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BofA Securities analyst sees a growing investment opportunity in Canadian energy companies

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

Scotiabank analyst Meny Grauman titled his bank earnings preview with the punchy, As We Head Into Winter, Is It Really Spring for Canadian Bank Stocks?,

“While it may look like springtime for bank stocks, we remain skeptical on that ideal outcome given the persistence of inflation over time. Despite a good week for the shares, we are not yet ready to declare victory on this front, especially in Canada where wage growth remains elevated and strong immigration flows and a tight housing market make a soft landing particularly tricky. As our newly revised annual estimates (including the introduction of our F2025 numbers) highlight, our base case is not a soft landing scenario but a “higher for longer” rate environment that will increasingly strain consumer finances… We forecast the sector generating core cash EPS of $2.07 in Q4/23, which is down 3 per cent quarter-over-quarter and down 7 per cent versus the prior year … We forecast dividend increases at BMO, NA, RY, TD among the large banks and EQB, CWB, and LB among the smaller banks … Heading into reporting we like the setup for BMO where we expect upside to synergy targets from Bank of the West. We also like the setup for CM (looking past some likely severance charges), as well as for EQB and CWB among the smaller banks. Contrast that with a more cautious outlook for TD given the risk of a large charge tied to AML issue in the U.S. (we estimate something in the range of $1 BB), and NA”

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BMO chief economist Doug Porter uncovered the lowest domestic household credit growth in 30 years,

“Canadian households are finally reining in borrowing trends. The latest monthly credit data show that overall household debt rose a mere 2.9 per cent from year-ago levels in September. That’s the slowest pace in more than 30 years of data and compares with the nearby high of over 8 per cent in the spring of 2022. That latter spike coincided with the apex of the housing bubble, and a big cooldown in mortgage growth has accounted for the slowdown in overall credit growth. From a peak of 10.8 per cent in February 2022 (the very month before the BoC started hiking rates), mortgage growth has chilled to 3.2 per cent year-over-year. Notably, the latest credit growth trends are meaningfully below underlying disposable income growth (which has averaged roughly 5 per cent over the past five years). That’s the first time in more than three decades that household borrowing trends have substantially trailed behind income growth. For reference, average household credit growth over the past 30 years has been 6.5 per cent, versus income growth of 4.5 per cent. No mystery as to why the tables have turned—the severe tightening in monetary policy has imposed discipline on households”

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BofA Securities analyst Doug Leggate summarized the content form the company’s latest energy conference which featured presentations from global companies, including major Canadian producers,

“The macro backdrop remains polarized between elevated spot prices supported by Saudi / OPEC intervention, and a 2024 outlook characterized by slowing demand growth & non-OPEC production growth led by Guyana (with Phase 3 start up on day 1 of our conference) and a full year of US oil output back above 13mm bpd … while $4.00 HH [Henry Hub] gas supports material upside for gas wtd E&P’s, we see any material shift towards gas as a potential headwind for oil weighted E&P’s… Top ideas that screen with the portfolio depth, capital structure and value are led by OXY, COP, XOM, CVX, OVV and APA. Increasingly we see Canadian oils displacing midcap E&Ps as the incremental investment opportunity to leverage commodity outlook where the backward-dated price structure points to a challenging year ahead for the US oils”.

Mr. Leggate has buy-equivalent ratings on Canadian producers Suncor Inc. (SU-T), Imperial Oil Ltd. (IMO-T) and Canadian Natural Resources Ltd. (CNQ-T).

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Diversion: “The False Prophet of Edmonton” – Maclean’s

 

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Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX up more than 200 points, U.S. markets also higher

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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