Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
A weekly global research summary from BofA Securities (formerly Merrill Lynch) reiterated a bullish call on semiconductors from analyst Vivek Arya.
Mr. Arya lists the stocks he believes will benefit from the structural changes resulting from the pandemic,
“We believe some of the societal and enterprise changes – work from home, telecommuting, enhanced mobile usage, disaster planning – being made in response to COVID-19 will endure, similar to security-related changes made post 9/11 … In addition, greater computing and bandwidth usage, the secular move to greater video streaming, online gaming (enhanced by pending 5G deployments) all benefit top compute, gaming, networking chip vendors NVDA, AMD, INTC, AVGO, MRVL and IPHI. Enhanced mobile experiences also benefit RF chipmakers SWKS, QRVO and AVGO … Data and connectivity are simply the new “oil” of the global economy, with chipmakers ideally positioned to benefit on a secular basis. Semis also have negligible exposure to the worst-impacted parts of the global economy such oil/gas, heavy machinery, mining and retail.”
“@SBarlow_ROB BoA: " Data and connectivity are simply the new “oil” of the global economy, with chipmakers ideally positioned to benefit on a secular basis" – (research except) Twitter
“@SBarlow_ROB BoA (03/26): Structural changes favour compute/gaming semis “ – (research excerpt, separate report) Twitter
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Goldman Sachs U.S. equity strategist David Kostin believes more cuts in U.S. dividends are ahead and reports concerns about a sharp reduction in buyback activity,
“Thirteen S&P 500 constituents have reduced or suspended their dividends during the past month as the COVID-19 economic disruption escalated. We forecast on a full-year basis S&P 500 dividends will be 25% below the level of last year. Since the start of March, 51 companies accounting for 27% of 2019 aggregate buybacks have suspended their repurchase programs. We forecast share repurchases will decline by 50% to $371 billion during 2020. Reduced demand from the principal buyer of shares during the past decade means wider trading ranges, less downside support, and slower EPS growth. Firms prioritizing buybacks have lagged YTD as investors reward firms reducing debt and those with strong balance sheets.”
“@SBarlow_ROB Kostin:” – (research excerpt) Twitter
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Citi is among the more bearish research houses lately.
On Friday, global strategist Robert Buckland argued that the 30-per-cent drop in world equities doesn’t match the upcoming decline in profits,
“How bad could it get? … In January, Citi economists were forecasting 2020 GDP growth of 2.7%, similar to 2019. Now they are forecasting -1.6%. According to our top-down models, this would imply a 50% fall in global EPS over 2020 … One simple rule, which worked in previous downturns, is that share prices fall as much as EPS. For example, in the last global recession, The MSCI World fell around 60%. EPS fell by the same amount, although with a 6-9 month lag. That suggests that equity markets may need to fall 50% before they have priced in this year’s likely EPS drop. At the time of writing the MSCI World is down around 30%, suggesting more downside … Of course, the dramatic intervention of central banks is intended to limit the downside for asset prices. So, perhaps equities don’t fall as much as EPS this time round, but we are not convinced that -30% is enough… A sustainable recovery in equity markets is unlikely until there are signs that the pandemic is under control, especially in the US.”
“@SBarlow_ROB C: "How bad could it get?"” – (research excerpt) Twitter
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Morgan Stanley strategist Michael Wilson is WAY more bullish than Citi.
In a Sunday report called “Good Companies At Better Prices,” Mr. Wilson presented a list of stock ideas that are … ,
“[Overweight] rated by Morgan Stanley analysts, … have ROE in the top 50% of stocks in their respective regions and sectors, and have sold off at least 15% from 52 week highs (the median stock on our list is down 27%).”
The most widely known names on the list include Apple Inc., Alphabet Inc., Boston Scientific Corp., Dover Corp., Ericsson, Home Depot Inc., Blackrock Inc., Mastercard Inc., Microsoft Corp., Nike Inc., Schneider Electric SE, Stryker Corp. (disclose: I own a position in Stryker in my RRSP), Visa Inc. and Xilinx Inc.
“@SBarlow_ROB MS's Wilson: "Good companies at better prices" – (research excerpt) Twitter
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Diversion: “What Doctors Are Afraid Of’ –The Atlantic (video)
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Scott Barlow