Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO analyst Sohrab Movahedi previewed earnings reports for the major banks, highlighting short-term problems but predicting upside for stock prices once more transparency on the economy arises,
“Across the ‘Big 5′ (excl. BMO) in Q4/23, cash earnings are expected to be down approximately 8 per cent year-over-year (ranging from down 20 per cent at BNS to up 4 per cent at NA), largely reflecting higher year-over-year credit provisions of 38 basis points/$3.2-billion (up from 26bps/$2B) and negative operating leverage (softer revenue coupled with sticky expenses). We are forecasting lower year-over-yearearnings at all operating business segments (led by U.S & Int’l Banking). The Canadian bank index’s forward P/E of 9.2 times relative to our 2024E estimates is now comparable to the averages seen during the pandemic and GFC [great financial crisis]. Bank valuations may remain depressed in the near term, reflecting economic uncertainties; however, we expect a re-rating once investors have greater clarity on the macro and earnings growth beyond FY2024. Our Outperform rated names remain CM, NA, EQB, and CWB”.
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BofA Securities’ monthly survey of global portfolio managers uncovered a lot of faith that interest rates are close to a mid-term peak,
“Fund Manager Survey (FMS) investors remain cautious on macro but turn bullish on interest rates; investor playbook for 2024 is soft landing, lower rates, weaker US$, large cap tech and pharma bull continues, avoid China and leverage; investors cut cash from 5.3 per cent to 4.7 per cent (2-year low), move to biggest bond overweight since Mar’09 … investors expect weaker global growth (net -57 per cent) but 74-per-cent predict soft or no landing at all (21 per cent say hard landing); ‘short leverage’ theme … CIOs tell CEOs to improve balance sheet (52 per cent) rather than increase capex (21 per cent) or stock buybacks (18 per cent)… Nov FMS shows long positions in/rotation to bonds, tech (2-year high), REITs, US & Japan stocks (5½-year high) … most crowded trades: long Big Tech 38 per cent, short China stocks 22 per cent, long T-bills 11 per cent.”
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Scotiabank analyst Robert Hope outlined the financial results and top picks in the yield-heavy energy infrastructure sector,
“Overall, Q3 results were ahead of our expectations, and post-results, share price reactions were muted aside from BIP [Brookfield Infrastructure Partners] and TWM [Tidewater Midstream and Infrastructure Ltd.] . Following the quarter, we saw consensus estimates move up the most for PPL [ Pembina Pipeline], ACO [Atco], and KEY [Keyera], and down the most for TWM and AQN [Algonquin]. So far in Q4, we have seen the Canadian 10-year bond yield decrease by ~20 bps and the Canadian dollar continues to weaken, which are largely tailwinds for our coverage universe. Specifically, we have seen the utilities outperform quarter-to-date and the pipeline / midstream groups are also benefiting. On the other hand, sentiment on renewable power names continues to be tepid. Our overall favourite names are ALA [Altagas], KEY, and TRP [TC Energy Corp].”
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Diversion: “Cholesterol-Lowering Gene Therapy Shows Early Promise in First Human Trial” – Gizmodo
Scott Barlow