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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Scotiabank strategist Jean Michel-Gauthier sees big upside for domestic bank stocks,

“Canadian Banks closed the Q4/20 reporting season last week, with some large-scale beats across the board. On average, quarterly EPS were 16% above consensus with revenue 1.1% above consensus. Complementing those big beats, provisions for credit losses (PCL) fell notably after spiking near a 30-year high earlier in the year. Nonperforming loans have also come down a notch. Overall, the big banks have enjoyed a strong end of the year relative to the peak of the COVID crisis. In our view, the economy is healing faster than expected on the back of fiscal and monetary easing. Moreover, recent vaccine news has been a game changer on account of their effectiveness and the speed of their rollouts. If PCL continue to fall, banks valuation multiples should enjoy some upside. Previous P/E highs near PCL lows would imply another 1x multiple point of potential gain. Based on the current 12M forward P/E of 11.6x, this would translate into an 8.6% price upside for the sector. On top of a 4.5% trailing dividend yield and 10% expected growth in 12M forward EPS, the sector could thus post a total return of 24% in 2021.”

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“@SBarlow_ROB Scotia sees 24% upside for Canadian banks in 2021” – (research excerpt) Twitter

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Nomura global economist Rob Subbaraman is predicting a double dip of negative economic news for developed world economies while emerging markets continue to recover,

“Double dips are in store for major DM economies in Q4 or Q1 2021. In contrast, the recoveries in most of EM Asia continue to gain momentum. We see Q2 as the vaccine pivot point, setting the stage for a synchronized global recovery in H2 2021 … this is a sweet spot for risk assets, driving robust capital flows to EM, especially Asia. However, it will not be all smooth sailing. We highlight several major unresolved challenges facing the world, including potentially new ones such as forward-looking markets starting to price the risk of an inflation surge in 2022. … Right now, the significant re-acceleration of infections in the West and parts of Asia has citizens once again in lockdown, shunning public places. Arguably, this poses an even greater risk to the most vulnerable groups than earlier virus waves, for they are now cash-strapped and fatigued.”

“@SBarlow_ROB Nomura sees double dip for developed economies” – (research excerpt) Twitter

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Citri analyst Paul Lejeus wouldn’t buy Lululemon Althletica here (my emphasis),

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“3Q sales and EPS were ahead of company and consensus expectations, though EBIT [earnings before interest, taxes] margin declined slightly driven by SG&A [sales, general and administration costs] deleverage (which may have disappointed some). Ecom sales increased 93% while stores were down 12%. 4Q sales were guided to decelerate slightly vs 3Q … The Mirror acquisition seems off to a great start, on track to outpace $150M in sales already (up from previous guide of $100M) but it will likely be years before that acquisition moves the sales/EPS needle. LULU is a great, well-run company, but at current valuation we believe it is priced near perfection with little room for error.

“@SBarlow_ROB Citi: LULU is fully valued” – (research excerpt) Twitter

“Friday’s analyst upgrades and downgrades” - Globe Investor

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Column: “This market indicator is pointing to higher bond yields and a rally ahead in bank stocks’ – Barlow, Inside the Market

Diversion: “The 10 Best Films of 2020″ – The Atlantic

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