Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities’ popular global fund manager survey (FMS) was published Tuesday,
“Cash levels 6.3% = highest since April’01, investors now 3sd UW [three standard deviations underweight] equities - tasty morsels for another bear rally (so long as UST yields stay <4%) … Global growth expectations net -72%, near all-time low …note huge 87% expect inflation to fall … FMS Crowded Trades: investors v OW cash, utilities, staples, US$ and v UW stocks, sterling, Eurozone, tech; most ‘crowded trade’ by far & away = long US dollar. Contrarian trades: long sterling vs US$, long stocks vs cash, long EU stocks vs US, long consumer discretionary vs healthcare.”
The high cash levels and large underweight equities suggest we might be getting close to a tradeable market bottom.
“BofA Fund manager survey, “87% expect inflation to fall”” – (research excerpt) Twitter
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Goldman Sachs U.S. equity strategist David Kostin has uncovered a list of growth stocks trading at what he considers attractive valuations,
“While Growth appears expensive at the factor level, at a stock level the sharp sell-off has created opportunities in select profitable growth stocks. We expect growth stocks in general will continue to struggle. Unprofitable growth stocks in particular face continued downside risk as they need to raise capital in today’s anemic capital markets. However, profitable ultra-growth stocks are now trading only slightly above the EV/sales valuation levels that have marked troughs during the last 30 years. While higher rates and the risk of recession pose headwinds to growth stocks in the near term, the low valuations of some growth stocks could represent an opportunity for stock pickers with sufficiently long investment horizons. [The accompanying table] highlights 22 profitable growth stocks trading at discounts to their 10- year median valuation. We screen for Russell 1000 stocks that are expected to grow sales at a 10%+ CAGR [compound annual growth rate] through 2024, are expected to have at least a 5% net margin in 2023, are trading at less than 5x EV/Sales and at a minimum 20% discount to their 10-year median EV/Sales”
The stocks on the list most likely to interest Canadian investors include:
- Meta Platforms Inc. (META-Q);
- Incyte Corp. (INCY-Q);
- Tripadvisor Inc. (TRIP-Q);
- MKS Instruments Inc. (MKSI-Q);
- Paypal Holdings Inc. (PYPL-Q);
- Celanese Corp. (CE-N);
- Five9 Inc. (FIVN-Q);
- Align Technology Inc. (ALGN-Q);
- Salesforce Inc. (CRM-N),;
- Alphabet Inc. (GOOGL-Q);
- Take Two Interactive Software Inc. (TTWO-Q).
“GS: Profitable growth stocks trading at bargain valuations” – (table) Twitter
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Scotiabank analyst Mario Saric answers “screaming yes” to clients asking if REITs are attractive based on net asset value but notes that risks remain,
“OUR TAKE: Neutral. More (’Value’) clients are asking whether current REIT values = appealing entry point. Our long-standing NAV analysis = a ‘screaming yes,’ but the same caveat exists (i.e., fear of big NAVPU [net asset value per unit] erosion, which we tie to a recession). That said, since we last wrote on the topic in July (see link), REIT implied cap rates are +50bp, unit prices are down 11% (lagging TSX by ~10%), Corporate BBB yields are +80bp, the 10YR yield is +60bp and yield curve is 33bp flatter. Despite the 20% YTD correction, REIT implied cap rate spread to Corporate BBB yields is well below average, at an ominous level that historically = REIT lagging the TSX . That said, BBB yields are above avg. We see unit price downside in a recession (maybe 5%-10% now vs. 10%+ in July) but we are slowly (and painfully) approaching a bottom, with several strong long-term businesses available at a good valuation (we’re not referring to privatizations, where the ‘bid-ask’ spread feels too high). Our Top Growth Picks = BAM, IIP, TCN, SVI, HOM, SMU. Our Top Value Picks = AP, CAR, DIR, GRT, MHC, REI. Our Top Income/Defensive Picks = APR, CRR, CRT, DRR, NWH. Best “Defensive Laggards” = CAR, CRR, GRT. "
“Scotiabank on REITs, a ‘screaming yes’ on attractive entry point but there are risks” – (research excerpt) Twitter
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Diversion: “Sudbury, Ont., woman surprised coffee shop rejected her 36-year-old $5 bill” – CBC
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