Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank strategist Simon Fitzgerald-Carrier forecasts dividend strategy outperformance on both sides of the border,
“U.S. Dividend Strategies are taking the front stage amid tumbling U.S. bond yields and record high S&P 500 EPS. Also, despite recent growth fears, the percentage of negative dividend actions is still relatively low compared to historical standards. .... As such, U.S. dividend strategies are outperforming the S&P 500 by a wide margin quarter-to-date. ... This outperformance is likely to continue in our view, as the Fed is set to kick off its easing cycle at its next meeting on September 18. Lower rates and a good enough U.S. economy should keep providing tailwinds for dividend strategies.
“This is also valid on the other side of the border, where most CDA dividend strategies are outperforming the TSX Composite both month-to-date and quarter-to-date. With the BoC recently cutting its Target Rate by 25 basis point for the third time this year to 4.25 per cent, dividend strategies should continue to benefit from lower rates and resilient corporate earnings”
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BMO chief investment strategist Brian Belski believes the TSX earnings growth surge is merely delayed until next year,
“While we believe the market remains cautious on growth expectations given the continued relative value position of Canadian equities, our work shows earnings revision trends have been clearly positive since the end of the first quarter. In fact, both bottom-up S&P/TSX 2024 and 2025 EPS estimates have slowly but steadily been revised higher since March 31. Additionally, the breadth of positive FY1 & FY2 EPS revisions has steadily improved since troughing in late 2023 and recently passed the key threshold with over 50 per cent of these revisions being positive. From our perspective, while the bulk of the earnings recovery we expected in 2024 has been pushed out to 2025, this improving growth profile and increasing analyst confidence will be a key fundamental support to drive TSX valuations higher into year-end and beyond. As such, as the reality of a more resilient economy, lower interest rates, and rebounding earnings growth in the second half of the year transpires, we believe the TSX can and will attain higher prices and thus are maintaining our 2024 year-end price target of 24,500 on earnings of $1500. This represents a modest 3.4-per-cent earnings growth in 2024, with double-digit earnings growth likely in 2025″
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In a separate Scotiabank report, REIT analyst Mario Saric surveyed the apartment subsector and finds one REIT oversold,
“Rentals.ca released August Rental data yesterday, with est. up 0.7 per cent month-over-month (i.e., August vs. July) asking rent vs flat in July vs. June with notable regional discrepancies. Ex. two smaller markets with huge quoted increases (Gatineau and Nanaimo), asking rents were likely flattish again in August. That said, the data volatility is hard to ignore, with some of the most challenged markets in July becoming the best in August and vice-versa, a concern shared by some of the Apartment REITs at our REIT Conference last week … From a REIT perspective, we estimate MI markets saw avg. 0.2 per cent m/m asking rent growth, with IIP flattish (similar to Q2), and CAR, BEI, and KMP markets all down 0.8-0.9 per cent m/m, reversing July gains (only partially for KMP). Interestingly, the est. market asking rent growth was inversely correlated with avg. in-place portfolio rent (i.e., MI and IIP have the highest; KMP and BEI the lowest) … Net-net, we think Apartment REITs look more reasonably valued following the recent run and amidst potentially increasing headline risk (Federal immigration policies heading into an Election) and potential flattening market rents in certain regions. We also think the degree of IIP underperformance is excessive”
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Diversion: “Ford Seeks Patent for Software That Records Your Conversations to Serve You Ads” – Gizmodo