Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Mario Saric reviewed profitability levels in his sector and noted top picks in each major subsector,
“We still believe higher deal volumes (tied to more clarity on BoC/Fed monetary policy) is a key catalyst for CAD REITs/BN/CIGI, providing support for our estimated 18-per-cent REIT NAV discount … We still believe Apartment REITs can outperform over the next 6-9 months, particularly in a Hard Landing scenario, given near max occupancy, large MTM [mark to market] rent opportunity, and rent control. As noted in our Focus 2024 report, CAR [Canadian Apartment Properties REIT] is our favourite ‘Hard Landing’ pick (and overall Apartment REIT pick), while we think IIP [InteRrent REIT] provides a bit more torque in a ‘Soft Landing’ … We note that the industrial fundamentals have further slowed down in Q4/23, but somewhat reflected in the valuation … GRT [Granite REIT] and DIR [Dream Industrial REIT] are our top picks … We still believe that CAD Office REITs could perform well in a Soft Landing given the discounted valuation (for AP [Allied Properties REIT] in particular) … Strong demand + slowdown on new supply = outperformance [ for seniors housing]. We believe senior housing is the place to hide in a hard landing scenario. We recently increased our target on CSH [Chartwell Retirement Residences] to $14.00″
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BofA Securities U.S. quantitative strategist Savita Subramanian is recommending technology and real estate stocks for the near future,
“Profits are accelerating, a Fed easing cycle is in the wings, the Global Wave troughed, and the balance of evidence from earnings so far skew soft vs. hard landing. Cyclical sectors are neglected and inexpensive, and benefit from falling short rates which could also push retiree’s cash back into dividends … Of our four overweighted sector, Real Estate and Banks/Financials look best positioned. We are also overweight Cons Discretionary and Energy, the two other highest beta sectors in the S&P 500. For 1Q, own TMT, Real Estate. Sell Materials, Health Care … We remain positive on earnings and see encouraging signs from early cycle industries. Trucking volume improved for the ninth straight month since April and rail volume inflected higher recently. Semiconductors provided upbeat results and outlook (e.g. Taiwan Semis and ASML), despite some weakness in autos & industrials”
I took a quick look at three month returns for the stocks in the Dow Transports index and in most cases it was extremely impressive, which backs up Ms. Subramanian’s bullish view on cyclical stocks.
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Goldman Sachs U.S. equity strategist David Kostin is bullish despite warning signs from the U.S. yield curve,
“Discussion topics included what a steepening yield curve means for stocks, the signal when the yield curve reshapes from inverted to positively sloped, and the recent negative correlation between bond yields and equities. Our findings repeatedly stress one common conclusion: Growth, rather than changes in yields or the shape of the curve, is the most important driver for equity returns. Simply put, equity investors focused on the implications of yield curve reshaping should follow the advice offered 32 years ago by James Carville, the manager for then-candidate Bill Clinton’s successful 1992 Presidential campaign: ‘It’s the economy, stupid’ … The relationship between growth and yields has driven considerable variation at the sector and factor level. In bear steepening episodes [longer term bond yields rise], Financials, Value, and small-cap stocks performed best. In contrast, in bull steepening episodes [short-term yields fall], Health Care and strong profit margin stocks outperformed most. The difference in equity returns during bull and bear steepening episodes likely reflects the difference in the underlying economic environments. Bull steepening episodes are primarily driven by Fed easing, whereas bear steepenings most frequently reflect increasing economic optimism”
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Diversion: “Why private helicopters are still in demand” - BBC
Scott Barlow