Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO analyst Tom MacKinnon provided top picks in a domestic insurance sector that has outperformed banks by 43.0 per cent to 16.0 per cent since the beginning of 2023,
“We remain bullish on lifeco group with attractive valuation (9.5 times NTM [next 12 months] core/underlying/base EPS, below 10-times average since GFC despite a much more favourable interest rate environment in 2024/2025), diminishing MTM [mark to market] real estate headwinds and favourable long-term interest rate tailwinds, favouring MFC, SLF and IAG, all of which had elevated share buybacks in Q2/24. SLF has the most to prove this quarter after missing Q1/24, but after reducing Q2/24E underlying EPS 3 per cent on weaker MFS AUM and weaker U.S. dental we remain skeptical for near term. While we reduce FFH Q2/24E estimates largely on expected MTM bond/equity losses (volatile, and are not ‘operating’) FFH remains top P&C pick, with attractive 1.2x P/BV valuation for a 13-per-cent 2025 ROE.”
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BofA Securities U.S. equity and quant strategist Savita Subramanian remains adamant that an upcoming boom in infrastructure spending, not just from the federal government, combined with attractively valued beneficiaries from the trend, are a strong setup for investors,
“COVID, geopolitics, and trade wars have made the case for localizing supply chains stronger than ever. On top of that, industrial policy via the CHIPS Act, IIJA, and IRA, as well as historic underinvestment in infrastructure, points to an “old school” capex boom ahead in the U.S. The question is: what’s priced in? The most direct beneficiaries of a manufacturing/infrastructure investment cycle generally trade at a discount vs. the S&P 500, even more so than they did at the pre-GFC peak in 2007 . We expect reshoring and ongoing infrastructure investment to be a multi-year tailwind for old economy cyclicals. Within Industrials, Industrials Conglomerates screens as an ‘Opportunity’ in our quantitative tactical framework, while Electrical Equipment screens as a ‘Value Trap’. Given the government’s role in boosting manufacturing investment in 2023, a claw-back of President Biden’s programs under Republican leadership is on clients’ minds. However, our Industrials team estimates that green programs would be bigger victims of cuts than manufacturing, and we note that the estimated fiscal stimulus is relatively small vs. overall S&P 500 capex”
No specific names were mentioned in the report but industrial conglomerates ranked highly and there’s only two companies in the S&P 500 Industrial Conglomerate Index – 3M Co. and Honeywell International Inc.
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RBC Capital Markets analyst Sam Crittenden surveyed a weakening base metals complex,
“Our view: Copper fell to 3-month lows over the past week as a lack of stimulus following China’s Third Plenum meeting and still mixed near-term demand weighed on prices. The Peoples’ Bank of China announced a 10bps rate cut this morning to both the 1Y and 5Y benchmarks which may provide a minor uptick in sentiment, but further stimulus is likely needed to address the weak economic recovery and support the languishing property and construction sector. We are seeing the copper import premium in China moving higher ($16/t vs. $10/t w/w) and Shanghai inventories moving lower (-2% w/w), both key indicators that physical demand is directionally improving. Earnings kick off this week with Freeport tomorrow before market open, First Quantum tomorrow after market, and Teck Wednesday morning. We expect Freeport’s results to be straightforward following pre-released guidance cuts. On First Quantum, we are looking for consistent production out of Zambia, but expect a greater focus on commentary regarding Cobre Panama. On Teck, we will be watching for incremental production improvements at QB2″
Mr. Crittenden has outperform ratings on Solaris Resources Inc., Arizona Sonoran Copper, Teck Resources, First Quantum Minerals, Hudbay Minerals Inc., Champion Iron Ltd., Ivanhoe Mines Ltd., Capstone Copper Corp., Major Drilling Group Int., Filo Corp., Marimaca Copper Corp., and Capstone Mining Corp.
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Diversion: “Why we need safeguards against genetic discrimination” – M.I.T. Technology Review