Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets analyst Pammi Bir previewed REIT earnings and presented top picks,
“Our view: Our top picks are unchanged, as Q2 reporting shifts to higher gear next week. After a strong Q1, our forecasts reflect earnings growth moderating to more pedestrian levels (+1%) in Q2. As noted in our recent Q3/24 REIT Quarterly, stronger sector returns through 2H/24 likely hinge on hitting growth expectations and some macro support. While the latter seems to have come through in July, achieving the former could help fuel another leg up in the sector, particularly given inbounds on the durability of forecasts. All said, post a strong sector rally through July to date, we believe there’s still good money on the table, particularly for our preferred picks … Seniors housing earnings growth should remain well ahead of the group … Industrial continues to simmer down … Some green shoots in office, but still a long way to recovery.”
Mr. Bir has outperform ratings on Chartwell Retirement Residences, Allied Properties REIT, Dream Industrial REIT, Granite REIT, First Capital REIT, RioCan REIT, Smartcentres REIT and Storagevault Canada Inc.
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Scotiabank analyst Phil Hardie provided top picks in the outperforming diversified financials sector,
“We continue to see solid opportunities across the non-bank financial space with an average one-year expected return of ~25%. The sector has outperformed the S&P/TSX Composite and S&P/TSX Financial indices by a wide margin over the past 12 months and year-to-date in 2024. Stocks in our coverage universe have generated an average year-to-date return of 20.4% since the start of the year, however stock performance has been uneven ... Heading into the back half of the year, we see further upside potential but given strong year-to-date outperformance, we expect more modest average returns … Fairfax Financial and Trisura Group remain our top picks for 2024. Fairfax has demonstrated resilience through the business cycle and turbulent financial markets, but we view it as a less defensive play than more traditional publicly listed insurers … Trisura remains our top small-cap idea. The stock has a strong track record of delivering outsized shareholder returns but came under pressure through most of 2023 as the stock went through a transitional re-rate as investors rebalanced risks related to managing a high-growth company with upside potential. Our investment thesis is playing out well, with the company delivering solid operating results and avoiding negative surprises for investors. The stock has rebounded almost ~50% from its recent lows”
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BMO chief economist Doug Porter published an interesting perspective on housing affordability,
“Three notes on current affordability: 1. We’re basically back to levels prevailing in 2022Q2, when rates were beginning to rise with serious pace. 2. Contrary to the popular myth, affordability was close to long-run norms (payments of about 35% of income) up until the spring of 2021. The affordability crisis is, in fact, quite recent on a national basis. So, no, we cannot pin it on “decades of underbuilding”. 3. It’s still not as dire as circumstances in the early 1980s or the early 1990s, when affordability was even worse. Both the peak levels of unaffordability, and the sustained averages over four years, were somewhat more challenging in those episodes. But note that it took brutal recessions to “fix” affordability in each case.”
“BMO: “[Housing affordability] still not as dire as circumstances in the early 1980s or the early 1990s”” – (excerpt, chart) X
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Diversion: " France faces glut of unwanted Olympics tickets” – Marginal Revolution