Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
A Financial Times report that investors were “fleeing” gold for cryptocurrencies got a much stronger reaction than I expected on social media this morning,
“More than $10bn has been pulled from the biggest gold exchange traded fund this year and funds’ physical gold hoards have also been selling down, according to Bloomberg data. The price of gold has declined 6.1 per cent this year to $1,782 a troy ounce on Wednesday. Bitcoin has meanwhile doubled in price to a record high of more than $67,000 this week … Veteran gold traders acknowledged times are changing. ‘There is zero interest in our strategy right now,’ said John Hathaway, senior portfolio manager at Sprott Asset Management, a precious metals investment group. He added: ‘The bitcoin crowd see the same things I see in terms of money printing risks of inflation.’”
Mr. Hathaway’s comment about fears surrounding “money printing” are important here. I think part of the reaction to the story was caused by gold and cryptocurrency investors having similar views, just adopting different ways of adapting to them. In this sense, the two groups are in competition philosophically.
“Investors flee gold for cryptocurrencies as inflation worries perk up” – Financial Times (paywall)
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CIBC analyst Dennis Fong sees oil sands companies ready to increase returns to shareholders,
“The Canadian energy sector continues to trade at valuations that are below historical norms despite the return of WTI to US$82 and a potential setup for continued strength given underinvestment in the space. We understand that valuation alone is not enough to promote buying a stock, and that concerns around energy transition, carbon intensity and perceived terminal value risk are weighing on share prices… However, the Canadian majors are generating substantial free cash flow. We expect a significant portion of cash will be distributed to shareholders through consistent increases to dividends, complemented by Normal-Course Issuer Bids (NCIBs) and, where applicable, Substantial Issuer Bids (SIBs). This could be a key catalyst in driving share price outperformance. We expect free cash flow from CNQ, IMO and SU could accrue disproportionately to shareholders. Given its leverage, we expect free cash flow allocation for CVE to be balanced between reducing leverage and shareholder returns.”
I wouldn’t want to extend this metaphor too far, but I immediately thought about tobacco companies adopting a similar strategy, and outperforming as a sector for a very long period.
“@SBarlow_ROB CIBC: Oil sands companies set to increase payouts to shareholders” – (research excerpt) Twitter
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BMO analyst Mike Rizvanovic sees positive signs for Canadian banks, notably Toronto-Dominion Bank, after taking a close look at U.S. bank earnings reports,
“NII [net interest income] sees strong sequential rebound: The sample group of large U.S. banks that we examined (the 4 money center banks and 7 large regionals) reported strong sequential growth in NII (+4% quarter-over-quarter). Among the moving parts driving that growth, margins were mixed … while the regional banks were mostly down), while average loan balances increased modestly from last quarter in the consumer and commercial portfolios (both up 1% Q/Q). We note TD’s material margin deterioration in the U.S. since the onset of the pandemic, which is in contrast to BMO and CM. As such, a reversal in the trajectory of margins as rates rise could become a meaningful catalyst for TD over the next several quarters (TD is by far the most sensitive to higher rates among the Big Six). ... Credit recoveries were sizable once again: The prospect of additional PCL recoveries [earnings gains from lower loan loss provisions] for the large Canadian banks in the near-term remains a tailwind, which also extends to their U.S. lending businesses. As such, another quarter of sizable PCL recoveries for the large U.S. banks in our comp group is a positive read-through for BMO, TD, and CM, each of which has reported a net PCL recovery in the U.S”
“@SBarlow_ROB CS: U.S. earnings point to positive quarter for Canadian banks” – (research excerpt) Twitter
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Newsletter: “Why you should be investing in electric equipment stocks” – Globe Investor
Diversion: “Tiny Crab Trapped in Amber Is a 100-Million-Year-Old Stunner” – Gizmodo
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Scott Barlow