Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
A slide from Scotiabank strategist Hugo Ste-Marie’s updated presentation shows that based on forward price to earnings ratios, domestic bank stocks are as cheap as they’ve been in 20 years when compared to the overall TSX,
“Financials/Banks are still facing a challenging environment. If banks manage to beat with PCL [loan loss provisions] stabilizing or improving somewhat, we believe the group is well positioned to do some catch-up. They’re trading at 10.5x forward earnings vs. the TSX at 18.7x. Banks have not been that cheap vs. the TSX in 20 years. Bond yields rising and YC steepening have also been beneficial.”
This is based on forward earnings estimates, which investors can view as credible or not, but bank earnings so far this reporting season have been generally encouraging despite headwinds.
“@SBarlow_ROB BNS: Canadian banks as cheap as they’ve been in 20 years” – (research excerpt, charts) Twitter
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B of A Securities U.S. quantitative strategist Subramanian provided a list of stocks representing both value and quality characteristics (my emphasis),
“[Our] Value Trap model identifies industries that are inexpensive for the wrong reasons: relative prices are falling faster than earnings deteriorating. A number of industries screen as value traps today, like REITs (potentially de-rating on structural COVID-19 related headwinds) as well as Telecom and Multi-Utilities… Traditional cyclical industries like Household Durables, Autos, Metals & Mining, Construction Materials, and Semiconductors screen as Good Value opportunities, backed by improving fundamentals as well as price momentum. We also recommend adding a quality overlay to value which has historically enhanced returns by over a full percentage point.”
The top 15 picks are, in order, Acitvision Blizzard Inc., Nasdaq Inc., NVIDIA Corp., Republic Services Inc., Extra Space Storage Inc., Fortinet Inc., Parker-Hannifin Corp., Broadcom Inc., CMS Energy Corp., Microsoft Corp., Aliant Energy Corp., Cisco Systems Inc., Morgan Stanley, Adobe Inc. and FMC Corp.
“@SBarlow_ROB BoA: “S&P 500 stocks with 1) below-median valuation on Fwd PE vs. 10yr history, 2) above-median 3m [three month] revision trends and 3) above-median 3m price momentum trends (as of 8/20/20)” – (table) Twitter
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Morgan Stanley quantitative strategist Boris Lerner published a stock picks list of his own,
“Quality in Surprises: We use our proprietary Quali-SURE (Quality in Standardized Unexpected Revenue and Earnings) strategy to identify high quality stocks that have delivered outsized earnings and revenue surprises versus their sector peers … We highlight 17 stocks … Favored (15): Amazon.com Inc, Procter & Gamble Co, Blackrock Inc, Deere & Co, Activision Blizzard Inc, Humana Inc, Biogen Inc, O’Reilly Automotive Inc, Phillips 66, Schlumberger Ltd, Transunion, Zynga Inc, Proofpoint Inc, Ultragenyx Pharmaceutical, Varonis Systems Inc”
“@SBarlow_ROB MS: top U.S picks coming out of earnings season” – (research excerpt) Twitter
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Column: “A major U.S. bank thinks inflation is just around the corner - and that’s good news for Canadian stocks” – Scott Barlow, Inside the Market
Diversion: ‘Netflix Canada in September 2020: What’s new this month’ – Macleans
Tweet of the day: " @Schuldensuehner BofA disagrees w/USD debasement thesis. Recent Dollar weakness does not reflect USD replacement by other currencies, none of which meet reserve currency requirements. Euro cannot be credible alternative without fiscal & banking union. High debt & loose MonPol not only US problems” – Twitter
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Scott Barlow