Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities strategist Ohsung Kwon recommends a “long boomer stocks, short millennial stocks,”
“Since 1980, the U.S. government debt has risen from 31 per cent of GDP to 120 per cent, and 10-yearr Treasury yields have shrunk from 12 per cent to 4.6 per cent today. The result: a massive wealth transfer from the public to the private sector – companies and consumers: U.S. household net worth increased from $17-trillion (3.5 times nominal GDP) to $150-trillion. The biggest beneficiary of the great wealth transfer was the Baby Boomer generation (born in 1946-64), in the prime working age during the period of wealth creation. Today, Boomers and Traditionalists hold 2/3 of total net worth, the majority of which is in financial assets (ex. Real Estate) (5.5 times GDP, a record high). The next great wealth transfer may now be from the elderly to the young … Boomers spend more on health care, entertainment and home improvement, whereas Millennials spend more on housing and apparel. Wealth and leisure time post-retirement could drive increased entertainment spend for Boomers. We see more upside in goods vs. services given normalizing post-COVID trends, but travel was cited as the top priority for discretionary spend (85 per cent) among the 50+ age group. Other beneficiaries of an aging population include elder care, senior housing and death care”
The report includes four stock ideas on the long side – Toll Brothers Inc., Welltower Inc., Service Corp. International and American Express Co. and one short idea in Revolve Group Inc.
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I write about the massive network hack of Las Vegas casinos a month ago and how it highlighted the ongoing demand for cybersecurity. Scotiabank analyst Patrick Colville published a preview of earnings reports for companies that provide security,
“Ahead of cybersecurity 3Q 2023 prints, we performed 7 checks over the past 2 weeks to get a better sense of how demand is tracking. Buyer sentiment looks to be relatively consistent with last quarter. Initial conversations on C24 cyber budgets suggest 5-15-per-cent increases on average with SASE [secure access service edge] and cloud security called out as top priorities. Tactically into on-cycle earnings we like CHKP as a long. .. tailwinds highlighted including (1) heightened cybersecurity awareness due to the high-profile MGM/Caesars and Clorox breaches, and (2) increasing regulatory scrutiny – SEC breach disclosure requirements in the U.S. which go into effect December … We believe cybersecurity is well-placed into 2024 as the road to recovery in broader IT spending looks to be a long one, with reacceleration timelines getting delayed. We think continued tight budgets favor consolidators, making the big bigger. Palo Alto Networks, CrowdStrike, and Zscaler we view as the major winners from consolidation. We have a Sector Outperform rating on these vendors and think they will be able to compound their gains’
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Morgan Stanley strategists Andrew Pauker and Michael Wilson outlined specific stock ideas that match their forecasts,
“The leading macro data suggests that we’re in a late cycle market environment as do the internals of the equity market. This is historically a supportive performance backdrop for (1) traditional defensives (Healthcare, Staples and Utilities), (2) select growth opportunities (lower volatility growth, in particular, along with stocks levered to secular themes that can outweigh cyclical risks), and (3) late cycle cyclicals (Industrials and Energy) … we think it’s prudent to deploy a stock picking approach as stock specific risk remains elevated for both the overall market and for the defensive growth + late cycle cyclicals cohort”
For defensives, the stocks include Costco, Walmart, Keurig Dr Pepper, Molina Healthcare, Colgate Palmolive, Biogen, and Thermo Fisher.
Buy-rated growth stocks with low volatility include Lowe’s Co., TJX Companies, Marriott International, McDonald’s, Visa, American Express, Boston Scientific, Linde, Colgate Palmolive, Eli Lilly, Thermo Fisher, IQVIA Holdings, Apple, and Microsoft.
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Diversion: “So what do people think about Rolling Stone’s “Top 250 Guitarists of All Time” list? At least one person calls it “embarrassingly bad.”” – A Journal of Musical Things
Scott Barlow