Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC REIT analyst Dean Wilkinson published his monthly report,
“We have found ourselves in a position in which near- to medium-term visibility of the REIT space has increased dramatically when compared to the last several years of heightened volatility … In a recent report by our Portfolio Strategy group, our team comments on the expectation of a rotation back into high-yielding equities, of which we expect REITs to be a direct beneficiary. Our team estimates that Canadian individual investors have shifted $220-billion in excess funds into fixed income and fixed income alternatives that would have traditionally been allocated to high-yielding equities. As additional rate cuts are enacted, we expect much of the funds flow to be directed back into high-yielding equities, and, with a total average current yield of 5 per cent for the Canadian REIT universe, we expect REITs to continue to become more attractive as rates fall … A basket of higher-yielding REITS may offer marginally outsized total return possibilities between now and the end of the year, including SRU and CRR in the Retail REITs, SIA in the Seniors, and DIR and NXR in the Industrials. We also flag USD exposure through BSR and MHC”
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RBC Capital Markets analyst Bish Koziol made eight changes to his quantitatively driven top 40 list of domestic stock picks.
Teck Resources Ltd., Toronto-Dominion Bank, Enghouse Systems Ltd. and Labrador Iron Ore Royalty Group Corp. were removed.
Northland Power Inc., Kinross Gold Corp. CI Financial Corp and Canaccord Genuity Group Inc. were added.
The list now stands with Canadian Natural Resources, Pason Systems Inc., Cenovus Energy, Trican Well Service Ltd, Suncor Energy Inc., Keyera Corp, Imperial Oil Ltd, Ovintiv Inc., Stella-Jones Inc, Kinross Gold Corporation, Alamos Gold, CCL Industries Inc., Finning International, Toromont Industries Ltd, Exchange Income Corp., TFI International, Richelieu Hardware Ltd., Linamar Corporation, Loblaw Companies Ltd, Metro Inc., Fairfax Financial HoIdings Ltd, CIBC, Great-West Lifeco Inc, AGF Management Limited, Cl Financial Corp, Bank of Montreal, Canaccord Genuity Group, Intact Financial Corp, iA Financial Corp, Irw National Bank Of Canada, Bank Of Nova Scotia, TMX Group Ltd, Celestica Inc, Open Text Corp., Cogeco Communications, Quebecor Inc., Roqers Communications Inc., Northland Power Inc. and TransAlta Corp.
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Scotiabank strategist Hugo Ste-Marie published on a similar theme in Friday’s Buying the Interest Rate Trade,
“Powell and other FOMC members telegraphed recently, real rates will decline in coming quarters, banks should start easing credit conditions, and we believe the odds of achieving the holy grail (the soft-landing) will only get better. If that’s the case, 1) stocks should continue to drift higher over time, and further equity weakness would be viewed as a buying opportunity (again), and 2) interest sensitive sectors should trade better. Still, we would expect volatility to remain on the high side at least until the US election. We’re bumping Financials and Real estate to OW from UW on expectations of sustained economic growth with peak rates behind us. Within Financials, we have mainly increased our exposure to banks (from UW to MW), and we maintain OW exposure to Insurance. We have reduced our Cash, which has now a less appealing return profile; resources stocks, Discretionary and Industrials. Overall, that leaves our portfolio with OW exposures in Financials, RE, Staples, Discretionary, Energy, and Gold …
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BMO analyst Sohrab Movahedi raised profit estimates higher for his top picks,
“Q3 earnings for the “Big 6″ wrapped up last week, with CM, NA and RY exceeding consensus expectations. Cash operating net income to common shareholders across the “Big 6″ was $14.9 billion in Q3/24 (up ~8% from a year ago), reflecting double-digit pre-tax pre-provision earnings growth partly offset by higher credit provisions (albeit stable q/q). We believe the Canadian banks are at an inflection point, with our attention shifting towards revenue-driven earnings growth and ROE over the coming quarters. We made no changes to ratings and moved our estimates higher for CM, RY and NA, our Outperform-rated large banks”
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Diversion: “Elon Musk Has the ‘Off’ Switch” – The Atlantic