Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC analyst (and one of my former co-workers, albeit a long time ago) Darko Mihelic published a giant 179-page report on Canadian bank stocks Wednesday morning, (my emphasis).
“When to buy banks (or not): … There is no hard and fast rule, but it is generally best to buy banks in times of ROE expansion and positive earnings revisions. ROE trends and stock price trends have a positive correlation. ROE expansion normally occurs during periods of: (1) stronger economic growth, (2) rising equity markets, and (3) active capital markets… Valuation metrics are a poor predictor of peaks and troughs. Changes (or expected changes) in the fundamental outlook are more important, in our view… good predictor of bank share prices during cycle turns is the Canadian leading economic indicator (LEI) … The direction of credit spreads is what we think matters, and tightening credit spreads should be positive for bank shares … The large Canadian banks in the left top quadrant (NA, CM, and RY) have relatively lower exposure to COVID-19-exposed loans versus peers and also relatively higher capital level. "
I’ve only scanned and scratched the surface of this report so far (in my defence, it just came out this morning), and will be going through it in detail in next few days.
“@SBarlow_ROB RBC: Canadian bank stock with high capital ratios and low COVID-related loan exposure” – (chart) Twitter
BMO strategist Brian Belski published his update on favoured Canadian stock sectors and individual stock picks. The overweight sectors and rationale go as follows,
“Communications services: Yield, content and cash flow; work from home is a major positive… Energy: “Focus on yield and cash flow only; languishing underlying commodity likely to persist…Multi-divisional; biggest of the big – especially those focused on the U.S. - are best positioned … Real Estate: Yield and cash flow; lower for longer interest rates to provide support.'
Stock picks are BCE Inc., Telus Corp., Rogers Communications Inc., Enbridge Inc., Suncor Energy Inc., TC Energy Corp., Toronto-Dominion Bank, Royal Bank of Canada, Canadian Imperial Bank of Commerce, Manulife Financial Corp., Sun Life Financial Inc., H&R REIT and RIOCAN REIT.
“@SBarlow_ROB BMO: top Canadian sectors, picks " (table) – Twitter
Also from BMO, economist Robert Kavcic details the resurgent Toronto real estate market,
“Toronto home sales surged off low levels in June, leaving activity down just 1.4% from year-ago levels. Listings bounced back strongly too and, at this point, it looks like the market is still balancing—the sales-to-new listings ratio sat at roughly 54% seasonally adjusted, which is not indicative of a market with prices correcting. In fact, the average transactions price hit a record high in the month… We continue to believe that, after effectively shutting down during the pandemic (which is different than correcting), the market will come back stronger than most expected in the near term … Note that condo sales were down 16.3% y/y, while single-detached sales were up 5.6% y/y”
“@SBarlow_ROB BMO: Toronto home sales surge in June” – (research excerpt) Twitter
Diversion: “This Is Not a Normal Mental-Health Disaster” – The Atlantic
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