Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO Capital Markets analyst Randy Ollenberger advises clients to get excited about cash returning to shareholders in the oil and gas sector,
“Getting excited for higher returns. We expect the Canadian oil and gas group to generate $36.4 billion (10.6-per-cent yield) of free cash flow in 2024 at the current strip [ futures prices], and return $27.8 billion of that to shareholders (8.1-per-cent yield). We continue to expect CNQ to be the first amongst its peers to reach its net debt floor and officially begin allocating 100% of free cash flow to shareholders. We would also highlight IMO’s strong potential ... On the natural gas side, TOU and ARX remain committed to returning the vast majority of their free cash flow next year”
Mr. Ollenberger has “outperform ratings” on:
- Imperial Oil Ltd. (IMO-T)
- MEG Energy Corp. (MEG-T)
- Canadian Natural Resources Ltd. (CNQ-T)
- Cenovus Energy Inc. (CVE-T)
- Tourmaline Oil Corp. (TOU-T)
- Whitecap Resources Inc. (WCP-T)
...
Goldman Sachs U.S. equity strategist David Kostin published his market outlook for 2024 which forecasts positive but underwhelming returns,
“We forecast the S&P 500 index will end 2024 at 4700, representing a 12-month price gain of 5 per cent and a total return of 6 per cent including dividends … At this time next year, portfolio managers will look back and realize the best investment strategy for 2024 was to follow Taylor Swift’s advice in the song from her 1989 album: ‘All You Had To Do Was Stay’ – invested … The massive outperformance of the ‘Magnificent 7′ mega-cap tech stocks has been a defining feature of the equity market in 2023. The stocks should collectively outperform the remainder of the index in 2024. The 7 stocks have faster expected sales growth, higher margins, a greater re-investment ratio, and stronger balance sheets than the other 493 stocks and trade at a relative valuation in line with recent averages after accounting for expected growth … Although we forecast a below-average annual return at the S&P 500 index level, more attractive investment opportunities exist beneath the surface. We highlight three strategies: (1) Own quality stocks alongside persistent “late cycle” anxiety (GSTHQUAL). (2) Own growth stocks with high ROIC given stable growth and interest rates. (3) Own beaten-down cyclicals given recession risk is lower than feared”
Stock in Mr. Kostin’s high quality basket that are most likely to interest Canadian investors include Alphabet Inc., Home Depot Inc., PepsiCo. Inc., Paychex Inc., Cadence Design Systems Inc., Microsoft Corp., American Tower Corp., and Meta Platforms Inc.
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In a separate BMO report, senior economist Rabert Kavcic took a regional look at the domestic housing market,
“Canadian home prices are falling again, but it still matters critically where you are. Calgary is still among the strongest markets in Canada. The market balance has eased meaningfully, but a 72-per-cent sales-to-new listings ratio still tilts in favour of sellers and is driving price gains. Toronto and areas 1-to-2 hours outside the core remain the weak spot in Canada—no surprise as these markets ran the fastest during the price boom. Toronto’s sales-tonew listings ratio (34.5 per cent) is not far off the 33.6-per-cent low set in 2008. In the latest three months, the benchmark price has fallen at a 12.2-per-cent annualized pace. Montreal is holding up very well with prices mostly flat in recent months and only 3 per cent off record levels. Ditto for Vancouver where the market balance is hanging onto loosely balanced territory. Atlantic Canada continues to draw in migrants from outside the region which, along with torrid international inflows, is driving a tight market”
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Diversion: “16 Iconic NASA Photos That Changed Everything” – Gizmodo
Scott Barlow