Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO Capital Markets analyst Jenny Ma says “something’s gotta give” in the domestic real estate sector,
“2023 Outlook: Something’s Gotta Give … We approach 2023 with caution as the adjustment process continues and the spectre of a recession looms. 2022 was a tumultuous year for real estate investors, as illustrated by the year-to-date total return of negative 15 per cent for the S&P/TSX Capped REIT Index. Although the sector has rebounded strongly following material down-years in the past (e.g., 2009 and 2021), we believe investors’ expectations should be more tempered in 2023. Valuation screens attractive on a P/NAV basis, but our weighted average AFFO [ adjusted funds from operations] yield spread is below the LTA [long term average]. Capital constraints and the potential impact of a recession on tenant demand are formidable challenges. Our best ideas are Boardwalk, Crombie, InterRent, and H&R”
“Valuation: something’s gotta give. Our coverage is trading at a weighted average NAV discount of 11%. This suggests an attractive entry point when compared to the long-term average discount of 0.9%. On the other hand, AFFO yield spreads (10-year GoCs and BBB Corporate bonds) are well below the long-term average, and the outlook for earnings growth through 2024 is relatively muted.”
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BofA Securities U.S. quantitative strategist Savita Subramanian argued that the upcoming recession will have different effects on markets than previously,
“Throw out the U.S. recession playbook, it is different this time. Reasons include: less smooth earnings for diversified multinationals as globalization takes a pause. Democratized investing, financial asset deflation and job losses in the upper income strata suggest luxury goods may not be defensive, and the wealth effect may be outsized. Oil companies have capital discipline, Tech companies are in regulators’ cross-hairs. Credit risk may be more evident at venture capital, private equity and long duration growth plays than at regulated banks. This isn’t just a narrative, it’s showing up in data.”
“BofA: “Throw out the US recession playbook”” – (research excerpt) Twitter
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Goldman Sachs analyst Brian Singer provided a long list of stocks that will benefit from the clean energy provisions in the recent U.S. Inflation Reduction Act (IRA) legislation,
“Recent commentary from corporates supports our bullish view that the Inflation Reduction Act will be a catalyst for acceleration in Green Capex and benefit stocks through the supply chain. The combination of IRA incentives with the wide discount in electricity/natural gas prices in the US vs. Europe is likely to lead to industrial shifts towards the US, in our view. As more companies discuss 2023 outlooks, we see increased confidence in pursuing projects to take advantage of new and/or expanded incentives, in particular for battery storage, hydrogen, renewables and carbon capture. In this report, we reiterate key takeaways from our August 30 IRA deep-dive on What’s transformational, what’s supportive, what’s underappreciated, discuss what’s new and a roadmap for next steps from corporates and policymakers, and highlight Buy-rated stocks from our analysts across sectors.”
There are too many stocks to list them all but some that are likely to be most of interest to Canadian investors include Sunrun Inc., Solaredge Technologies, Nutrien Ltd., Linde PLC, Air Products and Chemicals, Johnson Controls International, Jabil Inc., General Motors Co., ABB Ltd., General Electric co. MasTec Inc., Waste Management Inc., Vestas Wind Systems, and First Solar Inc.
“GS: stocks that will benefit most from IRA-related green capex,” – (full table) Twitter
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Diversion: “Here Are the 128 Songs That Reached Spotify’s ‘Billions Club’ This Year” – Gizmodo
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