Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief strategist Brian Belski still expects domestic stocks to start outperforming the S&P 500 and provided top stock ideas,
“Canadian equity markets continue to display strong and stable cash flow generation. Combined with the near-record relative valuation discount advantage is among the primary reasons we believe the TSX is a strong contrarian call and well-positioned for outperformance in 2024 versus the U.S. and other global markets as valuations normalize … We believe the broadening out of U.S. equity performance should and will benefit Canadian equities in 2024. In fact, the concentration of U.S. Equity performance in the mega-cap stocks has been a key defining characteristic of global equity performance recently. As such, we believe as U.S. equity market performance broadens out through 2024 as expected, and investor confidence improves from the current dreadful levels, such trends will benefit Canadian equity performance. In fact, the TSX has been highly correlated to the S&P 500 excluding these mega cap names, suggesting to us that broadening U.S. performance equals a stronger TSX”
The strategist is overweight communications services stocks (best ideas at BMO are BCE Inc., Rogers Communications Inc. and Telus Corp), consumer discretionary (Aritzia Inc., Dollarama Inc., Canadian Tire Corp., Financials (Bank of Montreal, Toronto-Dominion Bank, Royal Bank of Canada, Manulife Financial Corp.) and information technology (Constellation Software Inc., CGI Group Inc. and Shopify Inc.)
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RBC analyst Bish Koziol made eight changes to his quantitatively driven Top 40 list, removing Ritchie Brothers Auctioneers Inc., Constellation Software Inc., EQB Inc. and Thomson Reuters Corp. in favour of Canadian Imperial Bank of Commerce, IA Financial Corp., Linamar Corp., and Keyera Corp.,
“Our Canada Overall Top 40 Portfolio rose 1 . 9 % last month, compared to the S&P /TSX Composite ' s 2 . 8 % gain . Year -to -date the Portfolio advanced 8.2 % versus the benchmark ' s 7.6 % rise. T he Por tfolio ‘s performance last month was primarily attributable to Energy names in the Top 40 . Three of the four Buys this month realized improving Growth score s while the same number of Sells saw their Value and Growth ranks decline”
The list as it stands is now Imperial Oil Ltd., Pason Systems Inc., Cenovus Energy Inc., Suncor Energy Inc., Ovintiv Inc., Canadian Natural Resources, Trican Well Service Ltd., Enerplus Corp., Stella-Jones Inc., Labrador Iron Ore Royalty Corp., CCL Industries Inc., Exchange Income Corporation, Finning International Inc., Toromont Industries Ltd., Richelieu Hardware Ltd., TFI International Inc., Linamar Corp., Metro Inc. Loblaw Companies Ltd., North West Company Inc., Fairfax Financial Holdings Ltd., Canadian Imperial Bank of Commerce, IA Financial Corporation Inc., AGF Management Ltd., Intact Financial Corp., Great-West Lifco Inc., Bank of Montreal, Bank of Nova Scotia, TMX Group Ltd., Toronto-Dominion Bank, Open Text Corp., Enghouse Systems Ltd., Celestica Inc., Quebecor. Inc., Cogeco Communications Inc., Rogers Communications Inc., TransAlta Corporation Ltd and Altagas Ltd.
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Scotiabank strategist Jean-Michel Gauthier published the results of their quantitative investment model emphasizing value, growth, momentum and quality applied to global markets,
“US Tech shined in May. Still, global Utilities and ex-US Industrials/ Financials also performed well. The model’s Energy OW proved costly, but the UW in Healthcare/Staples with a small US Tech OW more than offset this. Looking ahead, the pro-cyclical over defensive bias seems to have peaked. If Industrials and Financials are still ascendant, Tech, Communications, and Discretionary have stalled due to Momentum hitting a soft patch. Staples/Healthcare have the largest UW, although Utilities rise near neutral. Defensives remain hamstrung by their dismal Growth rankings relative to other sectors. As long as macro stays supportive, a GARP approach may prove useful. The pro-Canada bias jumps back to its highest in more than a year as Gold miners shine in Materials. Canadian Financials and Real Estate are the only two other sectors with an edge over their US counterparts. Canada looks great on Value, while the US dominates on Quality. Momentum and Growth are similar”
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Diversion: “The best business books aren’t in the management section” – Marginal Revolution