Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities analyst Andrew Obin outlines what could be my new favourite investment theme,
“Key conclusions: (1) The US grid is facing an extended period of [electrical power] load growth. While the drivers of our forecast have shifted somewhat, we see electrical loads growing at a 2.5% CAGR over 2024-35. We maintain our previous 2.8% CAGR over 2023-2030; (2) This will require significant additions to power generation capacity, all of which will need to be connected to the grid. In particular, we forecast ~1 terawatts of gross capacity additions by 2035, one-third of which is gas power; and (3) We find that $25bn of US transmission projects have started construction, with another $50bn in the pipeline. Deregulation and accelerated permitting may further help to get more projects started … During this period of rising demand, electrical equipment vendors have demonstrated pricing power. US transformer pricing is up more than 70% since 2020, for example. Rising backlogs help reduce cyclicality. The four largest high-voltage vendors now have ~3 years of backlog while orders grew 23% y/y in 2024 (after 58% growth in 2023)”
This sector will benefit from both data center building and decarbonization. The most recent report highlights electrical equipment sellers GE Vernova, Eaton and Emerson as companies set to benefit.
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BMO energy analyst Randy Ollenberger is encouraged by the resilience of the domestic oil and gas producers,
“The Canadian oil and gas group reported a better-than-expected first quarter results but group performance remained challenging amid falling crude oil prices following “Liberation Day” and OPEC+ production increases. This has led to reduced 2025 CFPS [cash flow per share] estimates across most of our Canadian coverage. Despite weaker oil prices, most companies maintained their capital programs, showcasing robust balance sheets and capital-efficient operations. Oil prices have since rebounded due to geopolitical risk while Henry Hub gas prices have remained strong. In Canada, AECO prices remain disconnected from other benchmarks, as the market waits for LNG Canada Phase 1 to solve the supply overhang. At the current strip, we project our coverage group (excluding restricted names) will generate approximately $28.4 billion (8.4% yield) in free cash flow in 2025 and roughly $27.6 billion (8.4% yield) in 2026”
Mr. Ollenberger has “outperform” ratings on Suncor Energy Inc., Imperial Oil Ltd., Canadian Natural Resources Ltd., Peyto Exploration and Development Corp., Tourmaline Oil Corp. and Cenovus Energy Inc.
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Wells Fargo analyst Roger Read assesses the potential implications of the Israel/Iran conflict on global oil prices,
“Key Takeaway. Oil prices will likely remain volatile with an upward bias for the next couple of weeks. This is based on public statements from Israel’s leaders to do whatever is necessary to achieve the goals of degrading and destroying Iran’s nuclear program. We believe oil (Brent) can rally 50% from its May 5, 2025, trough to $90/bbl if physical damage to Iran’s oil production/export capacity occurs. Without physical damage, oil prices might struggle to exceed $80/bbl in the near term … Thus far, Israel has avoided attacking key infrastructure for energy and power, oil production and exports. Israel appears to have complete control of Iran’s airspace. Thus, attacks on Iran’s oil infrastructure are solely at Israel’s discretion … Based on the latest data, we estimate Iran’s oil production is around 3.35mmbpd, or 3.2% of global production. Iran’s exports are approximately 2.0mmbpd, or nearly 2% of global demand”
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Citi U.S. equity strategist Scott Chronert highlights the lack of stocks with improving Return on Equity (ROE) measures which he believes will translate into bigger gains for the rare companies that can raise profit margins,
“Stocks where ROE is expected to improve due to margin expansion and/or total asset turnover gains are becoming less abundant in the S&P 500. This is largely a function of downgraded outlooks on softer macros and trade concerns. The stocks that still find their way into our Positive ROE Trend baskets are expected to generate excess EPS growth over comparable indices, and even more so relative to Negative ROE Trend baskets. Premium growth expectations at attractive PEG ratios suggests our “Good ROE” recommendation aligns with our broader ‘Growth is defensive’ thesis."
Mr. Chronert contradicts himself a bit because his list of stocks with rising ROE is too long for this page. Stocks most likely to interest Canadian investors include Lockheed Martin Corp., Honeywell International Inc., Netflix Inc., Abbott Laboratories, Corning Inc., Blackrock Inc., FedEx Corp., Johnson & Johnson, Eaton Corp., Salesforce Inc., Walt Disney Co., Keurig Dr Pepper and Ralph Lauren Corp.
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Diversion: “Researchers Transform Carbon Waste Into Valuable Building Material” – SciTechDaily