A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi strategist Chris Montagu believes a growth at a reasonable price (GARP) investing strategy is the right antidote to volatile markets and provides a list of global stocks that fit (my emphasis) ,
“Current market conditions have made it difficult for investors to position their Value/Growth exposure. The high volatility and macro uncertainty has driven the average volatility of this pair of styles to historical highs. One way to avoid making a decision on how to position your Value/Growth exposure is via a GARP strategy … A GARP strategy aims to find the ‘sweet spot’ of stocks that have both attractive Value and Growth characteristics, implicitly avoiding the need to make a decision on whether to have more/less Value or Growth exposure. …As a Style Hedge — GARP is not a strategy that works well all the time, especially in the US and Europe. It does however, tend to work well when style volatility is high or consistent style trends are absent. We show that for the last 12-18 months, the market relative returns of GARP have been relatively high and with a lower return volatility than either Value or Growth… Currently the economic forecasts are heading in the direction of lower GDP growth and higher inflation although with some disparity across countries. At a base level, this does not bode particularly well for Value as in times of scarce growth, investors will pay a premium for Growth companies.”
The list of U.S. GARP picks has 33 names (link to full table below). Stocks most likely to be of interest to Canadian investors include D.R. Horton Inc., Goldman Sachs Group, Micron Technology, FedEx Corp., Celanese Corp., Universal Health Services Inc. (disclosure: I own that one personally - it was an Obamacare-related buy), TJX Companies Inc., Target Corp. and United Rentals Inc.
“Top U.S. GARP picks from Citi” – (table) Twitter
Scotiabank strategist Hugo Ste-Marie detailed the carnage in bond markets in a Tuesday morning report,
“The hawkish tone certainly took investors by surprise as it led to an aggressive re-pricing of monetary policy expectations and it pushed bond yields sharply higher across the maturity spectrum. Fed funds futures are now discounting an additional 7.6 rate hike this year with six meetings to go. The move in yields was powerful, with both 2s and 10s rising 18 basis points and 14bp, respectively. Bonds yields are adding another 4-5 basis points at the time of writing this morning, with 10s hovering slightly above 2.3%. Chart-wise, the next level to watch stands around 2.5%; but if exceeded, 10s could revisit the ceiling of the past decade near 3% as illustrated in our upper Chart of the Day. For bond investors, it’s certainly bad news as further increases in bond yields would push bond indices further down. Already, the Bloomberg U.S. Aggregate Bond Index is down 6.0% (total return) so far this year, while the FTSE Canada Universe Bond index is off 7.3% (TR). See our lower Chart of the Day. With the end of the quarter approaching fast, and a challenging outlook for bonds, portfolio rebalancing could exacerbate volatility in coming days.”
I’m not predicting widespread selling of fixed income ETFs yet, but it is a plausible scenario given recent performance.
“Scotia: “Bond Selloff Worsens On Powell Comments”” – (research excerpt) Twitter
Morgan Stanley analyst Stephen Byrd sees huge potential gains for hydrogen power in the long haul trucking sector, a trend that will accelerate if diesel prices remain elevated,
“We have found that in the most favorable regions (Texas and Midwest), the delivered cost of green hydrogen could decline ~30% … the nearest term opportunity for green hydrogen is in the material handling/forklift market, which represents a ~$30bn global TAM [total addressable market] opportunity. Based on our analysis, in 2022, most regions of the US will be capable of producing green hydrogen at a price point that makes hydrogen fuel cells competitive with traditional lead-acid battery technologies. The second market opportunity that we see for green hydrogen is within transportation, but more specifically, medium/heavy duty trucking, which we estimate at a $11bn TAM in North America by 2030.”
Mr. Byrd mentioned Plug Power and New Fortress as stocks that will benefit most from the trend.
“MS: $30-billion hydrogen market by 2030, focus on long haul trucking” – (research excerpt) Twitter
“Traders warn of looming global diesel shortage” – Financial Times (paywall)
Diversion: “‘Most successful people are just a walking anxiety disorder harnessed for productivity’'” .How People Think – Collaborative Fund
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