Top stock picks in Canadian and global energy: RBC

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BofA Securities (formerly Merrill Lynch) analyst Ebrahim Poonawala has been skeptical about the outlook for Canadian banks, but he appears to be moving towards a more mixed view in the Tuesday research report “Canadian Banks: Too soon?,”

“Consensus forecast calls for a full EPS recovery (back to 2019 levels) for the banks by 2022 or within three years. Looking at the EPS trajectory coming out of the 2008/09 great financial crisis (GFC) we note that it took four years (2011) for the group to return to pre-crisis EPS (2007) … Zero-bound interest rates (pressuring net interest margins) and the prospects of a sluggish economic recovery (pressuring loan/revenue growth) pose significant headwinds... the elevated level of consumer debt is likely to weigh on the pace of the recovery … While by no means out of the woods yet, we believe that the Canadian banks are on track to burnishing their reputation as a safe haven during periods of crisis. However, strong execution as mgmt teams look to extract operating leverage (while capitalizing on organic/M&A driven market share opportunities) will determine winners and losers. We highlight Buy-rated RBC-RY as our top idea in the group.”

“@SBarlow_ROB BoA: Too soon for Canadian bank stocks?” – (research excerpt) Twitter

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The research team at RBC has released a “Global energy best ideas” list of stocks. The domestic picks are Canadian Natural Resources Ltd., Suncor Energy Inc., Tourmaline Oil Corp., Freehold Royalties Ltd., TC Energy Corp. and Parex Resources Inc.

RBC likes Repsol SA and Royal Dutch Shell PLC for global integrateds and Baker Hughes Co. for global services.

“@SBarlow_ROB RBC: Global Energy Best Ideas” – (full table) Twitter

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BofA Securities quantitative strategist Savita Subramanian screened the largest 100 S&P 500 stocks by market capitalization to find those with the strongest price momentum. The highest ranking 15 stocks are (in order) AMD, Paypal, NVIDIA, Amazon.com Inc., Apple Inc., UPS, ServiceNow Inc., Qualcomm, Danaher, Lowe’s, Regeneron Pharmaceuticals, Thermo-Fisher, Intuitive Surgical Inc., Netflix and Facebook.

The strategist includes the caveat, “The data in the …tables is a screen and not a recommended list, either individually or as a group of stocks. Investors should consider the fundamentals of the companies and their own individual circumstances/objectives before making any investment decisions.” But also notes, “a 52-week high suggests longer-term trend strength with positive momentum, while a 52-week low indicates a weak longerterm trend with negative momentum.”

“SBarlow_ROB BoA: S&P 500 co.s with strongest price momentum’ – (table) Twitter

See also: “@SBarlow_ROB Nomura’s Takada: “Looking at US equity markets specifically, we think the one-way traffic of trend-following buying is likely to continue”” – (research excerpt) Twitter

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Citi U.S. equity strategist Tobias Levkovich is concerned that profit margins have been unsustainably supported by government fiscal initiatives,

“A shift of what is typically a business expenditure [labour] to the public sector is not something that we have encountered before and may be misunderstood by the investment community. Most clients have considered the CARES Act as a measure supporting consumption activity (i.e., corporate revenues) rather than one that might have influenced the costs of goods sold line, thereby seemingly overstating operating margins… now will have to pay those rehired employees, while others may not have jobs to go back to, restraining consumer spending, given that benefits are unlikely to be as generous going forward.

“Hence, 2H20 earnings could be less impressive as expenses get recorded where they normally occur.”

The summary here is that profits and revenue are being supported by cost cutting in labour costs – furloughs and layoffs – and that is a temporary phenomenon.

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Diversion: “Baby Boomers Are Experiencing Greater Cognitive Decline Than Previous Generations, Study Finds” – Gizmodo

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