Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC Capital Markets analyst Robert Catellier updated his view on the income-heavy utilities and power sectors,
“We still believe there’s good value across the power / renewable space and remain constructive on that sub-segment … AQN and EMA both can use asset sales to de-risk their balance sheets but may not get a material multiple re-rating given higher payout ratios … Power: Q1 results were better than expected for most Power stocks, which helped these stocks rally in the last month. Further, BEP’s Microsoft agreement was timely given the excitement of load growth from data centres/GenAI. Based on our conversations with investors, the positive momentum and rally might pause, though the fundamental picture is steadily improving with more discipline on growth … BLX and BEP would be our preferred names to play the renewables space. TA has come off its 52-week low thanks to strong Q1 results and potential for more buybacks. We believe there’s more room to run on TA … Midstream/Pipelines: Q1/24 results generally exceeded or were in line with expectations (7% above consensus, on average; six beats and zero misses) given strong core infrastructure performance and marketing strength. LCFS posted a notable beat due to higher HDRD utilization, and ALA, ENB, KEY, and PPL outperformance showed broad strength in all segments. WMB beat on strength in the upstream and Gas & NGL Marketing Services segments”
Mr. Catellier has “outperformer” ratings on Superior Plus Corp., Enbridge Inc., Pembina Pipeline Corp., Tidewater Renewables Ltd., AltaGas Ltd., Brookfield Infrastructure and Gibson Energy Corp.
***
BMO chief economist Doug Porter detailed why domestic economic growth and inflation pressures are trailing the U.S. by such a wide margin,
“The contrast between Canadian and U.S. inflation trends in 2024 could not be starker. To pick but one glaring example, markets cheered last week’s U.S. April CPI, where core still rose 0.3%, and we are expecting a mild 0.2% rise in next week’s core PCE deflator. Good news, but this is still above the latest 0.1% result in Canada … Excluding those bothersome shelter components, Canadian inflation is now a minuscule 1.2% … What is driving the growing gap in North American inflation? Fundamentally, one can pin it on the much weaker growth and spending trends north of the border, as well as a tighter job market stateside. Food and energy costs have not played a role, as the soft Canadian dollar and the carbon tax have nudged up relative energy costs (up 4.5% y/y in Canada vs a 2.6% rise in the U.S.), while food prices are tracking very closely (at up 2.3% and 2.2%, respectively). Excluding food and energy, the inflation gap grows to 0.9%, with U.S. core at 3.6% and Canada at 2.7%”
“Nvitable Divergence?” - BMO Economics
***
Nvidia’s announced 10-for-one stock split provides BofA Securities’ Research Investment Committee (RIC) with a catalyst to roll out the positive record for U.S. stock splits,
“Eight companies announced stock splits this year, including Walmart in January and Chipotle in March. The surge in Big Tech share prices prompted four splits in the ‘Magnificent 7′ mega-cap stocks since 2022 with Google, Amazon, and Tesla all making shares more accessible. Apple split in 2020. Today, Microsoft and Meta are approaching the $500/share threshold. S&P 500 stocks with share prices over $500 represent $7.4tn in market cap, or about 16% of the index … We recently updated our analysis, which found that splits have typically been bullish for companies who enact them … Average returns one year later are 25% vs. around 12% for the broad market. Splits seem to be bullish across market regimes, something management teams might consider if shares look too expensive for buybacks.
***
Diversion: “Toronto hotel prices for Taylor Swift’s November visit are insane” – A Journal of Musical Things