Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
I believe the worldwide trend towards de-carbonization will gain strength no matter what an individual investor believes about climate change. This makes Citi analyst Prashant Rao’s research report identifying his top picks among biofuel producers topical for longer-term investors,
“Biomass-based distillates (BBD) – biodiesel, renewable diesel (RD), and sustainable aviation fuel (SAF) are made from biomass (vegetable oils, animal fats and renderings, used cooking oil, and other organic, renewable sources), and burn 50% to 80% cleaner from a GHG emissions perspective than their fossil fuel analogues (petroleum-based diesel, fuel oils, and jet fuels). BBD is a scalable solution for the abatement of CO2 emissions form heavy transport … At present, the network of [government] subsidy programmes across Europe and North America look to expand the market by 37 MTPA [Million Tonnes Per Annum] over the next 10 years… Projected global demand growth for low-carbon biofuels continues to accelerate, but so does intermediate-term oversupply risk … Both DAR’s and REGI’s [Darling Ingredients and Renewable Energy Group] earnings expansions are via projects well situated in the top end of the forming marginal cost curve, and which drive a doubling of consolidated ROIC over the next 3 years for both companies”
" @SBarlow_ROB Cit: top picks in biofuel producers” – (research excerpt) Twitter
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There’s been times when New York City-based BofA Securities analyst Ebrahim Poonawala was more skeptical than average about the prospects for Canadian bank stocks. That skepticism appears to have evaporated,
“We reiterate our bullish view on the Canadian banks following better than expected 2Q results and believe that valuations should continue to re-rate as investors gain increased visibility around the re-opening of the Canadian economy. At 11.4x avg. P/E (2022E) for the big five banks, valuation remains attractive compared to 12x-12.5x P/E seen during previous periods of strong economic growth. While COVID restrictions have weighed on macro data recently, BofA’s Economics team forecasts GDP growth to rebound to 7.6% in 3Q21 from 1.5% in 2Q21. Rebounding GDP growth, rising interest rates and excess capital positioning of the banks should help sustain the YTD momentum in the stocks… Despite the strong YTD/QTD performance at 11x P/E we see BMO and CIBC as the best ways for investors looking to add exposure to the group … Not surprisingly, 2Q results failed to turn around the recent underperformance in Scotia shares as investors remain wary of a delayed earnings recovery in LatAm. That said, at 10.3x P/E, the relative valuation discount is material and we see the potential for a bounce in the stock on any constructive headlines coming out of LatAm (tied to politics, COVID). We generally view the LatAm driven discount on the stock as offering a particularly attractive opportunity for longer term investors to add exposure.”
“@SBarlow_ROB Bank of America likes BMO, CIBC and for longer term investors, BNS” – (research excerpt) Twitter
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Scotiabank strategist Hugo Ste-Marie believes the outperformance of the TSX over the S&P 500 will continue for the long term,
“Canadian equities are up strong this year, with the TSX Composite gaining almost 15% year-to-date. The advance has lifted the benchmark above the psychological 20k mark for the first time ever. As with most major equity indexes, the TSX has benefited from the re-opening trade, but also from a strong push in commodity prices. The TSX is also doing well on a relative basis. While on the surface the S&P 500 (+12.5% YTD) is not too far behind, on a currency-adjusted basis, the spread is wide. In C$ terms, the S&P 500 is only up 6.9% YTD, trailing the TSX by more than 800 bp. The YTD outperformance is impressive, but keep in mind that the TSX underperformed the S&P 500 in nine of the last 10 years (currency adjusted), and on a 10-Yr CAGR basis, the underperformance is still extremely wide (see our upper Chart of the Day). As we flagged in our Here’s Why You Want to Own Canada report, we still believe fundamentals bode well for Canadian equities and the TSX offers more upside potential than the S&P 500.”
“@SBarlow_ROB BNS: TSX outperformance of the S&P 500 will continue for a long time” – (research excerpt, chart) Twitter
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Diversion: “The creators of South Park share their favorite storytelling advice. Drive your story with words like “but” and “therefore” instead of “and then” – (bleeped language) Video
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Scott Barlow