Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Mario Saric sees a short-term buying opportunity in Canadian apartment REITs,
“CAD Apartment REITs have lagged U.S. peers by an avg. 18% year-to-date, giving back all of the avg. 15% beat in 2023 (9% ex. BEI); we look across our CAD and U.S. coverage at various macro (population growth, new supply, etc.) and micro factors (FFOPS [funds from operations per unit] growth, lease spreads, in-place vs. market rent, debt) overlapped with relative valuation and highlight the best opportunities we see in the Canadian Apartment sector. We view the recent pullback in CAD Apartment REITs (-9% since March 20th) and new-found AFFO [adjusted funds from operations] discount to U.S. peers as a near-term buying opportunity (demand > supply this year), but see ourselves more balanced in 2025 (decelerating FFOPU growth; Accelerated CAD FFOPU growth (for some) and recovering private deal volumes = near-term catalysts. Our top CAD picks in order = InterRent (IIP) and CAP REIT (CAR) and we are more positive on BEI on this report”
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The global asset allocation team at Wells Fargo presented their top five portfolio ideas for the next 18 months
“1.Broaden equity exposure during market pullbacks … Events such as the November elections and any delays in the pace of disinflation may prompt episodes of market volatility. However, if the Federal Reserve (Fed) pivots to rate cuts and the economy moves to a new and sustained growth improvement phase as we expect, pullbacks should provide opportunities to add sector breadth in US. Large Cap Equities … 2. Prepare to extend duration and generate yield. Interest rates near their highest levels since 2007 potentially offer investors some of the best opportunities in decades to generate income … 3. Invest in the building blocks of growth The drive for greater labor efficiency and government fiscal policy are fueling increased infrastructure spending that should foster stronger economic growth in the years to come. We believe investors can potentially benefit from overweighting allocations to the Energy, Industrials, and Materials sectors (particularly to electrical equipment and industrial machinery) along with commodities … 4. Offset macro uncertainty with alternatives. Event-driven securities can provide a hedge during unexpected events, while Macro strategies should profit from persistent trends, including those in commodities and currencies. Looking ahead, we believe emergent investment trends like Al and weakening valuations are likely to make for compelling opportunities for private capital. 5. Hedge economic and geopolitical risks … Economic uncertainty and global conflict have increased sharply since 2022. We believe global threats have tended to benefit the U.S. dollar (notably against emerging-market weakness) and encourage overseas demand for U.S. equities and investment-grade fixed income. The Industrials sector should also benefit from ongoing reshoring of US. manufacturing from Asia.”
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Morgan Stanley chief U.S. equity strategist Michael Wilson screened his universe for stocks with high quality and strong upwards earnings revisions,
“We continue to recommend a high quality bias. In our view, quality incorporates financial leverage as well as earnings stability and operational efficiency measures … we take this classification one step further by adding a strong EPS revisions component to the quality factor. This cohort has shown strong relative performance ... It’s largest sector weights are Tech, Financials and Industrials”
Stocks on the resulting list that are most likely to interest Canadian investors include Baker Hughes Co., Schlumberger Ltd., Stanley Black & Decker, Wayfair Inc., Abercrombie and Fitch, Gap Inc., Expedia Group Inc., Chewy Inc., Colgate Palmolive Co., Monster Beverage Co., Clorox Co., Merck and Co., Goldman Sachs, Robinhood Markets Inc., Mastercard Inc., Nvidia Corp., Docusign Inc., Meta Platforms, Alphabet Inc., and American Tower Corp.”
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Diversion: “Did you catch this Dave Grohl burn of Taylor Swift? This is war” – A Journal of Musical Things