Daily roundup of research and analysis from what The Globe and Mail’s market strategist Scott Barlow
RBC analyst Pammi Bir published his top picks for Canadian REITs,
“We have 12 Outperforms: Allied Properties REIT, Boardwalk REIT, BSR REIT, CAPREIT, Dream Industrial REIT, European Residential REIT, First Capital REIT, Granite REIT, InterRent REIT, Killam Apartment REIT, Minto Apartment REIT, and SmartCentres REIT. Also rated Outperform is Chartwell Retirement Residences. Thematically, we remain overweight multi-family and industrial, which continue to rank at the top of our fundamental pecking order… Notably, listed real estate returns were positive around the world, as visibility on fundamentals improved and investors capitalized on discounted valuations. TSX REITs outperformed REITs in Europe (18%), Asia (16%), and the Global Index (27%), but trailed the US (43%)… A good setup, but still sleeping with one eye open. We believe support remains in place for a healthy year of returns ahead, including 1) further gains in economic traction, 2) a continued recovery of property fundamentals (~3% SP NOI [net operating income] growth), 3) upside in NAVs (6%) and healthy earnings growth (8%), 4) low interest rates, 5) reasonable valuations, and 6) strong liquidity. Yet, we remain acutely aware of potential downside risks from pandemic related setbacks to economic activity, particularly with reintroduced restrictions, and rising interest rates, including a sharp steepening of the yield curve.”
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BMO energy analyst Randy Ollenberger’s year ahead report is entitled The Best is Yet to Come,
“2021 turned out to be a great year for energy investors; we think 2022 could be equally good as a multi-year bull market for energy takes hold. In our opinion, the recent European energy crisis may provide a glimpse of things to come following years of underinvestment, tightening environmental expectations and shifting shareholder demands. The North American oil and gas group is in its strongest financial position in the last 15-years and poised to generate record levels of free cash flow that we believe will be largely distributed to shareholders… The oil and gas industry is facing an unprecedented challenge: what to do with all the cash? Free cash flow for our North American coverage group soared from $9.6 billion in 2020 to $140 billion in 2021, allowing the group to reduce debt as well as boost dividends and share buybacks. We expect free cash flow to increase to more than $160 billion in 2022 and $170 billion in 2023 and believe that paying down debt will be a lower priority in 2022. We anticipate this will result in accelerating cash returns to investors. Our top recommendations are Antero, ARC Resources, Canadian Natural, Cenovus, Crescent Point, Devon, Enerplus, Headwater, Ovintiv, Parex, Pioneer, Suncor, Topaz, and Tourmaline.”
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I don’t usually feature individual stocks in this morning roundup, but Lululemon Athletica Inc. ‘s disappointing guidance Monday was important enough to send the global apparel sector as a whole sharply lower. Lululemon, along with Peleton Interactive Inc. and Zoom Video Communications Inc., is also an example of a company that benefitted from lockdown conditions but now might face slowing earnings growth prospects as economies re-open.
BofA Securities sees Monday’s price weakness as a buying opportunity in Lululemon stock,
“LULU preannounced expectations for 4Q revenue and EPS at the low end of its previous ranges, implying a 23% 2yr sales growth CAGR [compound annual growth rate] in 4Q (vs 26% in 3Q). The lower guidance was predominately driven by the volatility associated with Omicron, particularly in the back half of. We reiterate our Buy rating and view the recent pullback in the stock as a compelling opportunity, with the stock at 23x EV/EBITDA vs 31x historical 2yr avg, and our view that the 4Q hiccup will prove to be transitory in nature.”
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Newsletter: “Morgan Stanley’s top stock picks for volatile markets” – Globe Investor
Diversion: “U.S. surgeons transplant pig heart into human patient in medical first” – CBC
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Scott Barlow