Daily roundup of research and analysis form the The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Himanshu Gupta reports on the industrial REIT sector and let’s hope it’s not an indicator for the broader economy (my emphasis),
“Negative. CBRE released Q2/24 CDN industrial market stats yesterday ... Q2 industrial absorption was disappointing at -5M sf, suggesting a meaningful demand pullback. Last time we saw this level of negative absorption in Canada was during the GFC (Q1/09 to Q3/09). Supply side has moderated, but we need to see some recovery in leasing volumes. Assuming a H1/25 demand recovery (not H2/24 anymore), we see national availability rate peaking in Q4/24, and then slowly improving through 2025/26. Update on Valuation: Valuation looks inexpensive but market waiting for inflection point on fundamentals. Industrial REITs continue to trade in line with REIT sector since Oct’23, as entire premium valuation has eroded, both on P/NAV and P/AFFO basis … We maintain SO ratings on both GRT [Granite REIT] and DIR [Dream Industrial REIT], as our NAV’s are well-supported by still-strong private market asset pricing”
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BMO oil and gas analyst Randy Ollenberger thinks his sector is significantly mispriced,
“The North American oil and gas group offers generally higher EBITDA growth, generally stronger ROCEs [return on capital employed], healthier balance sheets, and much better free cash flow yields than most other sectors. Despite these attributes, the group continues to trade at a significant discount to other investment sectors in the market. The most glaring disconnect is on free cash flow. We expect the large cap oil and gas group to generate an average free cash flow yield of ~10% in 2025 and ~12.5% in 2026, while delivering actual cash yields to shareholders of ~7.5% and ~8.5% in 2025 and 2026, respectively. These are materially higher than the overall market … Our top oil and gas recommendations are ARC Resources, Canadian Natural Resources, Cenovus Energy, Chevron, Chord Energy, EQT, MEG Energy, NuVista Energy, Topaz, Veren and Whitecap Resources. Among the oilfield services companies our top recommendations are Baker Hughes, CES Energy Solutions, Precision Drilling and Trican Well Service. Our top U.S. refining pick is Valero”
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The research team at Wells Fargo has included a Canadian stock among its top tactical equity ideas for the third quarter,
“Algonquin Power & Utilities Corp. (AQN): We view the likely sale Of AQN’s renewables franchise as a potentially meaningful catalyst. We reiterate our OW and forward PT [price target] Of $8.50 (16x our 25E EPS of $0.53) including the —7% dividend yield. Capital One Financial Corp. (COF): COF shares have upside as 1) odds of the DFS merger increase towards the election; 2) low-end consumer concerns fade on solid delinquencies; and 3) edge closer to reserve release. Our [price target] is $165 (10.5x ‘25 EPS estimate and 9x ‘26) and COF trades at 7x normalized EPS of $19 … Western Digital Corp. (WDC): Western Digital is our top 3Q24 tactical pick as we see a couple positive event-driven catalysts materializing into the 2H2024 (most notably the company’s pre-Flash spin Analyst Day), in addition to an expectation of continued positive fundamental recovery in W Digital’s HDD and Flash businesses. Over the next 12 months, we expect the stock to reach $95 (12x on our C2026 estimates) with an upside to $120 reflecting $10/share through cycle EPS”
The other long ideas are Health Catalyst Inc., The Kroger Co., Marqueta Inc., Omnicom Group and ON Semiconductor. The short ideas are Old Dominion Freight Line Inc. and Tesla Inc.
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Diversion: “ChatGPT outperforms undergrads in intro-level courses, falls short later” – Ars Technica
Scott Barlow