A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities is holding a North American mining conference and a report listed the top themes from the first day,
“1. The world is short decarbonization metals (copper, aluminum, nickel) and only higher prices will fix this. In our view, this is a bullish secular trend for these metals. 2. ESG is both limiting supply and driving demand. ESG is becoming an increasing focus for all miners across all metals. On one hand, it is driving demand (for decarbonization metals), while on another it is limiting supply. 3. Flush with cash and prioritizing dividends over deleveraging. Strong commodities prices have resulted in solid FCF generation which in turn has deleveraged balance sheets, and now miners are prioritizing capital returns to shareholders. 4. Organic growth preferred over acquisitions. Focus on brownfield opportunities. 5. Royalty/streamers pipeline is smaller precious metals development deals. The bigger base metal have solid balance sheets; thus the pipeline for royalty/streamers is largely smaller development stage projects, substantially precious metals.”
“To 5 takeaways from day 1 of BofA’s NA mining conference” – (research excerpt) Twitter
***
I initially missed this report from Goldman Sachs outlining their top U.S. stock ideas with high downside protection,
“We identify a screen of 20 stocks that offer a ‘Margin of Safety’ for equity investors. The constituents of our screen have three characteristics: (1) Size and liquidity, (2) balance sheet strength, and (3) attractive valuation based on our metric: The P/E multiple after applying a 20% haircut to expected 2023 earnings is below the forward P/E at the bottom of either or both of the two most recent bear markets: March 2009 and March 2020. The typical stock on our list today trades at an adjusted 2023 P/E of 12x compared with the S&P 500 median of 20x. Importantly, given the different real interest rate environments, the highlighted stocks are more attractively valued today on a yield gap basis relative to the rest of the index than they were in either 2009 or 2020.”
The non-energy stock ideas (Domestic investors tend to favour Canadian companies for the sector) stocks are Best Buy Inc., Franklin Resources, Electronic Arts, Microchip Technology, Micron Technology, Qualcomm inc., Qono Inc., Robert Half International, Skyworks Solutions, T. Rowe Price Group, Tyson Foods Inc., Take Two Interactive Software, and Vertex Pharmaceuticals.
“GS’s top 20 ‘margin of safety’ ideas” – (table) Twitter
***
In a separate BofA Securities report, bank analyst Ebrahim Poonawala had some interesting observations ahead of Canadian bank earnings (my emphasis),
“Canadian banks are interestingly positioned relative to global peers given the tailwinds from a potential commodities cycle, re-opening (immigration). However, rising interest rates and a cooling housing market (relevant research: Expert call takeaways on housing outlook: The one-two punch) are likely to weigh on the consumer, raising the age-old question of whether Canada could experience a much deeper recession/credit cycle vs. the U.S.. While the upcoming earnings season is unlikely to address this debate, investors will be looking for signs of slowing revenue momentum (and outlook for operating leverage)… We expect the group to trade defensively if markets continue to price-in rising odds for a global recession. Canadian bank index -8.5% quarter-to-date vs. -15.0% for US (BKX), -5.8% for EU (SX7E). Dividend yields should play a more significant role in providing downside support with banks trading at an avg. dividend yield of 4.3% vs. 4.2% 5yr avg. pre-pandemic and 5%/7.3% peaks seen during 2016/2020.”
Mr. Poonwala also downgraded Canadian Imperial Bank of Commerce and Bank of Nova Scotia to neutral rated, while Royal Bank of Canada remains underperform rated. Bank of Montreal and Toronto-Dominion Bank are buy rated.
“BofA on Canadian banks mentions “the age-old question of whether Canada could experience a much deeper recession/credit cycle vs. the US.” – (research excerpt) Twitter
***
Diversion: “What’s fuelling record-high gas prices in Canada?” – CBC
Tweet of the Day:
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
Scott Barlow