Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi mining analyst Ephrem Ravi’s mid-term bull case for copper includes two Canadian beneficiaries,
“Equity outlook favourable, especially on a 12,000$/t price from 2024 onwards as a bull case ... we highlight our bull case price of $12,000/t where there could be a 30% upside to the NPV [ net present value] of our copper stocks on average (vs a current P/NPV of 0.8x the copper stocks are currently trading at). We analyze companies on the following metrics: 1) production growth; 2) mine lives; 3) bull/bear scenarios on EBITDA/NPV; 4) what commodity prices are priced into stocks; 5) earnings growth and PE valuation; 6) return on equity and price-to-book valuation; and 7) copper exposure in revenue mix … Copper equities are trading at 4.3x EV/EBITDA for ‘22 and 4.7x for ‘23. The copper sub-sector is expected to deliver 12-14% FCF yield over the next three years. Strong cash generation should open way for additional capital management by the miners and potentially lead to a sector re-rating. The copper equities are at 0.82x NPV at our base case 9,000$/t L.T copper price, 0.63x NPV at our bull case 12,000$/t … We have Buy ratings on the following stocks that have varying degrees of copper exposure: Europe – Glencore, Anglo American, Rio Tinto; Americas – Freeport, First Quantum, GMexico, Teck Resources; Australia – Oz Minerals, Sandfire, Rio Tinto; Asia – China Moly, MMG, Zijin. We have Sell ratings on Boliden and KGHM in Europe. "
“@SBarlow_ROB Citi’s bull case for copper benefits two Canadian miners’ – (research excerpt) Twitter
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Bespoke Investment Group highlights the bearishness of the “smart money,”
“According to Wikipedia, the ‘Smart Money’ indicator was popularized by investment manager Don Hays. This indicator is based on a theory that ‘dumb’ money (emotional, reactionary, news-driven) typically trades around the open each morning, while the more thoughtful ‘smart’ money typically trades near the close. Followers of the ‘Smart Money’ indicator want to see the market rallying late in the day as opposed to trading higher at the open and then falling into the close. Late-day selling is seen as a bearish indicator. Unfortunately for market bulls, the ‘Smart Money’ indicator has been super negative for the past couple of weeks. As shown below, heading into today, the S&P 500 had traded lower in the last hour of trading during 8 of the last 10 trading days. Sure enough, today the S&P 500 was flat at 3 PM only to trade lower in the last hour and close down by 0.25%.”
“@SBarlow_ROB Bespoke: the ‘smart money’ is bearish” – (research excerpt) Twitter
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BMO economist Robert Kavcic notes that the number of U.S. companies planning to raise prices is approaching the 1979 peak,
“Only once have we seen this share of U.S. small businesses planning to raise prices, on balance. The year was 1979, and about six months later, U.S. inflation would peak at almost 15% year-over-year. In fact, September’s NFIB survey on the percentage of firms planning to raise prices precisely matches the high set back in that infamous period. Now, this is not to say that we’re going back to that level of inflation, but it’s becoming clearer and clearer that ‘transitory’ will be longer than most (including policymakers) have thought, and they could be slipping further behind the curve. Supply-side issues are at work. But, interestingly, the lowest share of small businesses on record report a lack of demand as their biggest issue— both sides of the economy are working in tandem to drive prices higher.”
“@SBarlow_ROB BMO: “the lowest share of small businesses on record report a lack of demand as their biggest issue” – (research excerpt, chart) Twitter
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Diversion: “Woman rocked awake by meteorite chunk crashing into her bedroom” – CBC
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Scott Barlow