Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotia bank analyst Maher Yaghi argues that BCE Inc. (BCE-T) is undervalued,
“OUR TAKE: Potential Opportunity. When we look at BCE, we see valuable and profitable assets that public markets are having trouble properly valuing due to the company’s dividend policy. As we indicated in a previous note, BCE does not have a FCF problem; it has a payout ratio one. In this note, we compare the company’s profile and valuations vs 2007 when private equity as well as TELUS tried to acquire it. The comparison shows that the stock is as undervalued as it was at the time and looks even more attractive in our view given the FCFs that we expect the company to generate in the coming years. The disconnect between what private or an operator would likely be willing to pay for BCE vs public markets is significant. We believe the disconnect could remain as long as the distribution ratio remains in flux but eventually that spread will get captured if it stays on for too long through exogenous or internal decision-making. While it is hard to call a bottom in the short term, for patient, long term investors, we think this could be an interesting opportunity”
Mr. Yaghi rates the stock as “sector perform” with a $42 target price
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BMO economist Shelly Kaushik details notably soft conditions in the domestic condo market,
“Toronto condos are a clear outlier in the national housing picture, and the supply-side data suggests that will continue in months to come, at least. The CMHC reported that another 31k “apartment and other dwellings” (i.e., mostly condos) were completed in 2024. On a 12-month moving sum basis, that’s well down from the summer’s peak—though it’s clear the pace is still far above its historic average. The completions add to a glut of existing inventory to keep downward pressure on prices in this segment. On the demand side, the new immigration targets will disproportionately affect non-permanent residents, especially in B.C. and Ontario. If the starts data are any indication, the construction sector has already started to respond to softer market conditions by taking its foot off the gas on Toronto condos. But for now, this will be one area that will continue to underperform the rest of the housing market”
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Continued strength in the AI investing trend will depend on monetization. RBC Capital Markets analyst Matthew Hedberg highlights some early candidates for related profit growth,
“We think GenAI remains a mega-trend that will impact the ecosystem over the long term. As such, we should start to see more progress around these trends into 2025 as we feel that conversations will likely get more tangible and metrics-driven … GenAI monetization remains in focus. Management teams noted monetization may take some time and there are “technology prerequisites” necessary in order to extract the full power of AI/GenAI, including a move to the cloud. In addition to Microsoft and ServiceNow, others we think could see early benefits include Cloudflare with AI inferencing, CrowdStrike from Charlotte AI and GitLab with Duo code suggestion. As GenAI adoption increases, we think a hybrid approach to pricing is necessary with seat-based models that can pair a consumption element for LLM utilization. Names we feel are best positioned for GenAI monetization include ADBE, CRWD, GTLB, HUBS, IBM, MSFT, NOW & SNOW … GenAI monetization remains in focus. Management teams noted monetization may take some time and there are “technology prerequisites” necessary in order to extract the full power of AI/GenAI, including a move to the cloud. In addition to Microsoft and ServiceNow, others we think could see early benefits include Cloudflare with AI inferencing, CrowdStrike from Charlotte AI and GitLab with Duo code suggestion. As GenAI adoption increases, we think a hybrid approach to pricing is necessary with seat-based models that can pair a consumption element for LLM utilization. Names we feel are best positioned for GenAI monetization include ADBE, CRWD, GTLB, HUBS, IBM, MSFT, NOW & SNOW”.
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Michael Hartnett’s Flow Show report at BofA Securities is as punchy as usual,
“Zeitgeist: “20-year corporate bonds now yielding 6.3%...you would think with stocks up 20% past 2 years pension funds would be looking to park some of those gains in bonds” The Biggest Picture: at no time in the past 90 years has 10-year rolling return from US Treasuries been negative. It is now (-0.5%) – this is peak in “anything but bonds” trade of 2020s; by comparison, long-run returns for US stocks 13.1%, commodities 4.5%, IG bonds 2.4%, T-bills 1.8% . The Price is Right: since Fed’s Sep 50bp rate cut, worst performing assets = bonds (UST yields up >100bps) & rate-sensitives (e.g. homebuilding stocks as poster child for “sell the 1st cut”); we say Trump need for “smaller government” = “twin peak” in 5% bond yields…favor bond duration & rate-sensitives, e.g. XHB, UTIL, XLF, XBI. Tale of the Tape: since Fed’s Sep 50bp rate cut, best performing asset = commodities (up 10%); stay long commodities on rising global PMIs, rising China money supply, and peak US$, but flip to long gold vs. oil as Russia/Ukraine/Middle East geopolitics flip from war to peace”.
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Diversion: “Here are the artists who will be inducted into the Canadian Music Hall of Fame in 2025” – A Journal of Musical Things