Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO equity strategist Brian Belski remains bullish on Canadian banks despite recent underperformance,
“Yes, shutdowns, record-low energy prices, and rising credit spreads mean loan losses and provisioning are set to rise. However, our work shows that a peak in loan provisioning is traditionally a very strong contrarian indicator for the banks. In fact, since 2001 the bank industry gained almost 20%, on average, six months after the peak in provisioning, outperforming the TSX by over 10% over the same period. Financials will get the first opportunity to pass their muster when the banks begin to report later in May. Again, we remind investors that the banks are very likely to “front end load” loan loss provisions, which our work has proved to be a very strong contrarian positive for bank stock performance during the next 6 and 12 months that follow such spikes.”
In short, Mr. Belski believes a peak in loss provisioning for the domestic banks is imminent, and that will prove a profitable entry point for bank stocks.
“@SBarlow_ROB BMO's Belski sees buying opportunity ahead for Canadian banks” – (research excerpt) Twitter
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Video game stocks seem almost too obvious an investment play in the current predicament, but they continue to generate profits above expectations.
From Bank of America,
"Electronic Arts: FY20 ends strong; FY21 outlook leaves room for potential upside if execution hold. EA reported F4Q rev/EPS above consensus with upside vs. guidance from Apex and Sims. F1Q June guidance also well above Street … We see >10% [digital] growth in FY21. Activision: Strong 1Q digital trends supports view of bigger beats and bigger raises ahead – Buy. ATVI reports 1Q rev/EPS well above consensus; 2Q outlook also strong due to in-game res at Call of Duty and WoW franchises . Digital growth inflects to up 20% Y/Y from down 8% Y/Y; Digital seen as key source of potential EPS upside in 2Q and beyond”
Nintendo also reported strong profits as Citi analyst Minami Munakata reports,
“Leaving a positive impression, Q4 [operating profits] came in at ¥89.4bn, substantially overshooting our ¥42.1bn projection. Q4 Switch family console shipments tallied with our 3.25mn assumption at 3.29mn units, but software shipments finished far ahead of our 28.41mn unit projection at 45.58mn units. Q4 shipments of Animal Crossing: New Horizons were a strong 11.77mn units. In addition, driven by the COVID-19 pandemic, the Q4 digital sales ratio rose sharply to 48.5% from 22.3% in Q3 and from 37.2% in the year-ago period.”
“@SBarlow_ROB Video game companies doing even better than expected (BoA)” – (research excerpt) Twitter
“@SBarlow_ROB C on Nintendo “ – (research excerpt) Twitter
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Scotia strategist Hugo Ste Marie believes stocks have rallied “too high, too fast,”
“Equities Discounting V-shape Recovery: High Frequency Data Suggests Caution … Progress made on the pandemic front, unprecedented easing measures, and a gradual re-opening of economies are boosting sentiment. Still, investors’ optimism has likely lifted stocks a tad too high, too fast and May could prove more challenging than April … High frequency data in cities re-opened for business suggest that traffic remains overall quite low outside of normal rush hour. These are very preliminary indications, but that raises tough questions about the willingness of consumers to quickly revert back to old habits. At 20x earnings, [S&P 500] valuations leave no room for disappointment…Equities are overdue for a pause/pullback, but odds of retesting March lows have sharply declined.”
“@SBarlow_ROB Scotia: "Equities are overdue for a pause/pullback" – (research excerpt) Twitter
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Newsletter: “How to increase the odds of investment success” – Globe Investor
Diversion: “New coronavirus adapts to populations; vaccine works in monkeys” – Reuters
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