Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley U.S. equity strategist Michael Wilson believes earnings growth will decelerate faster than the market currently believes,
“Signs are emerging that 1Q earnings season may be more disappointing than thought ... particularly from a guidance/forward estimate standpoint—earnings revisions breadth for the S&P 500 has resumed its downtrend over the past 2 weeks and is once again approaching negative territory, the Morgan Stanley Business Conditions Index (a survey of our industry analysts) fell to its lowest level since April of 2020, and margin expectations look overly optimistic for the balance of ‘22 given the myriad of cost pressures companies face … We run a simple regression, leveraging the strong relationship between prices and revisions breadth over time, to show hypothetical prices levels on the S&P 500 if earnings revisions breadth falls into negative territory as we suspect it will in the next 1-2 months. We focus on the -10% to -30% range as that was the level”
“MS: Market underestimating profit growth decal” – (research excerpt) Twitter
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BofA Securities strategist Anthony Cassamassino updated his top 10 U.S. stock ideas for the second quarter and took a victory lap on the performance of the portfolio so far,
“This report presents the historical returns for the Top 10 US Ideas List as of 1Q22 along with the trailing 12 months and performance since inception. Our US Top 10 Ideas had a gain of 5.22% in Q1, which compares to a return of -6.33% for the HFRXNA Index over the same period, representing an outperformance of 11.55% in the quarter. For the trailing 12 months, the Top 10 US Ideas returned 15.89%, while the HFRXNA returned -3.35%, or an outperformance +19.24%. Given the Top 10 list comprises both long and short ideas, we chose the HFRX North America Index as the appropriate benchmark”
The current ideas list includes nine buy selections and one short idea. The longs are Alaska Air Group Inc., Advanced Micro Devices Inc., Camden Property Trust, D.R. Horton Inc., Lululemon Athletica Inc., Signature Bank, Teledyne Tech Inc., Target Corp. and Valero Energy Corp. The short idea is AutoZone Inc.
“BofA: Top 10 U.S. ideas for Q2″ – (table) Twitter
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Citi research equity editor Alex Miller compiled an in-depth look at the prospects for nuclear power. Here’s some highlights from the summary,
“Presently, Nuclear accounts for 3% of global energy investment; against the geopolitical climate, sentiment is growing – the team commissioned a survey of 10 000 European residents and conclude that two-thirds would now be supportive – up an impressive/eye-catching 25ppts since the beginning of the Russia-Ukraine conflict, even whilst noting that the appetite for Nuclear was growing before the conflict began… While the debate around Nuclear is not just about Europe, [Citi analyst Jenny Ping] and team believe Europe will play a pivotal role as European politicians will likely have to rewrite the regions energy policy which is heavily focused on renewables … [Europe] should consider Nuclear as a viable ‘Plan B’ and has the potential to fill a necessary (and low carbon) role in balancing the grid … Sizing the opportunity, the team estimate the potential need of over $500bn of investment in new nuclear just for Europe, South Korea and the US over the coming two decades. Adding in existing markets such as China and India, as well as likely investment in plant extensions, they estimate that nuclear power could be an $80 B/year industry by 2030. This would take nuclear from around 3% of global energy spend today to a little under 4% by end-decade, a substantial increase but still relatively niche”
“Citi: “[we] estimate that nuclear power could be an $80 B/year industry by 2030.”” – (research excerpt) Twitter
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Diversion: “A $620 million hack? Just another day in crypto” – M.I.T. Technology Review
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Scott Barlow