A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
It’s been difficult to write about oil for months. Every day, the headlines are minor variations on either “Crude higher on OPEC cuts while demand concerns loom” or “Crude lower despite OPEC cuts as shale production climbs.”
There have been more of the former versions lately and oil prices have steadily pushed higher,
“ Oil hits 2019 high on OPEC cuts, concerns over demand ease” – Reuters
“ Oil prices rose over the past week owing to an increase in demand” – New York Federal Reserve
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Citi analyst Prashant Rao published a report on Canadian integrated oil companies, coming out in favour of Suncor and Cenovus,
“Unlike US shale and today’s smaller but more profitable global Offshore portfolio, Canada’s higher position on Citi’s Oil Vision 2019 Cost-Curve, lower reserve life, and continued takeaway capacity issues justify [lower free cash flow valuations] . For this reason, SU remains our top pick. CVE now looks even better long-term, given the highly discounted, higher quality Upstream versus peers, but near-term oil price volatility and persistent 2x+ [balance sheet] leverage keep us sidelined for now.”
“@SBarlow_ROB C like Suncor, Cenovus in domestic integrateds sector” – (research excerpt) Twitter
“Monday’s analyst upgrades and downgrades” - Globe Investor
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Citi U.S. equity strategist (and Montreal-born) Tobias Levkovich dispelled some myths about technology’s dominance of market upside performance in a Monday research report,
“The FAANNG names accounted for less than 25% of annual market cap appreciation in their best year of all S&P 500 constituents whose stock prices climbed. In most cases since 2013, it was more like 10%. Greater than 40% of names in the S&P 500 have outperformed the index in each quarter since 1Q16 underscoring that there have been many opportunities to beat the market…. We continue to see potential returns in cyclical stocks as well as some volatility defensive areas including Pharma. A likely uptick of inflation expectations due to oil prices should support Energy, Materials and Industrials (as well as Semis) while a probable pickup in volatility (which is typical after the yield curve flattens) argues for drug names and household products.”
“@SBarlow_ROB Levkovich: FAANNG's dominance of index returns is a myth” – (research excerpt) Twitter
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Merrill Lynch strategists claim that their proprietary sell-side indicator has been the best forecaster of short term equity returns.
The measure uses asset allocation recommendations for all major Wall Street firms, and recommends selling equities when they get too bullish – raise the equity allocations to the high end of the historic range. The most recent update notes strategists are getting more optimistic, but not to the point where Merrill recommends selling stocks,
“The Sell Side Consensus Indicator… The indicator continues to hover at its highest levels since mid-2011 and is only 30bp shy of a new cycle high… So far this year, optimism driven by the “Powell put”, a healthy consumer, progress on trade talks, and green shoots in global economic data is supporting equities. While we are still a long way off from the current “Sell” threshold of 61.6, that threshold continues to decline … the indicator is at the closest it has been to a “Sell” signal in this cycle. Whereas this indicator is based on comparing today’s sentiment levels vs. the prior 15 years, there is evidence that sell signals have higher efficacy relative to shorter histories and would imply a more bearish outlook”
“@SBarlow_ROB ML: proprietary sell-side indicator close to danger levels” – (research excerpt) Twitter
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UBS published their list of the most overweight and underweight global stocks in actively managed portfolios. The most overweight list is headed by Visa Inc. (A) , Microsoft Corp. and Alibaba Group Holding Ltd. Most underweight begins with Apple Inc, Nestle SA and Exxon Mobil Corp.
History shows that overweight stocks tend to underperform, but investors playing that strategy need to be very patient.
“ @SBarlow_ROB UBS: Most overweight and Underweight stocks” – (full table) Twitter
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Tweet of the Day:
Diversion: “Nobody Thinks It Will Work, Do They? ‘Say Anything…’ Turns 30” – The Ringer