Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley chief U.S. equity strategist Michael Wilson expects that the imminent economic slowdown will last deep into 2022 (my emphasis),
“Odds are increasing that growth will continue to slow well into 2022. The consensus now believes 3Q will be the trough quarter for economic growth and that 2022 EPS estimates remain too low. We disagree and think growth will disappoint due to supply issues and costs that prove to be more persistent than consensus expects. We also think demand is likely to disappoint as the fiscal cliff kicks in and consumer confidence fails to rebound as fast as most are expecting. The Delta variant is not the primary reason why growth has slowed, in our view. Instead, we think it’s simply a more dramatic mid cycle transition than normal given the speed and velocity of the recovery so far. Equity markets may remain well bid in the near term. Seasonal strength and strong equity inflows from retail and other passive investors are keeping the equity markets aloft in the face of (1) a Fed that is now tightening policy and (2) deteriorating earnings outlooks … Supply issues remain the main risk to earnings.”
“@SBarlow_ROB MS:” Odds are increasing that growth will continue to slow well into 2022″ – (research excerpt) Twitter
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Also from Morgan Stanley, autos analyst Adam Jonas made some interesting points about Tesla Inc.’s potential effects on electric vehicle profitability,
“Tesla wants to be the cost leader in the EV market and is in position to do so through manufacturing innovation (Giga Press), battery innovation (LFP), and scale (>1 million units/plant?). We believe Tesla could bring to market a vehicle at a $15k price point or less, likely this decade… if not before 2025 … We think it’s a ‘problem’ that the world’s largest and most advanced EV company is also the most profitable major auto company in the world in terms of margin. We expect Tesla will invest this margin into price, capability, and scale… potentially adding vice-like pressure on established auto companies … We think many investors may be underestimating the role of capital and credit into the development of the global battery economy. One technology expert we recently spoke with warned: “Capital killed returns in the solar industry… the same could happen with batteries.” In our opinion, Tesla is in position to direct the largest amounts of capital in the most concentrated ways at the EV/Battery/Infrastructure problem.”
“@SBarlow_ROB Interesting point from MS re TSLA and access to capital” – (research excerpt) Twitter
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Goldman Sachs U.S. equity strategist David Kostin advised clients to overweight companies with high sales to assets and low labour concentration,
“Strong early 3Q earnings results and news reports suggesting a declining likelihood of corporate tax rate hikes have lifted the S&P 500 to a newrecord high. While corporate managements remain uncertain about the outlook for input cost pressures, shipping data have generated cautious optimism within the equity market. Rising UK virus counts and interest rates have spurred limited equity rotations. Markets appear to expect some current headwinds will prove “transitory” but low real interest rates and labor market tightness will persist. Stocks with the highest sales/assets and sales/employee ratios have outperformed during the past decade and in recent weeks but still trade at discounted valuations… Labor market tightness is one theme that has recently driven equity market performance and will likely remain a challenge for many companies for years”
Mr. Kostin published a large table of stocks that represent attractive sales to assets and sales per employee ratios. Companies most likely of interest to Canadian investors include Moderna Inc., Netflix Inc., Apple Inc., Alphabet Inc., AmerisourceBergen Corp., Archer Daniels Midland Co., CDW Corp., Advanced Micro Devices Inc. and NVR Inc.
“@SBarlow_ROB GS: “Stocks with the highest sales/assets & sales/employees ratios relative to sector peers” – (research excerpt) Twitter
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Diversion: “Tom Hanks’ Comfy Finch Suit Sounds Like the New Gold Standard” – Gizmodo
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Scott Barlow