Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Credit Suisse global strategist Andrew Garthwaite thinks the rally in cyclical stocks has run its course and is slashing his recommending weighting in mining stocks,
“PMI [purchasing manager survey of manufacturers] of c.71 is discounted. Non-financial cyclicals in Europe are pricing in a PMI of c.71 (i.e. 6% GDP growth vs. consensus of 4.2%). Largest rally on record. Non-financial cyclicals have outperformed defensives by 50%; the previous largest rally was 47% in the immediate aftermath of the global financial crisis. 2.6% inflation expectations is now priced in. Expensive. The P/B of non-financial cyclicals has moved from being clearly cheap (relative to defensives) to now being close to an all-time high … We halve our mining overweight because the dollar threatens a short-term rebound, China PMI is slowing and Chinese monetary policy is being tightened. This leads to underperformance 83% of the time (especially with Chinese copper imports up 34% last year). This sector may ‘pause’ but we avoid taking our weightings down further because the medium-term cyclical and structural support is solid”
“@SBarlow_ROB CS’s Garthwaite says recovery already priced into cyclicals, slashes mining OW’ – (research excerpt) Twitter
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BofA Securities research committee filters U.S. analysts best ideas to form the U.S. 1 list of top picks. The resulting portfolio has underperformed the S&P 500 over the past one and three months but it’s has dramatically outperformed the benchmark over the past year – 76 per cent versus 56 per cent.
The list changes rapidly – there have been 13 additions and deletions over the past three months.
The current recommendations consist of 37 stocks. Popular names include Activision Blizzard Inc., Alphabet Inc., Netflix Inc., Amazon.com Inc., Tractor Supply Co., Blackrock Inc. , HCA Healthcare Inc., Medtronic PLC, Neurocrine Biosciences Inc., Eaton Corp. PLC, Union Pacific Corp., Ericsson, Salesforce.com Inc., and Applied Materials Inc..
“@SBarlow_ROB BoA’s US1 list has OP’d the S&P 500 by 20% in past 12 months” – (full table) Twitter
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Somewhat echoing Mr. Garthwaite, Morgan Stanley U.S. equity strategist Michael Wilson is recommending clients move to higher quality stocks before the effects of inflation hit profit margins in more volatile sectors,
“We continue to hear anecdotal evidence that costs are rising for many key inputs for companies – materials, logistics, labor, etc. Last week’s Manufacturing PMIs shed further light on how acute these cost pressures may become over the next few months. While we may be a little early, we believe now is the time to shift one’s portfolio up the quality curve while liquidity remains flush and before these supply/margin issues become more obvious.”
Mr. Wilson included his Fresh Money Buy List of U.S. stocks with Alphabet an addition for April. The list is short at 11 members – Citizens Financial Group Inc., Exxon Mobile Corp., Humana Inc. , Johnson & Johnson, Lamar Advertising Co., MasterCard Inc., PVH Corp., Simon Property Group Inc., Synchrony Financial, T-Mobil U.S. Inc., and Welltower Inc.
“@SBarlow_ROB MS’s Fresh Money Buy List is also performing well” – (table) Twitter
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Diversion: “Scientists Debate Who Would Really Win Godzilla vs. King Kong” – The Ringer
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Scott Barlow