Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank strategist Hugo Ste-Marie is recommending clients add to yield-heavy utilities and pipeline stocks,
“Defensive sectors have been out of favor for some time now. Until we see macroeconomic conditions deteriorate further (yields drop), appetite for Defensives stocks could remain muted. Still, that’s probably what makes it a good time to buy from a contrarian perspective … trying to find the right balance between defense and offense is key until we have more clarity on the macro scenario. We’re slightly adding to Utilities/pipes (OW) [overweight] and Energy (up to OW). The move comes at the expense of Banks (UW) and Gold (UW). Overall, the portfolio is OW Cash, Staples, Utilities/pipes on the Defensive side, with OW positions in Energy, Industrials, and Discretionary on the resource/cyclical side.
“Lineup. We’re adding to TRP and ALA in Utilities/pipes sector as well as CVE in Energy. We trim the banks (all four) and gold (swapping ABX for K). Within Discretionary, we’re switching CTC/a for LNR, where our colleague Jonathan Goldman recently initiated on the name with a SO [sector outperform] rating”
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BofA Securities analyst Ebrahim Poonawala sees Canadian bank stocks as cheap but uninspiring,
“Canadian banks are trading at 9.4 times 2024 estimated P/E vs 11.5 times pre-pandemic 5yr median and 1.3 times P/YE23 BV [year end 2023 estimated book value] vs. 13.8-per-cent 2025e ROE [2025 estimated return on equity] forecast. The risks from higher for longer interest rates and lack of drivers for sustained positive EPS revisions are likely to temper investor appetite to add exposure to the group … Dividend yields are near decade highs, but overnight risk-free rate at 5 per cent and a more tempered dividend growth outlook diminish appeal … We expect the next 12-18 months to remain challenging regardless of a recession. Acquisition driven synergies should provide a boost to RBC/BMO, although this is more likely to be 2H24 weighted. TD remains our sole Buy-rated name, however we acknowledge the lack of catalysts with management’s ability to deploy excess capital hampered by the US DOJ investigation. BNS needs expectations for rate-cuts to build or an efficiency plan to rejuvenate investor interest, strategic update at investor day (late Oct). We see limited EPS defensibility at CM if growth/credit backdrops worsen”
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There’s been outbreak of reports recently questioning the direction of the domestic economy beginning with Why isn’t Canada an economic giant? in the Financial Times last week.
BMO Canadian rates and macro strategist Benjamin Reitzes continued the trend late Tuesday,
“Canada Stagnating From More than One Perspective. Canadian Q2 GDP growth was shockingly weak, reporting a mild 0.2-per-cent contraction versus expectations for 1.2-per-cent growth. Downward revisions to early data were the key drivers of the miss, as consumer spending growth took a big step down in the quarter. While the drop in Q2 GDP is a worrying stat on its own, policymakers should be much more concerned that per capita GDP is no larger than in 2017Q2. That metric suggests that Canadians are no better off than they were six years ago, as any economic growth was driven entirely by population growth. Rising living standards have been a consistent theme in Canada for most of the past 60 years. The pandemic and early 1990s were the only other periods since the late 1960s where GDP per capita did not grow over a six year period. Perhaps it’s time to re-examine Canada’s economic policies and priorities”
“BMO: “Canada Stagnating From More than One Perspective”” – (research excerpt) Twitter
“Why isn’t Canada an economic giant?” – Financial Times (paywall)
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Diversion: “If You’ve Got a New Car, It’s a Data Privacy Nightmare” – Gizmodo
Scott Barlow