BMO bank analyst summarizes earnings season, reiterates top picks in the sector

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

BMO bank analyst Sohrab Movahedi summarized bank earnings and reiterated top picks in the sector,

“Q2 reporting season for the banks wrapped up yesterday. The bank index was up 1 per cent in the past week, underperforming the S&P/TSX by 40 basis points. Based on the results, BNS and RY were 1 per cent below consensus, but the rest all beat (most at NA, by 19 per cent). We got dividend increases of 4 per cent at RY and NA, 3 per cent at BMO (all three on a semi-annual review), and 4 per cent at BNS (annual review cycle). We maintain our “best offense is a good defense” stance, with no change to our Outperform ratings on RY, CM, TD, and NA. CM was the only bank to report an ROE improvement year-over-year, while NA delivered the highest ROE (and ROA). By segment, RY, CM, and NA were the only banks to report higher year-over-year Canadian banking earnings on better NIM and operating leverage, but volume growth is a challenge for all. All the banks reported higher year-over-year pre-tax pre-provision earnings driven by strong revenue growth (helped by strong trading revenue, most notably at NA) … Credit quality was a key topic, with all the banks reporting higher year-over-year PCLs, reflecting higher performing reserves; highest quarterly build at RY with an add of 23bps, and the rest ranging 10-18bps, in anticipation of trade disruption economic downsides”

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RBC Capital Markets head of global energy research Greg Pardy made one change to his global energy best ideas list, adding Cheniere Energy Inc.,

“In May, the RBC Global Energy Best Ideas List was up 5.7 per cent compared to the iShares S&P Global Energy Sector ETF (IXC) which was up 2.2 per cent and a hybrid benchmark (75-per-cent IXC, 25-per-cent JXI – iShares Global Utilities ETF) that was up 2.4 per cent on a sequential basis. This month, we are adding Cheniere Energy, Inc. (LNG) to the RBC Global Energy Best Ideas List”

The list is now Shell, Suncor Energy, California Resources, Chord Energy Corporation, ConocoPhillips, ARC Resources, PrairieSky Royalty, Canadian Natural Resources, Woodside Energy, Enerflex Ltd., SLB, Subsea 7, AltaGas Ltd., Pembina Pipeline Corporation, Cheniere Energy Inc., Energy Transfer LP, Northland Power and Superior Plus.

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I am usually only vaguely interested in thematic stockpicking reports because they tend to be more marketing exercises than investment strategies. Citi’s thematic work might be an exception because it appears to generate strong returns. Citi’s Thematic 30 list of picks has, with a 12-month total return at 29.4 per cent (no related ETF that I could find, before you ask), more than doubled the returns of the MSCI World Index and the S&P 500,

“This thematic piece furthers a Growth preference from our broader US Equity Strategy work where sector overweights include Communication Services and Information Technology, and index preference is for NASDAQ-100 over the Russell 2000. The goal herein s to call more specific Growth positioning ideas via thematic portfolios and screen for related single stocks. Top Growth Themes — Our top themes in order of preference include: 1) Digital Leisure, 2) Contactless Economy, T3) Artificial Intelligence, and T3) FinTech. These themes are expected to drive earnings and cash flow growth in excess of premium top line growth. To us, secular growth opportunities at scale are attractive in an environment where policy is still wavering, and the consumer seems fragile. Thematic 30 Rebalance — We update the Citi Thematic 30 recommended list to align with our changing Growth theme preferences. New Growth theme additions include ADI, ADSK, AMAT, CART, and PINS. Overall, the list tilts more towards Large Cap and Growth style than previously. Other additions and removals are detailed within”.

The stock on the list are Amazon.com, Alphabet Inc, Equinix, DocuSign, Applied Materials, Autodesk, Uber Technologies, Doordash, GoDaddy, Analog Devices, Maplebear, Meta Platforms, Applovin, ROBLOX, DraftKings, Pinterest, Mastercard, Fiserv, PayPal, HubSpot, SS&C Technologies, IDEX, HormelFoods, Darling Ingredients, Flowserve, United Airlines, Chart Industries, Republic Services, Gilead Sciences and Labcorp.

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Bluesky post of the day:

Diversion: “You’ve Set Up Your Smart TV All Wrong—Fix These 5 Settings “ – Make Use Of