Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley global strategist Andrew Sheets recommends clients favour equities over government debt, noting “What’s good for the borrower… is bad for the lender,”
“Across a number of metrics, this is an unusually good moment to borrow money … Corporate bond yields in Europe are at all-time lows, while US corporates haven’t been able to borrow this cheaply since 1955. Mortgage rates, from the US to the Netherlands, are at historical lows… Even more important, however, is the real cost. When debt funds an asset (capex, infrastructure, a house), it’s likely that the asset’s value, at a minimum, rises with inflation. This is why deflation is so bad, and self-reinforcing: if the value of things falls every year, you should never borrow to buy them … [deflation] may have been a fear for much of the last decade … But it’s not today. US 10-year inflation expectations (2.4%) are nearly 40bp above the 20-year average (2.0%) … That better inflation picture also lines up with a better growth outlook … But can borrowers afford to take on additional debt? After all, debt/GDP for many governments is historically high and rising. Debt/EBITDA for corporate borrowers is elevated. We think they can. Low yields make high levels of debt affordable, so much so that the US is spending less on debt interest today … Combating climate change will require enormous investment – US$10 trillion by 2030, according to the IEA’s 2 degrees scenario. But there’s good news. The economics of investment have improved dramatically, with the cost of wind and solar power declining by 70% and 89%, respectively, in the last decade. The case to borrow to finance this has never been more economical.”
“@SBarlow_ROB MS from “A Borrower Not a Lender Be”' – (research excerpt) Twitter
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Also from Morgan Stanley, analyst Mark Carlucci identified the biggest winners from the mammoth U.S. infrastructure bill that is steadily wending its way through Congress,
“Earlier this week, the Senate passed the Infrastructure Investment and Jobs Act, a $1.2 trillion bipartisan infrastructure bill. Advancement of the bill to the House removes a key hurdle for negotiations to begin in the Senate on a broader reconciliation package - the Biden administration’s first opportunity for meaningful climate legislation … We continue to believe the bill will focus support on tax credits for more nascent, and in some instances, potentially transformational low carbon technologies … Last week, we outlined Overweight and Equal-weight rated companies with more direct exposure to potential legislation, part of our broader “Decarbonization Playbook” ... Among these equities, we see a particularly constructive set-up for hydrogen pure plays and nuclear: Bloom Energy (EW[Equal weight]), Plug Power (EW), and Exelon (OW).”
“@SBarlow_ROB MS: “we see a particularly constructive set-up for hydrogen pure plays and nuclear " – (research excerpt) Twitter
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Wells Fargo strategist Christopher Harvey updated his list of “Signature Picks,” the firm’s top U.S. stock ideas,
“Signature Picks is a diverse and opportunistic portfolio of stocks with no pre-ordained Value or Growth bias. We look to minimize risk exposures, and from time-to-time will express style views if they reflect our analysts’ aggregate views such as their current preference for “re-opening” plays … We are dropping CDLX [payments firm Cardlytics Inc.] from the portfolio due to a suspension of coverage”
The list now contains 34 stocks. Names more familiar to domestic investors include Alphabet Inc. (A), Amazon.com Inc., Expedia Group Inc., Marriott International (A), Estee Lauder Co. (A), Johnson & Johnson, Zimmer Biomet Holdings Inc., Apple Inc., and Cisco Systems Inc.”
The list is relatively new at Wells Fargo and has been trailing the benchmark so far – Mr. Harvey blames the lack of NVIDIA Corp. and Microsoft Corp.
" @SBarlow_ROB WF’s ‘Signature Picks’ - top U.S. stock ideas” – (full table) Twitter
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Diversion: “Why software hasn’t done more to improve productivity” – Marginal Revolution
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