Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Two major research forms – BofA Securities and Wells Fargo- released updated lists of top U.S. stock picks Thursday morning.
The BofA US1 list of top picks includes a large number of changes.
It’s long but here we go – Advance Auto, Apple Inc., Ameren Corp., Amazon.com, Berry Global, Blackrock Inc., Bristol-Meyers (disclosure : a long term holding for me), CIGNA Corp., Salesforce.com. Ericsson, Fidelity National Info, Invitation Homes, Lam Research, Proctor & Gamble, Raytheon Tech, SBA Communications Corp., SVB Financial Group, Target Corp., Thermo Fisher Scientific Inc., Thomson Reuters Corp., United Parcel, Vulcan Materials Co., Wix.com, Hilton Worldwide Corp., L Brands Inc., Constellation, Arch Capital Group Ltd., Citigroup Inc., Hill-Rom Holdings Inc., Union Pacific Corp., Splunk Inc., Qualcomm Inc., Immunomedics Inc., Netflix Inc., Charter Communication Inc., Activision Blizzard Inc., Equinix, Diamondback Energy Inc., Allison Transmission Inc., Mondelez International Inc., and Scotts Miracle-Gro Co.
Wells Fargo updated their ‘Core’ list of top high quality, sustainable growth picks.
That list goes Alphabet Inc., Comcast Corp., Walt Disney Co., Omnicom Group, Home Depot Inc., Lowe’s Companies, Nike Inc., Starbucks Corp., TJX Companies, V.F. Corp., Coca-Cola Co., Colgate-Palmolive Co., PepsiCo Inc., Proctor & Gamble Co., Sysco Corp., Walgreens Boots Alliance, Walmart Inc., Chevron Corp., EOG Resources , Exxon Mobil Corp., Kinder Morgan Inc., Alflac Inc., Blackrock Inc., JP Morgan Chase & Co., M&T Bank Corp., Truist Financial Corp., U.S. Bancorp.
“@SBarlow_ROB BoA’s US1 top picks list” – (table) Twitter
“@SBarlow_ROB Wells Fargo Core List of top high quality US equity picks” – (table) Twitter
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Citi analyst Edward Morse does not see much sustainable upside for oil prices (my emphasis),
“The preponderance of evidence is that given the increased efficiency of capital and the availability of new technologies, a short-term price increase toward $60 or higher will likely trigger more than adequate supply in short order… with production adequate at $45 and likely oversupplied at $50/bbl oil, as supply costs that have fallen in recent years are expected to stabilize around current low levels. …and the trajectory of demand has fundamentally changed in a post-COVID world.The world has lost two-plus years of demand growth, and future demand growth could be weaker than before, given COVID-19 impacts (particularly on less flying and remote work) … we return to and reaffirm our earlier theses that oil prices remain volatile but mostly range-bound between $45-60, most likely at the lower end, but for new reasons directly related to COVID-19.”
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Scotiabank analyst Mario Saric is not buying the argument that work from home trends make office REITs uninvestable,
“The pandemic impact is too early to assess (wild speculation) but offers opportunities and challenges; asset values seem intact… We see attractive value in office. CAD and U.S. Office REITs have lagged by 7% during the pandemic (Exhibit 7) on WFH headlines and job losses. AP and D are -31% and -44% vs. -31% for sector, while BPY has lagged our Shadow REIT (-49% vs. -42%). We think investors have forgotten that 17%-18% of AP is data centres implying a 39% decline in AP urban office given US Data Centre REITs are +14% YTD … Regarding WFH, it remains very early, but AP has not received any tenant indications of a material shift to WFH, albeit tenant focus remains almost exclusively on office re-entry "
“@SBarlow_ROB BNS not buying the ‘WFH destroys office REITs’ meme” – (research excerpt) Twitter
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Also from BofA, quantitative strategist Savita Subramanian made the important discovery that U.S. earnings forecasts appear to be bottoming,
“The S&P 500 earnings estimate revision ratio (ERR) jumped from 0.41 to 1.09 in June, with more raises than cuts to estimates, marking a level of optimism we have not seen since the passage of corporate tax reform in 2017…Revision trends improved across all sectors in June where five out of the 11 sectors saw more raises than cuts to earnings estimates during the month, led by Energy, Staples, and Industrials. All sectors saw an increase in their 3m ERR during June, with Energy, Staples, and Financials seeing the largest upticks. Real Estate, potentially a structural long-term victim of COVID-19 (rent risk, lower office space demand, etc.) maintains the weakest ratio”
“@SBarlow_ROB B of A: Earning revisions suggest U.S. profits bottoming” – (research excerpt) Twitter
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Diversion: “Free to read: The suicide of Alex Kearns — who thought he had lost heavily — has triggered calls for reform of online brokerages on.ft.com/38jeeok” – Financial Times
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Scott Barlow