Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets analyst Robert Kwan likes midstream stocks within the dividend-heavy energy infrastructure sector but is paying close attention to well capitalized, beaten down alternative power companies,
“Moderating interest rates - is the pressure off, or will companies move to take advantage? Since most companies reported Q3/23 results, the 10-year Government of Canada bond yield has declined by over 50 basis points, which has helped alleviate some concerns about funding costs … While we have already seen a number of debt issuances, we will be interested in hearing Q4/23 conference call commentary … Heading into the quarter, we continue to prefer Midstream stocks, but keep an eye on renewable power. Given favourable relative valuations, attractive financial setups (e.g., payout ratios; debt/ EBITDA), elevated commodity prices and our expectation for growth in Western Canadian oil and gas production, we continue to like Midstream stocks within Canadian Energy Infrastructure. Following a rough 2023 and against a backdrop of moderating interest rates along with improved pricing that reflects the higher cost of capital environment, we would particularly keep an eye on well-capitalized renewable power developers. As part of our Global Power, Utilities & Infrastructure 2024 Outlook, our best Canadian stock ideas are Pembina and AltaGas (for Midstream), Northland Power (for Renewable IPPs), and Emera and TransAlta (Canadian Power and Utilities)”
“Tuesday’s analyst upgrades and downgrades” - Globe Investor
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BMO chief economist Douglas Porter reminded clients that Wednesday’s GDP report will not be entirely what it seems on the surface,
“Not to pound on an expired equine, but … Wednesday’s GDP report for Canada is expected to show a flat reading for November GDP, and a flash estimate of something roughly similar for December. In the event, the economy will have seen essentially no growth over the final nine months of 2023. This, at a time when the population is growing at a breakneck pace of more than 3 per cent year-over-year. As a result, per capita real GDP is on course to drop roughly 2.5 per cent year-over-year in Q4. In the past 50 years, there have only been four other times that per capita output has dropped so severely —and all four were during true doozies of recessions; in the early 1980s, early 1990s, 2008/09 and 2020. Ouch”
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BofA Securities U.S. quantitative strategist Savita Subramanian continues to see signs of recovery in cyclical sectors,
“Last week, we highlighted emerging signs of a bottom in the manufacturing/goods cycle. We continue to see encouraging signs. Our Transportation analyst’s Truck Shipper Survey hit key inflection points, the S&P manufacturing PMI rose to the highest level since October 2022, and ASML’s [semiconductor] orders tripled. Company commentaries so far [this earnings seasons] also suggest the inventory cycle has inflected, and the tailwind from fiscal infrastructure investments continues to gain momentum. While capex is tracking weak at down 13 per cent year-over-year, our capex guidance ratio jumped to 1.7 times [upwards earnings revisions versus downward revisions] (vs. historical average 1.4 times), suggesting another healthy year for capex in 2024″
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Newsletter: “This household debt stress test may worry TSX investors. Plus, why Microsoft is the better stock pick than Apple” – Report on Business
Diversion: " See Webb Telescope’s ‘Mind-Blowing’ Collection of Spiral Galaxy Images” – Gizmodo
Scott Barlow