A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Goldman Sachs equity strategist David Kostin began his regular “Where to Invest Now?” presentation by joining other prominent peers in warning about a sustained slowdown in U.S. earnings growth.
The slide titled “Decelerating S&P 500 EPS growth through 2020” forecasts 6-per-cent profit growth for 2019 and 4-per-cent growth for 2020. This is a sharp decline from 2018’s 23-per-cent rise and 2017’s 12-per-cent increase.
Mr. Kostin is recommending stocks with strong, low-debt balance sheets (low operating leverage) and low labour costs. The latter characteristic is to protect investors from the negative effects of higher wages on profit margins.
Stocks that represent both traits include (they have an X under both ‘OPLO’ and ‘LLAB’ in the table linked below) Amgen Inc., Starbucks Corp., and Omnicom Group Ltd.
“@SBarlow_ROB GS: "Decelerating S&P 500 EPS growth through 2020"” – (research excerpt) Twitter
“@SBarlow_ROB GS top picks from "Where to Invest Now?' – (table) Twitter
“@SBarlow_ROB Kostin: "Margin headwinds: Wages and materials costs rising faster than prices charged" – (chart) Twitter
Scotia analysts are touting domestic energy stocks as “extremely cheap,”
“While WTI is up 51 per cent and Brent added 41 per cent since their respective December lows, [domestic] energy stocks have lagged the commodity (TSX Energy up 27 per cent). Our quant models highlight … in Canada, energy stocks value rankings have been hovering at levels last seen at the start of the millennium”
“@amberkanwar Scotia calls energy stocks "extremely cheap" #NotableCall” – (research excerpt) Twitter
Societe Generale foreign exchange strategist Kit Juckes (also a great follow on Twitter, by the way) described the loonie as “the world’s most frustrating currency,”
"The Canadian dollar is lining up to be the world's most frustrating currency. Cheap, but held back by soft growth and housing market concerns," wrote Societe Generale Global Fixed Income Strategist Kit Juckes in his morning report to clients, while noting how currencies are trading amid a "stand-out" move in oil prices… Juckes isn't the first observer to note the disconnect. "I think this is a really underplayed story," said BMO Financial Group Chief Economist Doug Porter in a recent interview with BNN Bloomberg. "The extent to which not just global oil prices, but Canadian oil prices, have come flaring back so far this year. And, to me, that really hasn't been reflected at all in the Canadian dollar."”
“Canadian dollar is 'world's most frustrating currency': Strategist” – BNN Bloomberg
Merrill Lynch quantitative strategist Savita Subramanian, an extremely credible source for U.S. earnings analysis, noted that markets are too pessimistic about profit growth in 2019, but not pessimistic enough for 2020
“We thus lower 2019 EPS by 1.2% to $168 (+4% YoY) from $170, but we are still above consensus EPS of $167.54 and see risks skewed to the upside (reversal of tariffs on potential china trade resolution, etc.). Analysts today are forecasting 3.5% growth, almost the lowest growth forecast we have seen in 23 years, where median forecasted growth has been 11.3% at similar points in prior years ... We introduce our 2020 EPS forecast of $180 (+7% YoY), 4% below bottom-up consensus of $187.66 (+12% YoY). We think there is too much optimism baked into 2020 estimates.”
“@SBarlow_ROB ML on EPS forecasts: "Too much pessimism for 2019, too little for 2020"” – (research excerpt) Twitter
Tweet of the Day:
Decline in Canadian February housing permits and uptick in March housing starts start to shrink the wedge btwn them; implies Cdn residential construction stabilizing post introduction of B-20 stress tests. https://t.co/ZBkzzr715K #cdnecon #cdnpoli pic.twitter.com/TkDf4W3RJr— Brett House (@BrettEHouse) April 8, 2019
Diversion: “Genes, income, and happiness” – Marginal Revolution