Daily roundup of research and analysis from he Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Mario Saric believes domestic office REITs offer a strong risk versus reward investment,
“We see higher AP [Allied Properties REIT] and D [Dream Office REIT] unit prices heading into the Fall on a return to office. CAD and U.S. Office REITs have lagged during COVID although the gap is closing YTD. We believe CAD REIT underperformance vs. Global REIT peers plus an easing domestic economic lockdown supports CAD Office REIT outperformance over the summer; NTM NAVPU [next 12 months net asset value per unit] growth forecast (~7%) is comparable to other asset classes that trade at notably higher NAV premiums … Visibility on long-term tenant plans remains low. AP noted strong leasing velocity, no change to lease terms or free rent (some exceptions in Calgary) and no tenant requests for less space to date; no notable change to market rent”
“@SBarlow_ROB BNS on REITs: “We still see attractive reward-risk in Office”' – (research excerpt) Twitter
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Morgan Stanley commodity strategist Martijn Rats sees continually tighter oil markets supporting higher prices,
“The case for a supply-constrained market is increasingly strong: Already in our previous note Oil, OPEC and ESG – Raising Forecasts, we drew attention to the intense pressure building on publicly listed oil companies to achieve ‘net zero by 2050’, preventing a meaningful capex recovery. In this note, we build on this by focusing in on US shale operators. Although activity levels are recovering, the horizontal oil-directed rig count in the US is already 112 rigs short compared to the 2016 rig count recovery. If both public integrated oil & gas companies and US shale companies have muted-to-non-existent responses to high oil prices, oil markets increasingly look tighter-for-longer, giving OPEC further market clout even now.… OPEC has substantial spare capacity, but with a receding risk of a sharp non-OPEC supply response, it may decide to unwind this only slowly. In that case, oil prices would need to rise to the level where demand destruction kicks in… this suggests Brent prices up to $80/bbl. We raise our forecast for Brent to $75-80/bbl until mid 2022.”
“@SBarlow_ROB MS: “oil markets increasingly look tighter-for-longer”” – (research excerpt) Twitter
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Goldman Sachs U.S. equity strategist David Kostin expects corporate share buybacks and household buying to support equities for the remainder of 2021,
“Households were the largest source of equity demand in the first quarter with net purchases of $172 billion. We raise our forecast for full-year 2021 household net equity buying to $400 billion from $350 billion (Exhibit 3). We estimate that households currently allocate 44% of their assets to equities, slightly below the all-time high allocation of 46% in 2000. But high cash balances and continued retail participation in equity markets should bolster household equity demand… record $5.5 trillion of cash is sitting on the sidelines. As the pandemic set in during early 2020, $1.2 trillion flowed into money market funds.. US equity fund inflows are on pace for the strongest 1H since at least 2007. $170 billion has flowed into US equity ETFs and mutual funds so far in 2021… US companies have announced $567 billion of buybacks YTD, a record at this point in the year. In April, GOOGL and AAPL announced repurchase authorizations totaling a combined $140 billion. We forecast$726 billion of gross buyback executions for S&P 500 firms this year and expect buybacks will accelerate during the coming months as earnings grow and operations normalize. We maintain our full-year forecast of $300 billion of net equity demand by corporations through year-end, representing the largest source of net US equity demand for the remainder of 2021.”
“@SBarlow_ROB GS’s Kostin expects households and buybacks to support U.S. equities through year end " – (research excerpt) Twitter
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Table: “The highest-yielding stocks on the TSX, plus risk data” – Inside the Market
Diversion: “Top Five Movies Time Forgot and Why the Beatles Movie Is No Longer a Movie” – The Ringer (podcast)
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