Barlow’s Research Roundup: Scotiabank strategists make 12 changes to top 30 Canadian stock picks

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

Six stocks replaced in top 30

Scotiabank strategists made 12 changes in their top 30 list of domestic stocks,

“Energy and Tech have now established themselves as the new Momentum kings, replacing Gold miners. Our macro overlay is also increasing focus on Momentum metrics due to high commodity volatility … SQoRE Canada — Sector ranking trends. Cyclicals’ rankings broadly rebounded last month, although Discretionary remains under pressure. In Financials, we are finally seeing some signs of a bottom for Insurers even if Banks remain on the rise. Meanwhile, Defensives’ rankings also broadly increased, albeit by a smaller amount. Only Staples did not participate with flattish rankings. This leaves a small Defensive over Cyclicals bias, but the margin is small and falling. In Resources, we are seeing soaring Energy rankings while Gold miners are tumbling. Base Metal miners are also under pressure. Sector-wise, Banks and a rising Energy stand as the highest-ranked sectors, followed by Pipelines and Discretionary … CLS, SOBO, PSK, ATZ, CTC/A, TVE, and BNS are in. AG, IMG, DPM, HBM, KNT, LUN, and K are out … Momentum was king in April alongside expensive names (low Value) and quant junk (low Quality). A small short squeeze in the US (highly shorted names outperforming lowly shorted ones by 4.6% last month) helped power the trade. As investors’ risk appetite returned, they shifted their focus towards Energy and Tech and away from gold miners. In fact, low Quality Tech names (i.e. money losing Tech companies) outperformed by 20 per cent in the U.S. and 14 per cent in Canada”

The top 30 list is now Atco, CIBC, TD, Sprott, Parex Resources, Athabasca Oil, Cenovus Energy, Vermilion Energy, Enerflex, CES Energy Solutions, Tamarack Valley Energy, Peyto Exploration & Development, 5N Plus, Methanex, Allied Gold, Centerra Gold, SSR Mining, Discovery Silver, Skeena Resources, OceanaGold, Wesdome Gold Mines, Aecon Group, Bird Construction, NFI Group, Finning, Exchange, Linamar, Magna, Aritzia and Saputo.

Implications of Shell/ARC deal

CIBC analyst Jamie Kubik believes that Shell Oil’s proposed takeout of ARC Resources (ARX-T) is a big deal,

“The acquisition of ARC Resources by Shell is expected to have significant implications … We believe the transaction will materially increase the likelihood of LNG Canada phase 2 being sanctioned. The deal also demonstrates renewed interest in the development of Canadian resource from a global major. The ongoing conflict in the Middle East has increased security-of-supply questions, and we believe Canada’s stable jurisdiction could increase foreign investors’ appetite for exposure to Canadian assets. According to Reuters, Apollo, Blackstone and KKR are reportedly exploring stakes in Shell’s ownership of LNG Canada, in a deal valued at $10–$15-billion. Finally, we highlight the KSI Lisims LNG project as an indirect beneficiary of the increased interest in Canadian energy assets. Last week, Western Canadian field receipts declined by 0.5 Bcf/d to 17.4 Bcf/d, while demand declined to 7.6 Bcf/d. Field receipts are trending below 2025 levels, which we believe is required amidst elevated storage levels and lower volumes being sent through West Gate. Western Canadian storage increased by 3 Bcf, reaching 587 Bcf, which is 141 Bcf above the five-year average”

Mr. Kubik has “outperformer” ratings on Precision Drilling Corp., Paramount Resources, Tamarack Valley Energy, Tourmaline Oil Corp., Kelt Exploration Ltd. and Topaz Energy Corp.

U.S. earnings are great

U.S. earnings season is further along than ours and the results are terrific. JP Morgan strategist Mislav Matejka provided the details in a Friday report,

“We are in the busiest weeks of the Q1 reporting season, with nearly half of the companies in both the US and Europe having reported. Earnings growth is coming in much stronger than consensus expected, at up 31 per cent year-over-year in the US, and 5 per cent year-over-year in Europe, implying a positive surprise factor of 23 per cent and 2 per cent, respectively … Within the U.S., two-thirds of the EPS growth is being driven by Tech, Communication Services and Discretionary sectors. Mag-7 numbers are coming in strong, this is on top of our view from March that Mag-7 has derated too much - see March Chartbook. Excluding the Mag-7 group, S&P500 EPS growth stands at 19 per cent year-over-year, with the spread between Mag-7 and S&P500 ex Mag-7 having widened … While [U.S.] Tech, Communication Services and Discretionary, along with Financials, are in the lead, all sectors are seeing strong earnings delivery: 9 out of the 11 sectors are printing double-digit EPS growth. Topline growth is at up 11 per cent year-over-year, ahead of projections by 2 per cent.”

Bluesky post of the day

Diversion

“Scientists Discover Stem Cells That Could Regrow Teeth and Bone” - SciTechDaily