Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank energy infrastructure and utilities analyst Robert Hope provided his top picks for income investors,
“We like the Alberta power producers (TransAlta, Capital Power) going into the quarter given the strong pricing environment, and our estimates are well above consensus. On the midstream side, Keyera continues to be a name we like as its businesses continue to benefit from the energy environment and its KAPS project should enter service soon. TC Energy should have a good quarter, and we believe its shares could benefit from asset sale announcements in the coming months. In the utilities, we believe incremental clarity on AltaGas’ global export margins and CEO search could be well-received by the market, though we may have to wait another quarter for this. The renewable power group has seen their valuations exhibit a downward, albeit volatile, trend since last April. That said, we think valuations found a floor in late February, and we continue to see a number of tailwinds for the group that are supportive of higher valuations. Our favourite renewable power names are Boralex, Brookfield Renewable, and Northland Power.”
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In a brief segment that might start a riot on social media, BMO chief economist Doug Porter pushes back on the ‘not enough houses’ argument for stubbornly high home prices,
“The latest drop in housing starts is likely to revive chatter about the disconnect between the pace of new home construction and population growth in this country. A new trendy metric is to look at the number of starts divided by the growth in the working age population, compared with a long run average. Over the past 45 years or so, that ratio has typically been about 0.60 (or about one new build for every 1.7 additional adult). In the past year, the ratio has plunged below 0.5 as housing starts have dipped even as population growth has zoomed to multi-decade highs. To be clear, starts are historically strong, it’s the population spurt that’s changed the picture. If we didn’t have a supply shortage before, we are going to have one when the population grows by 1 million in a single year. Yet, sifting through the deep ebbs and flows of the past few years, the underlying trend in starts/population growth really is not out of kilter with long-run averages. Over the past five years, the ratio has been even a bit above the long-run norm. It’s true that this ratio perhaps should be now tilting up, as there are more folks living alone, and more that own second homes. But we would simply re-assert that the wildness seen in the housing market during the pandemic was fundamentally a demand surge, and not some new supply issue.”
“BMO chief economist pushes back on the ‘not enough houses’ argument” – (research excerpt) Twitter
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An ongoing series of network hacks makes cybersecurity stocks a reliable source of profit growth. Morgan Stanley’s research summary for Wednesday included the firm’s top picks in the sector,
“MS Research Analyst Hamza Fodderwala highlights that the safe haven trade seems back for now. He thinks that Q1 checks suggest largely healthy demand versus mostly conservative estimates. In his view, the environment is clearly much tougher than a year ago, but it hasn’t gotten incrementally worse since last quarter and is mostly stable, unlike other areas of software. He notes that Q1 is typically the seasonally slowest quarter of the year for security and enterprise software, in general. Therefore, he wouldn’t expect far more upside to FY23 outlook beyond the magnitude of Q1 beats. On FTNT (OW, $77 PT), Hamza flags solid checks against higher expectations. For CYBR (OW, $173 PT), he notes a good setup on lower expectations. For CHKP (UW, $116 PT), Hamza notes that checks downticked but consensus estimates finally look reasonable. For NET (EW, $47 PT), he points out solid checks and early momentum in SASE. On RPD (EW, $48 PT), he adds that survey data and channel conversations are showing signs of potential stabilization. For VRNS (EW, $24 PT), he notes that checks are steady, while FY23 guidance remains undemanding. On QLYS (UW, $103 PT), he sees share losses and maturation of VMDR upsell motion showing up in checks/survey data. For TENB (EW, $48 PT), Hamza notes that checks are stable, but he sees limited upside to Q1 estimates”
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Diversion: “How ‘California’ became a bad word” – The Atlantic
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