Barlow’s research roundup: Two Canadian stocks land on Morgan Stanley’s ‘Stocks Mispriced in the AI Disruption Unwind’ list

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

AI

Morgan Stanley analyst Stephen Byrd details how quantifiable the advantages of AI adoption have become as investor focus moves from stocks associated with AI to companies increasing profit margins by adopting AI,

“Since end-2023, upward earnings revisions for AI Adopters have outpaced the AI-Disrupted by approximately 2 times, widening the gap as the return on investment accrues … Our analysts expect 80 per cent of AI benefits to come from cost efficiency vs. revenue growth, aligning with AI Adopter EBIT margin expansion of 310 basis points in 2024-25, double the rate for MSCI World during that period … Proof points are becoming more measurable: Supporting the margin expansion story that our AI mapping highlights, 30 per cent of analyst-identified Adopters in North America cited at least one quantifiable AI impact in 4Q25, up from 24 per cent in 3Q25 and 16 per cent in 4Q24, suggesting ROI disclosure is picking up as AI strategies mature … Europe stands out as the region expecting to shrink workforce most aggressively on the back of AI — a net 35 per cent of companies plan to reduce workforce compared to low teens in most other regions”

The report includes a list of “Stocks Mispriced in the AI Disruption Unwind.”

It includes two Canadian companies: Shopify Inc. (SHOP-T) and Descartes Systems Group Inc. (DSG-T).

Other North American members are S&P Global Inc., MSCI Inc., McGraw Hill Inc., Phoenix Education Partners Inc., Toast Inc., Navan Inc, Snowflake Inc., , Cloudflare Inc., TransUnion, Equifax Inc., Microsoft Corp., Intuit Inc., ServiceNow Inc., Salesforce Inc., Service Titan Inc., Via Transportation Inc., CCC Intelligent Solutions Holdings Inc., Blackline Inc., Vertex Inc. and Palo Alto Networks Inc.

Timing

Wells Fargo senior global market strategist Scott Wren described when a sell-off is a buying opportunity and when it’s time to get out,

“The trick is to figure out whether an episode of downside price action is an opportunity to buy or an indication that fundamentals are deteriorating and there might be more to come. Much ofwhat determines whether a pullback is a potential opportunity is the forward outlook when the correction occurs … In fact, last week we increased our U.S. economic growth estimate for this year to 2.9 per cent from 2.4 per cent. Under these expected conditions, we think equity corrections can be buying opportunities. Another step to take when looking at potential market opportunities sparked by a pullback is to examine what is going on ‘under the hood.’ … At its worst point in last week’s trading the SPX was down approximately 3 per cent from the late-January record high to many investors it might have felt far worse than that as the financial media was laser-focused on some of the worst performing segments of the market, like software stocks. We favor a market-weight allocation to the Information Technology and Communication Services sectors while investors reset their expectations for valuations in these sectors … One we closely watch, the S&P 500 Equal Weight Index, also traded to a record high as performance broadened beyond just technology and tech-like companies. … And are you aware that the stock market has been rotating toward sectors that are value-oriented and cyclical? From a high level, that means money is moving toward sectors that are sensitive to the ebb-and-flow of the economy. When the economy does better, cyclical and value sectors have tended to do better. Since the middle Of October, the three best performing sectors have been Energy, Materials, and Industrials”

Currency

Citi foreign exchange analyst Daniel Tobon provided a one sentence outlook for the loonie,

“Due to USMCA concerns, we also remain cautious on CAD, and would use it as a funder against other high beta commodity currencies”.

Not only are they recommending that global investors avoid the loonie, the recommendations is to short Canadian assets to buy higher-yielding international vehicles.

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Diversion

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