Barlow’s Research Roundup: RBC analyst’s investor guide to yield-heavy energy infrastructure sector

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

Energy Infrastructure

RBC Capital outlined the investment case for domestic energy infrastructure stocks after meetings within their recent Energy Power and Infrastucture [EOIC] conference,

“Leading in the right direction, even if the route remains unclear. Throughout EPIC and our broader investor meetings, the market was focused on how the WCSB crude oil export pipeline landscape will evolve moving forward. Investors appear most convinced that brownfield expansions (namely Enbridge and Trans Mountain’s Mainline optimizations) will be delivered, aided by favourable economics and/or diversification benefits. Many agree that greenfield alternatives face uncertainties, with concerns surrounding last mile risks (e.g., South Bow’s Prairie Connector) and economics (e.g., new west coast oil pipeline, plus Pathways). Clarity should progressively emerge over the coming 12 months, giving investors time to assess positions. Meanwhile, Gibson Energy looks well-positioned to benefit regardless of which solution emerges, even if any associated tank additions come later this decade …

“Five other notable themes. (1) Rising WCSB energy production: With our global energy research team viewing Canadian energy as being the ‘hottest”'it’s been in over a decade, we see Keyera and Pembina as torquier ways to gain lower risk exposures to this theme. (2) Gas storage: There are few who would dispute these facilities’ increasingly vital role, with higher free float and take-or-pay contracting potentially catalyzing better valuations for Rockpoint. (3) M&A: Amid ample organic growth opportunities, higher asset valuations, and recent competition review experiences, M&A seems to be a lower priority for many midstreamers, though not all. (4) Extending the value chain: From LNG, LPG and ethane export facilities, to power generation and butane value enhancements, returns and cash flow profiles will be closely analyzed. (5) Project execution: Effective management teams will stay ahead of emerging constraints, and help keep investor concerns at bay”

Apartment REITs

Scotiabank analyst Mario Saric interpreted the effects of recent rent data on apartment REITs,

“OUR TAKE: Neutral for BEI/CAR; Positive for KMP. We think today’s Rentals.ca May data supports the buy KMP trade. May asking rent data was flat month-over-month vs. down 0.3 per cent in 2025 and average 1.3 per cent since 2021, albeit the surprisingly strong April print held (up 0.9 per cent vs. March); That said, Specific REIT markets (65 per cent of Canada) show KMP market 1.0 per cent month-over-month growth vs. up 0.3 per cent, down 0.4 per cent for BEI & CAR, matching surprisingly strong KMP Halifax Q1 call commentary. Hard to say how much of the 1.0 per cent = Halifax new supply impact (i.e., more vacant high-priced units), but the East Coast (Halifax + New Brunswick) could be benefitting from under-appreciated Defense-spending job growth. We’re still patient on BEI and CAR, matching our view heading into 2026 (we think you want to own both in 2027). What has changed post Q1 results = more urgency in owning KMP on better-than-expected Halifax trends and higher privatization odds (our top candidate). While KMP has outperformed BEI and CAR 10 per cent-11 per cent post Q1 results, we see another ~5 per cent relative gain if Halifax delivers over the summer and 15 per cent+ in a privatization scenario”

‘Sugar high’ is over

Well Fargo strategist Ohsung Kwon thinks the “sugar high” rally is over,

“We see Friday’s sell-off as positioning-led, not fundamental. But it was a wake-up call, and we expect the market to start asking what the risks are. With the war still going on and Hyperscalers raising capital to fund capex, we believe the narrow ‘buy Semis’ trade will return. But the ‘sugar high’ rally is now likely over, and we expect the speed of rally to slow. Own AI, sell calls … We have long been AI bulls and believe the bull market isn’t over yet. But it’s crucial to understand what the risks are. We offer five bear cases that can potentially derail the rally, from the most imminent to least.#1 End of tokenmaxxing: Token costs are surging, and several companies are starting to question the ROI. We see the end of tokenmaxxing as the biggest NT risk. We expect more questions around AI usage and ROI during 2Q EPS. #2 Hyperscaler ROI: Hyperscalers are now at FCF breakeven and issuing equity. Supply chain inflation means they’ll have to pass through elevated costs to AI labs to maintain their ROI at a time when end users are questioning their return on AI usage. #3 Economy: Tech drove 85 per cent of 1Q GDP growth, and Semis+Hardware could reach 3 per cent of GDP by YE26, above the Internet peak (2.9 per cent) and in-line with the 1850s Railroad peak. This could be as big as it gets unless other parts of economy grow more. #4 Regulation: An NBC poll in March showed net 20 per cent of voters had negative views on AI. Policy risk could rise into midterms, especially around power usage and labor displacement.#5 Balanced supply-demand: Demand well outstrips supply today. However, token capacity is expected to at least double every year over the next 5 years. If supply/demand starts to become more balanced, we expect capex to slow. But we’re currently only in an early, text-based phase of AI”

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Diversion

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