Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
The strategy team at Scotiabank screened the Canadian stock universe to determine the highest-quality companies,
“We have been recommending to add a Quality edge to investors’ portfolio in the last few months. Degrading macro data and poor sentiment has pushed our SQoRE style switching model into favouring Quality stocks since the start of the year. Moreover, from a more fundamental standpoint considering monetary policy, earnings trajectory, and valuations, our overall view is also that equity markets may not have found their ultimate trough yet in this current cycle … We would recommend that investors willing to upgrade their portfolio’s defensive characteristics look at the list ... It highlights Top Ranked Quality names screening out Quality Traps (i.e., names with seemingly high rankings on certain Quality metrics, but that may not deliver as much outperformance as expected)”
The highest quality names according to Scotia are, in order, TMX Group, Timbercreek Financial, Automotive Properties REIT, CIBC, Royal Bank, BCE, Altrium Mortgage Investment, CGI, Scotiabank, Canadian Western Bank, Ritchie Brothers Auctioneers, SmartCentres REIT, Hydro One, Choice Properties REIT, Waste Connections, Canadian Utilities, Dream Industrial REIT, Northwest Healthcare Properties, Canadian Pacific Railways and Telus.
“Scotia’s picks as highest quality names in Canada” – (table) Twitter
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BofA Securities analyst Michael Widmer warns clients that metals shortages could happen sooner than expected,
“If efforts towards limiting global warming increased and mitigation measures were pulled forward, as the EU has done recently, metals constraints could kick in quickly. To us, it is a concern that successive COP summits still focus on reducing fossil fuel usage but discount the importance of metals in the energy transition: “Energy” has its own section in the Sharm el-Sheikh Implementation Plan, but mined commodities are not mentioned… Against this backdrop it is worth noting that many metal markets are constrained already now. As such, the push to de-carbonise the global economy should entrench strong fundamentals. Linked to that, supply keeps underperforming across a range of commodities. Curtailments have been most visible at aluminium smelters in Europe and it looks unlikely that these cuts will be reversed before the energy crisis has been settled by 2025/26… As for copper, miners keep delivering fewer tonnages than markets anticipated… copper production in Chile has also been under pressure and fallen to multi-year lows. We acknowledge that projects including Anglo American’s Quellaveco and Teck’s QB2 will likely deliver more tonnages to the market next year. Yet, current guidance expects the mining industry to deliver record production by 2025, both in absolute terms, but also relative to forecasts made in previous years. Factoring in those production figures, we expect a deficit in that year.’
“BofA: “metals constraints could kick in quickly”” – (research excerpt) Twitter
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Morgan Stanley analyst Stephen Byrd provided a list of top stock picks to benefit from ESG investing trends,
“(1) We see significant potential for investors to achieve both alpha and “ESG impact” by focusing on stocks that are leaders on improving ESG metrics. (2) Working with our equity research colleagues globally, we developed a list of stocks that (i) are leading the way on improving ESG metrics, (ii) are demonstrating a rate of change that can generate tangible financial benefits such as revenue/margin growth and risk reduction, and (iii) offer attractive risk-reward skews. (3) We see the potential for a growing divergence among sustainability focused investors in terms of investing approaches — a division between an approach focused on “ESG leaders” and an approach (one that we believe is growing) focused on owning “ESG rate of change” stocks and engaging with companies in transition, as long as the transition is visible, achievable, and beneficial.”
The stock list is eclectic. There are a lot of global utilities names that are unlikely to interest domestic investors and there are no Canadian energy stocks. Companies on the list that might interest domestic investors include Air Products and Chemicals, Eastman, Linde, Alcoa Corp., Deere and Co., Ford Motor, Panasonic, Delta Electronics, and S&P Global.
“‘ESG rate of change Overweight-rated stocks by sector’ (MS) – (table) Twitter
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Diversion: “The 50 Worst Decisions in Music History” - Rolling Stone
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