Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
“With financial leverage drastically improving across the oil sands group, we expect company priorities in 2023 will shift towards increasing shareholder returns rather than further debt reduction … Cenovus Leads the Way. Although many producers have outline d a net debt floor which will result in them returning 100% of free cash flow to shareholders, Cenovus will be the first to achieve this. We expect the company to reach its final net debt target of $4 billion around year -end 2022 , and will begin distributing essentially all of its free cash flow to shareholders in 2023 via a mix of base dividends, variable dividends and share buybacks. As a result, we believe Cenovus will have the highest total cash return yield within its peer group in 2023, while we anticipate Canadian Natural to return the most on an absolute basis”
Morgan Stanley analyst Stephen Byrd identified six signs that ESG investing will accelerate in 2023,
“Trend #1: In our view, Rate of Change investing will grow in popularity. Our recent note focused on ESG Rate of Change was one of the most read reports at Morgan Stanley in 2022, and feedback was supportive of the concept of ‘embracing the improvers’ — the benefits of investing in stocks that (i) are leading the way on improving ESG metrics, (ii) are demonstrating a rate of change that can generate tangible financial benefits such as revenue/margin growth and risk reduction, and (iii) offer attractive risk-reward skews … ESG criteria in valuation, with investors interested in better understanding … Trend #2: We expect to see continued growth in the adoption and integration of ESG’s impact on financials and stock performance. According to The Investment Association’s (IA) Annual Survey in 2021, around half (47%) of the ~100 members surveyed were integrating ESG into their investment processes … Trend #3: An increased focus on the interconnected impact of climate change specifically related to physical risk, water availability, food pricing/scarcity, and biodiversity. Trend #4: Regulatory evolution — Rate of Change and the dual goals of Energy Security and an effective Energy Transition. .. Trend #5: Global Supply Chain and Labor, Employee Experience, and Data Privacy and Security… We think social concerns will remain in the forefront for ESG investors in 2023 and see topics on the global supply chain and labor being of increased importance. We also expect to see investors continue to monitor trends on human capital/employee experience … Trend #6: More scrutiny of governance improvements, with more emphasis on transparency and alignment with shareholder interests.
BofA U.S. quantitative strategist Savita Subramanian provided investor guidance in the most recent edition of her Relative Value Cheat Sheet,
“The S&P 500 still screens as statistically expensive vs. history on 17 out of 20 of the measures we track . Ahead of prior market bottoms, the index screened as expensive on just four measures, on average. Prior troughs saw the S&P trade below its average fwd P/E, trailing normalized PE, and median fwd P/E measures, but it trades above average on all three today … Wall Street strategists aggressively increased exposure to bonds relative to stocks by +6ppt in 2022, one of the biggest moves in history … Moreover, hedge funds are now 40% net long Utilities, the most bond-like sector in the S&P 500 … US Financials may be a good spot to park assets in the near-term. It has shot to #1 in our short-term sector model, dethroning Energy after its 18-month streak. Financials is trading at a relative discount to its average market multiple on all measures we track, but unlike similarly inexpensive Health Care and Energy which saw an increase in relative exposure of active funds in 2022, Financials saw a drop in exposure in 2022 and sits close to a 10% underweight in the average active US mutual fund”.
“Energy no longer top rated sector at BofA” – (research excerpt) Twitter
Diversion: “Winners of the 2022 Close-Up Photographer of the Year” – The Atlantic
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