Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief strategist Brian Belski likes these YARP stocks – yield at a reasonable price,
“While the traditional relationship between interest rates and high yield equities is undeniable, the year-to-date correlation between the two in our view has once again reached extreme levels … while there are many YARP opportunities in the current environment, we believe investors should remain focused on dividend growth potential and strong cash generation. As such our preferred yield at a reasonable price (YARP) sectors and industries are Communication Services, Pipes, and Banks. These areas show relative strong value, yields firmly above Canadian long-term interest rates and dividend growth that is consistently above the rate of inflation… Communication Services is one of the most oversold sectors in the TSX and as such our contrarian YARP call for 2024 . Overall, the sector continues to show strong yields that are well above long -term “risk -free” interest rates, dividend growth has been consistently above the rate of inflation and our valuation composite has reached near decade lows. Furthermore, free cash flow yield has remained strong and stable adding a layer of support for the income nature of the sector … While we are market weight the Energy sector give n the global headwinds, we remain overweight the pipelines for their YARP properties within the sector. Overall, the industry is showing strong yields that are well above long -term “risk -free” interest rates, dividend growth is consistently above the rate of inflation and our valuation composite which remains well below 1 -standard deviation of the long -term average”
Mr. Belski has chosen BCE, Telus, Restaurant Brands International, Enbridge, TC Energy Corp., Brookfield Corp., Manulife Financial, National Bank Power Corp., Royal Bank, TD, Canadian National Railway, Capital Power Corp and Emera in his model portfolios.
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Scotiabank strategist Hugo Ste-Marie says “there’s no floor beneath natural gas prices” and revisited his firm’s top ideas in the sector,
“It seems there’s no floor beneath natural gas prices, which have been cut in half in the past three months. While nat gas stocks are already down hard, more headwinds could be coming in the form of a steep round of negative earnings and cash flow revisions. Spot prices are trading well below the average sell-side forecasts for all quarters of 2024. If the situation persists, quarter-end mark-to-market won’t be pretty: we’d expect sell-side analysts to sharply trim EPS/CFPS expectations, which in turn could hurt nat gas stocks’ “Growth” rankings in our quant models… For longer-term investors, Scotiabank GBM Oil & Gas – E&P Research Analyst Cameron Bean remains optimistic about 2025 prospects, so for investors willing to ride the storm, the current pullback could offer decent opportunities. Cameron revisits his top ideas – AAV-T, TOU-T, and RRC-N – and provides earnings and cash flow sensitivity tables.
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Domestic CPI data will be released early next week and BMO chief economist Doug Porter reminded clients of the biggest driver of inflation,
“Shelter costs are now the single biggest driver of Canadian inflation. (We expect next week’s CPI to be sticky at 3.4 per cent in January.) And the biggest driver of shelter inflation, after mortgage interest costs, is rent at up 7.75 per cent year-over-year. There is zero mystery what’s going on here. The population of those aged 20 -29 —prime first -time renter terrain —has spiked by an astonishing 6.2 per cent in the past year alone (or nearly double the overall already sizzling population increase). To put that in perspective, in the prior 45 years the fastest annual increase had been 2.3 per cent (way back in 1980), or almost 4 percentage points lighter. In a word, we have never seen the young adult population growing anywhere nearly this fast before”
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Diversion: “AI-powered romantic chatbots are a privacy nightmare” – Ars Technica
Scott Barlow