Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi strategist Drew Pettit is concerned about tech stocks,
“Tech themes share a common, unfortunately ominous, situation: slowing sales growth. Seasoned investors may connote this setup with complications including profitability pressures and valuations headwinds. Our resolution is twofold. First, we emphasize efficiency by screening for rising ROE driven by expanding margins and improving asset turnover. Second, we require a margin of safety based on our reverse-DCF framework and a fair value approach utilizing out-year street estimates. Contactless Economy and Internet of Things screen most attractively. Connected Car and Cyber Security look least appealing. Note, Artificial Intelligence looks more compelling than it did months ago given intact fundamentals”
I feel like we’ve been waiting for the Internet of Things for 25 years so I will concentrate on the constituents of Mr. Pettit’s contactless economy basket of stocks.
These are: Alphabet, PayPal Holdings, Doordash, Trade Desk, Block, eBay, GoDaddy, Zoom Video Communications, VeriSign, Match Group, Maplebear, Etsy, Wayfair, IAC, Zoomlnfo Technologies, Hims and Hers Health, Marqeta, ZiffDavis, Opendoor Technologies, Angi, Redfin, Adyen, LYCorporation, Wixcom, Schibsted Asa, Zalando, Nuvei, Deliveroo, Just Eat Takeaway.com, Criteo SA and AUTOI Group.
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BMO analyst Michael Markidis updated clients on a recent REIT conference and took stock of the strong ongoing rally in the sector,
“We hosted our Canadian Real Estate Summit in New York on September 12. Participation was strong (~50 institutional investors; 17 TSX-listed REITs/REOCs) and the mood was noticeably buoyant … Brookfield is buying purpose-built rental residential in Canada. We are aware of two transactions that have closed in the past several weeks. The first includes Davisville Village and Village Green Apartments, two landmark communities (four high[1]rise towers) in Toronto totaling 1,188 suites … The two-plus month rally in the S&P/TSX Capped REIT Index continued unabated last week, with a price-only return of +6.1%. The Index is now +25.7% since June 21st and +11.5% year to date. With respect to the entities that we track, it was a standout week for AP (+12.0%) and NWH (+8.2%). Notable laggards included CHP (+2.6%) and FCR (+3.4%). Key releases on tap for this week include Canadian CPI for August 2024 (September 17), the BoC’s Summary of Deliberations for the policy decision announced earlier this month (September 18), and Canadian Retail trade (September 20)”
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A terrific research report from BofA Securities analyst Andrew Obin identifies peripheral plays on the datacenter expansion trend,
“Data centers were already a fast-growing market. We estimate data centers (measured by electrical capacity) grew at an 18% CAGR over 2018-23. AI adoption is poised to accelerate this growth meaningfully over coming years. BofA’s US Semis analyst, Vivek Arya, forecasts the AI chip market to reach ~$200bn in 2027, up from $44bn in 2023 … The increasing power needs of servers are starting to run into a limiting factor - data centers’ existing electrical and cooling infrastructure … electrical demand per chip has increased over time. 85% of data centers operate with maximum rack power densities of less than 30kW per rack. There are other changes needed in the data center as infrastructure runs hotter (rack-level electrical retrofit; center-wise electrical retrofit). We are focusing on the transition to liquid cooling … Direct-to-chip cooling has been the leading alternative cooling method. Liquid cooling solutions can be retrofit into the existing infrastructure with relatively little disruption. We think liquid cooling demand among colocation companies is more likely to accelerate as AI chip availability broadens out”
A lot of the cooling company are private but the public ones mentioned in the report are Nvent Electric PLC, Schneider Electric SA, Delta Electronics Inc., Modine Manufacturing Co. and Vertiv Holdings.
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Diversion: “The Winners and Losers of the 76th Emmy Awards” – The Ringer