Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO oil and gas analyst Randy Ollenberger sees the upcoming earnings reporting season as “challenging to say the least.”
“We expect to see generally weaker quarter-over-quarter results for the Canadian oil and gas group due to challenges presented by wildfires, heavy oil sands turnaround activity and weaker natural gas prices. On the crude oil side, ongoing fears of a recession and the potential impact on demand have constrained pricing while milder-than-expected weather continued to undermine North American natural gas prices. However, despite these issues, we anticipate our coverage group will generate $5.0 billion of free cash flow (6.3% annualized yield) in the second-quarter, returning roughly $5.5 billion of that to shareholders (~7% annualized yield) … We are anticipating large cap producers to generate a much stronger average yield of 6.7% relative to the small and mid-cap producers (3.5%)”
Mr. Ollenberger has outperform ratings on Imperial Oil, Canadian Natural Resources, Enerplus, Whitecap Resources, Crescent Point Energy, MEG Energy, Tourmaline Oil and Cenovus Energy.
BMO downgraded several energy producers in conjunction with its review of the sector. Check them out in today’s Analyst Upgrades and Downgrades posting.
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Citi U.S. equity strategist Scott Chronert discussed the importance of The Big 7 stocks that dominate the S&P 500 returns (Apple, Microsoft, Alphabet, Amazon.com, tesla, NVIDIA and Meta).
“The “big 7″ weights in the S&P 500 comprise 27.6% of the core index and have contributed roughly three-quarters of the ytd return. This has implications for investor behavior on several fronts… The YTD surge in the big 7 has led to long-only mutual fund performance pressures but has enhanced the attractiveness of index ETFs. Mutual fund outflows have compounded the issue of performance chasing… Retail may not be fully engaged … Valuations of the big 7 are extended but do not reflect bubble-like conditions, at least for now … We still see room for marginal buying from here. However, fundamental follow-through to building generative AI expectations will be critical to performance.”
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In a separate BMO report, senior economist Robert Kavcic argued that the Bank of Canada is “probably” done raising rates.
“The Bank of Canada’s 25 bp rate hike on Wednesday came as expected, and pushes real policy rates further into positive territory. Based on underlying inflation over the past three months of 3.5%-to-4% (we use three common measures of core in the chart), that leaves the real policy rate somewhere around 1%-to-1.5%. Maybe higher if these inflation numbers fade further as we saw in the U.S. for June. Is this tight enough for the Canadian economy and the BoC? Probably. It puts us closer to settings seen in the mid2000s cycle than the post-GFC 2010-19 period where real rates were suppressed below zero. Also… In the prior two statements, the Bank expressed uncertainty over whether rates were restrictive enough— there was no mention of such alongside Wednesday’s move. That could mean that the calculus now is not ‘are rates high enough’, but rather ‘how long do they need to stay here’. We suspect into 2024 at this point”
“BMO: “BoC: Now You’ve Had Enough”” – (research excerpt) Twitter
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Diversion: “The Winners and Losers of the 2023 Emmy Nominations” – The Ringer
Tweet of the Day: “Just 7 companies make up over 50% of the NASDAQ 100″ – Twitter