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Daily roundup of research and analysis from the The Globe and Mail’s market strategist Scott Barlow

Scotiabank analyst Jason Bouvier likes stocks leveraged to heavy oil prices,

“TMX is fully operational and brings structural change to the Canadian oil market, improving transport efficiency, reducing price volatility, and diversifying market access beyond PADDs 2 and 3 to PADD 5 and Asia. We estimate Western Canada will be long pipeline capacity until mid-2027 and there is potential for another 370 mbbl/d [thousand barrels per day] of pipeline optimization opportunities. Q2 WCS [Western Canada Select] differentials have narrowed to $13.55/bbl (down 18% vs the 2021-2023 average), and we expect differentials to remain in the $13-$15/bbl range long-term. MEG, SCR, IPCO, and IMO have the most torque to stronger heavy oil prices … Shareholder returns are in high gear. Assuming $70 WTI over the next 5 years we expect companies to generate 60 per cent of their current market caps in free cash flow. Importantly, several companies including CVE, IMO, SCR, PXT, and MEG are allocating 100 per cent of FCF toward shareholder returns, with others at 50-75 per cent”

Cenovus Energy Inc. (CVE-T) and MEG Energy Corp. (MEG-T) are the analyst’s top picks.

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Citi analyst Asiya Merchant explains why Hewlett Packard Enterprise (HPE-N) might be a stock to watch,

“We had an opportunity to tour HPE’s Wisconsin facility (one of the factories where they assemble and test Direct Liquid Cooled systems), followed by executive discussion on HPE’s offerings, TAM [total addressable market] potential in HPC/AI with an emphasis on liquid cooling innovations which HPE has synthesized over the years following their CRAY and SGI acquisitions. Management stressed the size of the AI TAM ($171-billion), the breadth of their offerings (server, storage, compute, and services), private cloud AI and their expertise in designing, and deploying their liquid cooling technology offerings. Overall, we came away impressed with the scale of HPE’s DLC capabilities. We believe the pace of adoption of DLC in the industry (vs air cooled) and ability to profitably drive share gains in AI will be key metrics investors will be focused on to gauge HPE’s success”

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Goldman Sachs’s Briefings newsletter explains why AI will replace packaged software applications,

“As generative AI models get better, they could be used to develop software more efficiently than traditional processes, enabling businesses to replace today’s packaged software with AI-powered solutions. “This could reduce the economic power and influence of many of today’s software companies — which are primarily US-based — relative to other companies and industries, and lead to economic drags in countries that are exporters of software and development services,” writes Matt Lucas, who works with the Technology, Media, and Telecom group in Goldman Sachs Global Banking & Markets and is a 2024 member of the Goldman Sachs Global Institute’s fellows program.

Already, AI is automating significant aspects of coding, testing, and maintenance. At the same time, IT customers are tightening their software budgets and prioritizing investments in infrastructure, including hyperscale cloud, semiconductors, and systems. At the lower end of the software industry, these trends may result in more consolidation among software companies, writes Lucas”

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Diversion: “Secretive Space Force Vehicle Will Conduct ‘Groundbreaking’ Maneuver to Adjust Its Orbit” – Gizmodo

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