Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO analyst Michael Markidis notes strong outperformance in the REIT sector,
“The S&P/TSX Capped REIT Index was +0.9% for the Labour Day shortened week ended September 6th. This brings the trailing 3-month price-only return to +14.7% vs. +3.5% for the S&P/TSX Composite Index. Looking at index constituents specifically, it was a good week for retail and multifamily REITs (7/7 and 3/4 names were in positive territory). Standouts included KMP (+3.2%), REI (+3.2%), CRR (+2.9%) and FCR (+2.7%). On tap for this week is our Canadian Real Estate Summit (9/12), featuring 1x1s with 17 TSX-listed REITs & REOCs in New York”
Mr. Markidis has outperform ratings on Granite REIT Dream Industrial REIT, Minto Apartment REIT, Canadian Apartment Properties REIT, BSR REIT, Killam Apartment REIT, InterRent REIT, Crombie REIT, Flagship Communities RCT REIT, Boardwalk REIT, First Capital REIT and Choice Properties REIT.
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BofA Securities U.S. equity and quant strategist is turning away from previous bullishness and a belief in a new cycle to a market downturn,
“Short-term: July to November of election years have seen elevated volatility amid policy uncertainty. Medium[1]term: our cycle model, the Regime Indicator, just shifted from Upturn (buy risk) to Downturn (sell risk). And for the next several years, the leading yield curve indicates higher volatility. Quality, stability and income have protected investors in prior volatile markets. We recalibrate our sector calls to augment these characteristics … Going forward, income should contribute a larger share of total return– especially since our valuation framework suggests paltry price returns - low single digits - over the next decade. (In 2010, valuations predicted 10%+ price returns p.a. [per year] … On the heels of softer employment data, our economists’ revised outlook has terminal rates slated to reach 3.25% by 2025 - the dividend yield of most Utes and RE [real estate] companies are more attractive given their inherent inflation protection … Energy has become higher quality and more disciplined than in prior cycles, but its supply discipline is at risk of shifting amid a change in political administration. Our commodity strategists just trimmed their oil forecasts (note) and it may be “cheap for a reason” as it now has the most negative earnings revision ratio of all sectors”
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Barclays U.S. equity strategist Venu Krishna warned clients to prepare for volatility,
“2Q24 results were generally good but surprise was modest as consensus came closer to actual EPS. Financials were the standout. Next-quarter revisions are concerning as base effect tailwinds abate and rising macro concerns come into play. Big Tech EPS growth decelerates for a 2nd quarter with another step down likely … the outlook for next quarter could spell trouble. 3Q24 EPS has been revised down nearly -5% since May and Y/Y growth is expected to fall by more than half vs. this reporting season. Base effects are partly to blame (2Q24 lapped the trough of the 2H22/1H23 earnings contraction and this tailwind goes away next quarter) but we think rising macro uncertainty is also in play, considering 3Q24 has seen substantial cuts while further-out estimates remain essentially untouched. Big Tech EPS growth is also expected to continue decelerating next quarter …How many innings does Big Tech have left? Y/Y EPS growth for Big Tech in 2Q24 was still well above that of the S&P 500 at nearly 40%, and the group continues to prop up full-year estimates for the entire index. But growth has been decelerating for 2 straight quarters and estimates imply at least one more quarter of slowdown before stabilizing. Surprise has shrunk as consensus gets better calibrated. We think this could mean headwinds from a valuation standpoint; PEG for the group has worsened as expected EPS growth rates are shrinking faster than P/E multiples”
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Goldman Sachs analyst Kash Rangan expects revenues for cloud computing providers to continue ramping higher,
“The total addressable market for cloud services is poised to expand at a 22% compound annual growth rate from 2024 to 2030, writes Kash Rangan, head of US software research in Goldman Sachs Research, in the team’s report. Generative AI could constitute $200 billion to $300 billion of cloud spending as investment moves beyond mega technology companies and foundation model providers. Companies spending on digital transformation and cloud modernization will contribute to the surge in cloud computing sales, writes Rangan. Only about 30% of workloads have moved to the cloud, according to a recent survey by Goldman Sachs Research. The estimate for cloud revenue growth is also based on recent historical precedent — the market more than doubled between 2019 and 2023 to $496 billion, representing a 26% compound annual growth rate … And while the investor outlook on generative AI gyrates from excitement about its prospects to skepticism about its viability, there are signs that investment in the technology is resilient”
Mr. Rangan has “buy” ratings on Samsara Inc., MongoDB Inc., Salesforce Inc., Intuit Inc., Monday.com Ltd., Datadog inc., Dynatrace Inc., Atlassian Corp., Procore Technologies and Informatica Inc.
“Cloud revenues poised to reach $2 trillion by 2030 amid AI rollout” - Goldman Sachs
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Diversion: “These Are the Closest Views of Mercury We’ve Ever Seen” – Gizmodo