Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank strategists and bank analysts are turning bullish on the sector after earnings season. First, strategist Hugo Ste-Marie,
“We have been underweight Canadian Banks for quite some time now, but we believe time has come to review the space more positively. A better-than-expected reporting season, easing cycle and technical breakout support our optimism. While we clearly warm-up to the sector, investors have to be more selective than ever. What used to be a homogenous sector has morphed into an alpha-generation machine for investors with superior stock-picking skills”
Now bank analyst Meny Grauman,
“We have been negative on the Canadian Banks since late 2022, and over that time period have preferred lifecos over banks. That view was driven by a number of factors including banks’ higher sensitivity to a credit cycle, slowing mortgage growth in the face of rising rates, and the ratcheting up of bank capital rules even as capital rules for insurers remain unchanged. That trade has paid off, but in our view has now played out as central banks become more dovish, and bank capital rules stabilize (at least for now). We are not particularly negative on insurers, with MFC remaining our favorite name in the space, but we see an opening here for banks to outperform due to a combination of both expanding multiples, and rising EPS estimates after an extended period of downward revisions. In terms of the individual names, our top picks in order are CM, TD and RY. CIBC has been our favorite for some time now and delivered another sizable beat in Q3″
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RBC Capital Markets’ research department made a bunch of changes to their “Canadian Research Model Portfolio Best Ideas”,
“The RBCCM Canadian Fundamental Equity Weighting (FEW) Portfolio is set by a committee within the Canadian equity research department and represents a model portfolio built around our analysts’ best ideas, giving consideration to sector and stock -specific weightings in the S&P/TSX Composite Index. The Fall 2024 FEW Portfolio contains 53 stocks, with six additions (Artemis Gold, CIBC, Capstone Copper, Chartwell Retirement Residences, Descartes Systems, RB Global ) , two weighting increases (Suncor Energy, TD Bank), four deletions (Bank of Montreal, Finning, Nutrien, Open Text ) and one weighting decrease (Canadian Natural Resources) this quarter”
The portfolio is now Rogers Communications Inc., TELUS Corporation, Canadian Tire Corporation, Dollarama Inc., Restaurant Brands International Inc. , Alimentation Couche-Tard Inc., Loblaw Companies Limited, ARC Resources Ltd., Canadian Natural Resources Limited (CNQ), Enbridge Inc. , Keyera Corp., Pembina Pipeline Corporation, Suncor Energy Inc., Topaz Energy Corp, Tourmaline Oil corp., Brookfield Asset Management Ltd., Brookfield Corporation, CIBC, iA Financial Corporation Inc., Manulife Financial Corporation, Sun Life Financial Inc., TD Bank, Chartwell Retirement Residences, dentalcorp Holdings Ltd., Bombardier Inc.,, Cargojet Inc., Canadian Pacific Kansas City Limited, Element Fleet Management Corp., Exchange Income Corporation, GFL Environmental Inc., RB Global Inc., Waste Connections Inc., WSP Global Inc., Constellation Software Inc., Kinaxis Inc., Shopify Inc., The Descartes Systems Group Inc., Agnico Eagle Mines Limited, Artemis Gold Inc., Barrick Gold Corporation, Capstone Copper Corp., CCL Industries Inc., Interfor Corporation, Osisko Gold Royalties Ltd., Teck Resources Limited, First Capital REIT, Granite REIT, Killam Apartment REIT, AltaGas Ltd., Brookfield Infrastructure Partners L.P., Emera Incorporated, and Superior Plus Corp.
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BMO senior economist Sal Guatieri notes that “Canadian Job Market Hitting a Wall”,
“In last week’s Thought, we noted that the U.S. job market, though weakening, was far from weak. Alas, the same can’t be said for Canada’s job market, at least outside the public space. Nonfarm payrolls plunged 47,300 in June, erasing two prior monthly gains. The yearly rate of 0.6% (110,364) was the weakest outside the pandemic since 2015. If not for a thriving public sector (health care, education and public administration), which has ramped up 3.3% (162,718) in the past year, overall employment would have contracted by 0.4% (-52,354). Going back 22 years, the only time private-sector employment turned negative was in the pandemic, the Great Recession, and the tech bust. True, the timelier household survey of employment still shows an annual net increase of 1.7% to July, but that’s largely due to a hiring boom (4.8%) in the public sector. Private-paid employment is up an unremarkable 0.6%, the weakest pace outside the pandemic since 2016. And lest we forget, this is in the context of sparkling 2.7% growth in the labour force. In other words, it’s not a supply problem—Canada’s private sector employers are just not in a hiring mood … Which industries are pulling back? Retailers, hotels and restaurants, and manufacturers have slashed staff in the past year, and even construction is starting to pull in its sails”
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Diversion: “The Creators of ‘Industry’ Know Banking is a Rigged Game” – Wired