Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
RBC Capital Markets head of global energy research Greg Pardy reviewed his top picks in light of a lower commodity price environment,
“We continue to favor companies that possess focused leadership teams, strong balance sheets, capable execution, and resilient business models. From where we sit, the themes of capital discipline, balance sheet deleveraging via absolute debt reduction, and shareholder returns—with an emphasis on share buybacks—will extend into 2025 as producers approach (or have already achieved) their net debt targets … Our favorite Senior producer remains Canadian Natural Resources (Global Top 30 and Energy Best Ideas lists), with Suncor Energy (Energy Best Ideas list) our favorite Integrated, and MEG Energy (Energy Best Ideas list) our favorite Intermediate producer with Cenovus Energy, Baytex Energy and Obsidian Energy rounding out our Outperform roster … On average, our FFO/AFFO [funds from operations/adjusted funds from operations] per share estimates drop by 9% in 2024 and 27% in 2025, primarily due to a lower oil price forecast”
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BofA Securities investment strategist Michael Hartnett summarized the results of the firms’ monthly fund manager survey (FMS),
“Global sentiment improves for 1st time since June on “Fed cuts = soft landing” optimism… cash level dips to 4.2% … investors best described as “nervous bulls”… Sept FMS shows big rotation to bond sensitives (e.g. utilities OW highest since 2008) from cyclicals (e.g. commodity allocation @ 7-year low)… tactically Sept FMS says the bigger the Fed cut, the better for cyclicals ... FMS Big Convictions: 9/10 investors positioned for steeper yield curve, 8/10 investors forecast “soft landing”, 7/10 investors say high quality to outperform low quality stocks … “soft landing” forecast by 79% of investors (11% say hard landing, 7% say no landing), and 2/3 say recession “unlikely” despite 3-year low in China growth optimism … most crowded trade “long Magnificent 7″ say 46%, but “short China stocks” & “long gold” on rise … FMS positions say long commodities, China, resources, tech, REITs, discretionary, and short bonds, utilities, staples, healthcare best contrarian plays”
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CIBC economist Benjamin Tal addressed new mortgage rules to combat affordability issues,
“We know that home buyers are very responsive to such policy changes. And this time will not be different, particularly in conjunction with easing mortgage rates … There is little doubt the current change to regulations will speed up the recovery process of the housing market that was ignited by lower and falling interest rates. To prevent that from becoming too much of a good thing, we need to match the additional demand with supply … For many years, we used demand tools to deal with what is essentially a supply issue. The core issue is the lack of supply available to respond to rapidly increasing population. In recent years, there has been a dramatic change in attitude at all levels of government, with supply becoming the focal point. The additions to demand from these mortgage changes will make it even more imperative to deliver on policies aimed at inducing more homebuilding … We are in the midst of an important transition period in the trajectory of the Canadian housing market, especially in Vancouver and Toronto. The level of activity is likely to continue to soften in the near term. But when the fog clears, it will become evident that the long[1]term trajectory of the market will show even tighter conditions”
“Mortgage changes only half the battle” – CIBC Economics
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Diversion: “Dramatic Video Shows the Closest Flyby Ever of Mercury” – Gizmodo