Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
TD Cowen analyst Vince Valentini lowered his price target on BCE but also suggests that sector stock prices may have bottomed,
“Given elevated uncertainty surrounding dividend sustainability and the company’s M&A strategy, we believe it is prudent at the current time to apply an approximate 15% risk and uncertainty discount to our EV/EBITDA based target price. This lowers our TP to $32.00 from $37.00, and we maintain our HOLD rating. 1. Can Canadian telecom valuations go even lower, or have we reached the bottom? … 2024 was a painful year for almost every Canadian telco/cable name .. Please recall that we already reset our estimates lower for 2025 on December 3, so we have confidence that valuation math can be performed on our estimates without much risk that 2025 guidance or actual results will be meaningfully lower than where we already sit. Also recall that we believe non-core asset sales could be a tailwind for sentiment and valuations going forward, but we are not including any divestitures in our models except assets already identified by management teams. In other words, if the valuation charts and analysis on the following pages convince you that the risk-reward looks good for some of these stocks, then asset sales could be icing on the cake”
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BMO chief investment strategist Brian Belski updated his North American Income top 15 list, which is separate from the guided income portfolio I detailed yesterday.
The stocks are AbbVie, Amgen, Brookfield Infrastructure Partners, BXP, Canadian Natural Res., Cenovus Energy, Emera, Entergy, Manulife Financial, National Bank, NiSource, Pembina Pipeline Income Fund, Restaurant Brands Intl, Rogers Comm. and Royal Bank.
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BofA Securities U.S. equity and quant strategist Savita Subramanian sees leadership change ahead for the S&P 500,
“The composition of our Price Momentum factor heralds a change in leadership – it now exhibits record dispersion across sectors. This was the case in 2000 and in 2008, two recent periods accompanied by major leadership shifts … Does this imply a momentum crash? We’re unworried Momentum is a chameleon, and today it is essentially… everything. Investors are better served combining momentum with valuation, an approach that has reduced volatility and improved performance in historical back-tests – especially at cycle inflection points. Momentum factors generally outperform, with exceptions being VIX spikes … Higher for longer 10y Tsy yields? Large cap Value is the best hedge against duration risk. Cheap stocks outperform when profits pick up … The brain-drain from active public to passive/private equity argues that inefficiencies (read: alpha potential) abound”
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Wells Fargo’s Cyclical Asset Allocation Quarterly voiced a surprising confidence in commodity prices in light of a still-sluggish Chinese economy,
“Over the cyclical allocation time horizon, we expect front-loaded equity returns following our forecasts for strong 2025 earnings growth and pro- growth policy potentially further emphasizing U -S. exceptionalism. The lack of recessionary cleansing may impact performance in 2026 and 2027 as interest rates remain elevated. We remain tilted toward high-quality assets and believe investors should continue to favor U.S. Large-Cap Equities over Mid Cap and Small Cap. Our quality bias extends to international equities where we prefer Developed Market (DM) ex-U.S. Equities over Emerging Market (EM) Equities where we remain unfavorable as geopolitical and regulatory risks in addition to China’s lower growth potential keep us on the sideline for now. We believe the Fed has flexibility to cut interest rates further following their December cut but ultimately be limited by higher economic growth and still sticky inflation We expect an additional 25 basis points (100 basis points = 1%) of federal funds rate cuts in 2025, but no cuts in 2026 or 2027 with a terminal rate for this cycle around 4%. We believe the commodities long-term bull cycle is in force. These cycles often last a decade or longer, and, while we expect modest performance as the global economy tilts toward a shallow slowdown, we expect strong performance afterwards as demand picks up and commodities remain structurally undersupplied”
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Diversion: “The Rock and Roll Hall of Fame Should Not Exist” – The Atlantic