Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Shopify Inc. continues to be the biggest driver of S&P/TSX Composite performance yet domestic technology stocks get significantly less coverage than financials and commodity companies. RBC Capital Markets analyst Paul Trieber tries to change this with an earnings preview for the sector,
“For stocks in our coverage that are dependent on consumer spending, we believe consumer spending remained healthy through December, based on U.S. Census data. The rally in tech stocks continued in Q4 (S&P/TSX Info Tech up 24 per cent in Q4, S&P 500 Info Tech up 17 per cent in Q4); however, valuations for a large number of Canadian tech stocks remain below historical averages and at a larger than historical discount to peers. We believe improving growth and profitability through 2024, along with reduced interest rates, are potential catalysts for valuation multiple expansion. In our coverage, we believe the best positioned stocks for Q4 are Constellation, Shopify, OpenText, and Celestica … Record capital deployed on acquisitions in 2023 likely to lift Constellation’s Q4 and 2024 growth … Shopify is likely to report solid Q4 results, in our view … OpenText’s Q2 may help continue the upwards re-rating in the shares … Celestica the most likely to outperform out of the small cap companies”
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BMO Canadian rates and macro strategist Benjamin Reitzes previewed today’s Bank of Canada meeting,
“We’re anticipating that the Bank’s tone will be similar to December, as inflation metrics have deteriorated in the inter-meeting period. Since mid-year, the BoC has also highlighted that it’s focusing on supply/demand balance, inflation expectations, wage growth and corporate pricing behaviour. Last week’s Business Outlook Survey showed little to no improvement in those metrics, with corporate pricing behaviour somewhat encouraging on the path to normalization, but still not there. The fresh forecasts from the MPR will be worth watching as well. In October, the BoC was expecting modest GDP growth in Q3 and Q4. Huge revisions came with the Q3 report, creating some ambiguity. Indeed, while Q3 came far weaker than anticipated at down 1.1 per cent annualized, the level of GDP was still materially higher due to revisions, suggesting there was more excess demand in prior quarters than initially thought. BMO is forecasting GDP growth to stagnate in Q4 and 2024Q1, and the MPR will likely show a similarly soft profile. The BoC has already told us they expect the economy will remain weak into early 2024, so something around our call would be consistent with that narrative”
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Scotiabank analyst Robert Hope previewed earnings seasons for the income-heavy energy infrastructure sector,
“With declining commodity prices and unfavourable weather, we expect Q4/23 results will generally be underwhelming (Exhibit 1). That said, we are constructive on the group especially given what we view to be a strong volume outlook for the pipeline and midstream group as well as a visible rate base growth outlook for the utilities. We like the midstream group over the utility group at this point. Our favourite names are AltaGas, Gibson Energy, and Brookfield Infrastructure… During Q4/23, bond yields tempered which was a tailwind to the shares of our interest-sensitive coverage universe. In addition, the greater perceived clarity on the rate outlook should be supportive of continued asset sales from the group as a source of funding. We include asset sales in our estimates for AQN, ENB, TRP, and BIP, and we would not be surprised to see EMA monetize an asset as well. Investors continue to prefer companies with lower leverage and easy-to-execute funding plans, and as such, we expect that any asset sale announcements could be well-received by the market. On the other side of the spectrum, we see GEI, KEY, and TWM as having strong balance sheets with the potential to buy back some shares in 2024″
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Diversion: “The Winners and Losers of the 2024 Oscar Nominations” – The Ringer