A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities’ U.K.-based oil analyst Christopher Kuplent recommends investors look through volatility in spot and short term oil prices,
“We believe spot oil price volatility often overshadows what should by far be the more important value driver – namely the shape and level of futures. While spot oil has been on a round trip from $70 to $85 and back since the end of the summer, we note the longer-dated end of the Brent futures have moved up by $5/bbl to now present a much flatter shape anchored above $60/bbl. We believe this underpins our bottom-up valuations, which are based on long-term Brent oil price assumptions of $60/bbl from 2024 onwards, showing average share price upside of >20% across European Oils”
“BofA: Watch longer oil prices, not spot” – (research excerpt) Twitter
Morgan Stanley U.S. equity strategist Michael Wilson is bearish for 2022, expecting the S&P 500 to finish at 4400, well below the current level near 4575,
“The 2022 US Equities Outlook puts the 2022YE S&P 500 price target at 4,400 with a bear case at 3,900 and a bull case at 5,000… [his forecasts are] above consensus on EPS growth, but well below on valuation. While EPS growth is modeled at 10% and 8% for 2022 ($227) and 2023 ($245), our 12-month target P/E of 18x is 15% below current levels ... While we emphasize stock picking, sectors and styles cannot be ignored. Overweights: Healthcare, Real Estate, Financials, Underweights: Cons. Discretionary, Tech Hardware Preference for earnings stability and undemanding valuations given our view of higher long-end rates”
“MS’s Wilson is ... still bearish” – (research excerpt) Twitter
Scotiabank strategist Hugo Ste-Marie published 10 Themes for 2022 - Running Ahead of Inflation with Equities on Thursday.
The top themes are,
“1. Global growth: Hard not to be optimistic, 2. Household net worth up off the charts , 3. Supply-chain issues, inflation, and the reference to the ‘70s , 4. Don’t fear the Fed , 5. Above-trend earnings , 6. Bond yields: cyclical > structural forces , 7. Quant Predictions – Plenty of fuel left in the Value tank , 8. Looking for income: Why not buy stocks, 9. Painful diversification , 10. ESG/decarbonization could give an edge to Energy”
The section on buying equities for income goes as follows,
“Looking for income: Why not buy stocks. S&P 500 DPS [dividend per share] growth is now expected to come in at +8.3% in 2022 and +6.4% in 2023, while TSX DPS growth is expected to hit +5.7% next year followed by +5.9% in 2023. Still, we believe current forecasts are too conservative. A strong earnings growth recovery typically comes with an impressive bounce in DPS growth (not a single-digit bounce, as expected by consensus). Other factors that play a key role in shaping Board decisions to return more capital to shareholders have also seen substantial progress in returning to normal (balance sheet strength, excess liquidity, [free] cash flow generation, payout ratio). To provide some magnitude: A 45% payout in 2023 (instead of the 40% expected) would peg the 2020-23 TSX DPS growth rate at 28% (well above the 14% implied by consensus).”
“Scotia: Why equities are the place for yield” – (research excerpt) Twitter
Diversion: “Microsoft Makes Breakthrough in the Quest to Use DNA as Data Storage” – Gizmodo
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