Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank real estate analyst Mario Saric provided something of a game plan for REIT investors,
“Our Current NAVPU [net asset value per unit] estimates are saying ‘buy, buy, buy’, while Corporate BBB yields are saying proceed with caution. Bottom-line, we are reiterating our prior view that REIT hopes are tied to the Economy: no recession through 2023 (i.e., Scotia Economics’ Forecast) = buy REITs now; 2022 recession = 10%+ REIT downside even post 20% year-to-date decline; mid-year 2023 recession = pick your spots. Recent volatility and intra-sector valuation suggests investors have slowly gravitated towards a recessionary scenario, with several “defensives” seeing relative gains. We think of ‘defence’ as lower leverage, lower AFFO [ adjusted funds from operations] trading multiple, higher WALT (contractual and visible cash flow), and less operational economic sensitivity.”
“Scotiabank offers a bit of a gameplan for REIT investors” – (research excerpt) Twitter
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RBC Capital Markets analyst Luke Davis assessed value in the small- and mid-cap energy producer sector and provided top picks,
“We have detailed the components of our net asset value (NAV) estimates for our coverage universe and provided sensitivities to changes in commodity prices, alongside our view of what the market is currently pricing in. While investors remain focused on near-term cash generation and return of capital, we have fielded more investor inquiries recently relating to asset value and NAV, which we see as rational, particularly as the conversation shifts toward ESG and energy security. Based on our current estimates, we believe the broader group is pricing in roughly US$65/bbl WTI on a long-term basis, suggesting incremental upside potential in the context of prevailing oil prices .. Despite recent commodity-driven volatility, we believe the sector remains undervalued with the industry in a better financial position that at any other point historically, with most SMID cap producers expected to be near debt-free into 2023… We continue to recommend producers that have high-quality asset bases, experienced management teams, strong financial positioning, and critical mass in highly economic resource plays. Our favourite Outperform-rated stocks are ARC Resources (ARX), Freehold Royalties (FRU), Headwater Exploration (HWX), Tamarack Valley Energy (TVE), and Tourmaline Oil (TOU).
“RBC: Small and mid cap energy undervalued” – (research excerpt) Twitter
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BofA Securities monthly report on fund manager positioning uncovered an extremely bearish group of people,
“The Full Capitulation: July BofA Fund Manager Survey (FMS) shows dire level of investor pessimism…expectations for global growth & profits all-time lows, cash levels highest since “9/11″, equity allocation lowest since Lehman, BofA Bull & Bear Indicator remains “max bearish” 0; H2′22 fundamentals poor but sentiment says stocks/credit rally in coming weeks… everyone (net 76%) expects inflation to fall (great lead indicator for short rates – Chart 5) but mood still ‘stagflationary’ … Bond yield expectations at 3-year lows as investors anticipate “bull flattening” yield curve … Most crowded trades are #1 long US dollar, #2 long oil/commodities; allocation to stocks lowest since Oct’08 (finally catching up to macro pessimism – Chart 2); investors v long cash & defensives (staples, utilities, healthcare), v short stocks (EU, banks, tech & consumer), have cut exposure to resources. Contrarian Trades: contrarian Q3 trade is risk-on if no Lehman, CPI down, Fed pause by Xmas…short cash-long stocks, short US$-long Eurozone, short defensives-long stocks banks & consumer.”
“Fund managers are really, really bearish” – (research excerpt) Twitter
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Diversion: “11 Times Selfies Turned Tragic” – Gizmodo
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Scott Barlow