Ringer
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Scott Barlow