Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC analyst Sid Mokhtari attempts to uncover tax-loss selling candidates,
“It is difficult to say with precision how one should measure and qualify the tax-loss candidates—what percentage of decline and from what starting point? Anyone with an investment that has a market value below its adjusted cost base in their non-registered accounts can consider the holding as a tax-loss candidate, irrespective of any other considerations. As a general rule, the publishing community may use the TSX index members’ year-to-date return for qualification measures—members with higher negative returns are considered tax-loss candidates. For our tax-loss basket qualification, we have historically used a combination of a negative YTD and QTD return up to October 15, and a 20% or greater decline from the 52-week high at some point throughout the taxation year; suffice to say, candidates are all below their 200-d average. These measures collectively produce a negative trend score (TSM rank) that may keep downside pressure on the tax-loss basket during the sale-period (Oct.15 to Dec.15) and underperform relative to the TSX. In contrast, our study also shows that the same tax-loss basket has historically produced a positive absolute return during the repurchase-period (Dec. 15 to Jan.15 or Jan. 31) and outperformed the benchmark TSX index”
The companies are BRP Inc, Canada Goose Holdings Inc., Magna International Inc, Martinrea International Inc, MTY Food Group Inc, Pet Valu Holdings Ltd, Maple Leaf Foods, Africa Oil Corp, Baytex Energy Corp, Mattr Corp, North American Construction, Obsidian Energy Ltd, Parex Resources Inc, Parkland Corp, Pason Systems Inc, Veren Inc, Vermilion Energy Inc, Canopy Growth Corp., Tilray Brands Inc., ATS Corp, Ballard Power Systems Inc, Boyd Group Services Inc, CAE Inc, Richelieu Hardware Ltd, Telus International Cda Inc, Bitfarms Ltd. Canada, Lithium Americas Corp., Methanex Corp., Nutrien Ltd, Algonquin Power and Utilities and Superior Plus Corp.
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BofA Securities equity and quantitative strategist Savita Subramanian is not as concerned about future S&P 500 performance as Goldman Sachs,
“There’s no way to sugarcoat it: the S&P 500 is statistically expensive (Exhibit 1). On Price to Normalized Earnings—the best predictor of 10yr returns we have found (R-sq 83%) - paltry 1% price returns p.a. are indicated over the next decade (Exhibit 3). This is not new news: we have seen a more compelling valuation case for the equal-weighted S&P 500 since last July (see Don’t worry) which now trades at an historic discount to the cap-wtd. Index … We may have forgotten about dividends because they did little for total returns in the past decade (~16% contribution since 2013). But if dividends reverted to their average contribution, assuming reinvestment, the equal-weighted S&P 500’s total return would clear 8.3% p.a. over the next decade. Moreover, the maturing of the Magnificent 7 - where two companies recently initiated dividends - could drive significant dividend growth that would offset low price return. But comparing today’s valuation to its prior multiples may be more punitive in that today’s market is more asset-light, labor-light and debt-light than prior cycles”
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Morgan Stanley’s daily research summary includes an election-related investment idea from chief investment officer Michael Wilson,
“Directionally, sector leadership is leaning toward the 2016 playbook to some extent (i.e., Financials and Industrials outperforming). However, the magnitude of these sector moves is unconvincing outside of Financials, which have also been the beneficiary of a strong earnings season and improving fundamentals—the primary reason for his upgrade 3 weeks ago. Further, he notes that Materials and small caps (relative outperformers around the 2016 election) have been modest underperformers since October 1st when the probability of a Trump win began to rise more materially in these prediction markets. Mike thinks that the current environment is later cycle compared to this period. Second, he states that markets generally welcomed a reflationary playbook in 2016. Mike mentions that inflation was not a headwind to consumers in the way it is now and the risk of a move higher in the bond market term premium related to deficit expansion was not as relevant as it is today. Where he has seen a clearer performance trend that suggests certain stocks may be discounting a higher probability of a Trump win is within the Consumer Retail and Brands space. Mike points out that both tariff-sensitive consumer equities and renewables could be due for a relative catch up trade should Harris win the Presidency”
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Diversion: “Google Searches for Comedian Who Told Racist Jokes at Trump Rally Surpass Taylor Swift” – Gizmodo