Barlow’s Research Roundup: BMO analyst likes this bank stock amid expensive sector valuations

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

RY is top pick

BMO Capital Markets analyst Sohrab Movahedi recommends investors be highly selective about domestic bank stocks,

“Canadian bank stocks have had a strong start to the year and now trade at or near the upper end of their long-term valuation ranges—expensive in absolute and relative terms, but not without historical precedent. The current valuation premium is supported by accelerating earnings growth, improving ROEs, constructive Capital Markets momentum, and renewed global investor interest amid an encouraging Canadian macro backdrop. Importantly, prior periods when valuations remained above historical averages have often persisted for more than a year and generated attractive forward returns. That said, at current levels, the factor of safety is meaningfully lower than long-term norms and upside to our target prices is more limited. We remain constructive on sector fundamentals but increasingly selective, favouring banks like RY with the clearest pathways to sustained ROE and earnings durability relative to valuation”

AI software winners

Scotiabank analysts Patrick Colville, Nat Schindler and Joe Vandrick picked the software winners from the explosive growth in data centres,

“Public cloud growth is reaching new heights even at massive scale, accelerating to 39-per-cent year-over-year growth driven by an eye-popping quarter at Google and strong momentum at Amazon and Microsoft. This AI-driven surge should be a tailwind for Datadog, which we rate Outperform, who is benefitting from spend from OpenAI and Anthropic. Snowflake, which we rate Outperform, is a beneficiary of data modernization. We have not picked up in our latest work signs that Snowflake consumption is being eroded for large enterprises due to query optimization or analytics offload into foundation models. For MongoDB, which we recently upgraded to Sector Outperform, Microsoft’s disclosure that Cosmos DB grew 50 per cent year-over-year on the back of AI app workloads we see as evidence that AI will be a tailwind for the NoSQL [not only structured query language for data] category. We remain Sector Perform on Elastic, as our checks fail to uncover evidence of chunky wins in enterprise AI transformation”

Upgrade fo Nutrien

BofA Securities analyst Matthew deYoe upgraded Nutrien Ltd. (NTR-T) with a compelling bullish outlook,

“We upgrade Nutrien to Buy from Neutral as a best-in-class operator in an agriculture market which looks increasingly bound for a more sustained bullish backdrop. We have been hesitant to chase chemical price inflation in disrupted markets (stepping back on commodity chems), but we can make an exception for NTR. There is a narrow window for global fertilizer trade to normalize before key buying periods in India and Brazil begin, and a prolonged Strait of Hormuz (SOH) blockade increasingly risks missing that window. There is inventory caught behind the SOH, and time to move it, but as the days tick on, we see upside risk to our 2H26 fertilizer price forecast and more importantly, 2027 grain markets should buyers get shorted on product. To be clear, we are not there yet, but the risk is growing, and NTR shares still trade at pre-conflict levels. This creates an attractive option for investors looking for conflict exposure and for us, as we hedge our implicit ‘short conflict’ bias with Underperform ratings on major petrochemicals and CF … Unlike petchems, demand destruction from higher fert prices can also drive tighter balances in the successive year by lifting farmer revenues (higher grain price) … Our commodity team sees material risk to 2026 grain production should nutrient availability be restricted into 2H. In their view, lower crop production has the potential to drive corn >$6/bu?

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Diversion

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