Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
TD Securities analyst Sam Damiani is forecasting REIT performance headwinds becoming tailwinds,
“REITs are still 20% below year-end 2021 levels, reflecting the spike and subsequent volatility in interest rates. The good news is that those headwinds have rapidly diminished and are starting to become tailwinds. Today’s GoC bond yields of 3.2% for the 2-year (a 24-month low), and 3.0% for the 10-year (a 15-month low) are down 180bps and 120bps, respectively, from their October 2023 peaks. Expectations for further BoC rate cuts and the commencement of U.S. Fed cuts next month suggest these tailwinds will continue, assuming no deep economic recession follows … continued central bank rate cuts should cause the $300bln of fund flows over the past 30 months into term deposits/money market funds (Figs. 1 & 2) to reverse as yields on those investments continue to decline. As yield-seeking investors reallocate those funds, we see potential for Canadian REITs to materially outperform, as they have in past similar periods since 1998 … Our top larger-cap picks remain CAR.un, GRT.un, REI.un, CSH.un, DIR.un, FCR.un, BEI.un, KMP.un, CHP.un, and PMZ.un. Top smaller-cap picks are MI.un, DRM, and HOM.u.”
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RBC Capital Markets analyst Maurice Choy sees the risks receding for utilities stocks,
“Once the dust settles, we believe there is little to dispute that the long-term fundamentals for the four pure-play utilities remain favourable (including those related to secular energy growth trends), which support multi-year, low-risk rate base, EPS and DPS growth for the companies when executed right … the highlight for the sector over the past quarter has been the derisking of Emera’s financial setup through multiple asset sales and the right[1]sizing of the annual dividend growth rate … Canadian Utilities looked poised to announce a financial/ strategic partner for its Heartland Hydrogen Hub project, which we believe will return some credence to the project following Suncor’s withdrawal in 2023 … Meanwhile, we are progressively getting clarity on the costs (and associated funding needs of Hydro One) associated with the nine previously-awarded transmission line projects, with the Section 92 application now filed for its St. Clair Transmission Line project. Cautiously optimistic of the data center-themed load growth, which featured more prominently for the utilities sector as part of the Q2/24 results. Notably, Fortis is seeing “a lot of potential” for additional load growth related to data centers at its utilities in Arizona (TEP and UNS Electric), Iowa and Michigan (ITC), as well as Alberta (FortisAlberta”
Mr. Choy has outperform ratings on Emera Inc. and Transalta Corp.
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Jefferies analyst Christopher LaFemina is medium term bullish on copper miners, expecting a supply deficit,
“Despite the copper price rising to an all-time nominal high in 2022 and then a new high in 2024, there has not been a major greenfield project sanctioned in the industry since well before COVID hit, and total production from small greenfield and brownfield projects that have been approved is significantly lower than the aggregate of projects in prior years. Demand is a risk, but supply is bullish for copper … Our Call: There is risk to copper demand if the global economy slows, as copper use continues to be correlated with industrial activity and construction. A US recession would be a clear negative. But the subsequent recovery in demand would almost certainly exceed mine supply growth, which would imply significantly higher prices in the years ahead. If the US economy has a soft landing and Chinese demand stabilizes, as we expect, the next up-cycle in copper may be here now.”
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Diversion: “Organized crime linked to illegal lobster fishing ‘terrorizing the community,’ N.S. minister claims” – CBC