Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi U.S. equity strategist Tobias Levkovich sees little upside for the S&P 500 at current levels,
“A 10% pullback seems very plausible, and with limited upside even to others’ bullish targets, a neutral stance is realistic. Some of the most upbeat forecasts are calling for 4,200-4,300 on the S&P 500 by year-end, which is 7%-9% higher, while our Panic/Euphoria Model implies 9%-12% downside risk; hence, things seem balanced on a risk/reward basis. Moreover, if rising bond yields drag down some mega-cap IT growth names due to higher discount rates on future cash flow streams, that will impact the broad index as a result of the over-representation of such stocks … We do not see the equity market as being in a bubble for three reasons, and a repeat of 2000-02 is unlikely. The Fed was lifting rates throughout 1999 into 2000 and has done the opposite in 2019 and 2020. The US economy entered a recession in 2000-01 and is exiting one now”
Mr. Levkovich also believes the rally in economically sensitive sectors like materials and industrials has room to run, which is good news for the TSX.
“@SBarlow_ROB Citi: Correction likely but no 2000 bubble” – (research excerpt) Twitter
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Scotiabank strategist Hugo Ste Marie is bullish on prospects for Canadian dividend investors,
“Nominal yields [on government bonds] are so low that even mild inflation would put them at risk of delivering negative real returns. To generate a stable stream of income, investors must look for alternative assets and/or take on more risk… the tsunami of cash that has entered the bond market in the past few years may start to reverse if yields begin to rise … TSX dividend growth outlook appears underestimated as well. Bottom-up EPS [earnings per share] consensus stands at C$1,038 (+35%) and C$1,188 (+13%) for 2021 and 2022, respectively, with DPS [dividends per share] at $539 and $557 (implying payout ratios of 52% and 47%). The TSX payout ratio was 50% in 2019 and roughly similar for the 2017-2019 period (see Exhibit 9). Assuming a 50% payout in 2022 would peg the DPS at $591 (6% above consensus) and it would imply a 12.6% growth between 2020 and 2022 (or more than twice the mild 6% suggested by bottom-up forecasts).”
Rio Tinto PLC announced a huge payout to investors this morning, potentially a sign that domestic investors should look to the resource sectors for dividend growth.
“@SBarlow_ROB Scotia provides bullish news for dividend investors” – (research excerpt) Twitter
“Rio Tinto hands back cash on profit beat, record iron ore” - Report on Business
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BMO economist Sal Guatieri highlighted the jump in home prices in the more rural areas of Ontario,
“Normally asset prices start to raise red flags when they consistently outrun growth in underlying income or earnings. But across much of Canada, and notably Ontario, house prices are not only rising faster than family income, they are rising more than total annual income. Take Woodstock for example, where benchmark prices are up a cool $118,200 in the past year to January (or 31.7%), while the median family earned $86,970 (in 2018)’
“@SBarlow_ROB BMO: “your home makes more than you do” – (research excerpt) Twitter
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Also from Scotia, analyst Meny Grauman published a report on Canadian banks called Achieving Escape Velocity,
“We do believe that we are on the cusp of a post-pandemic economic boom, it looks like the US economy will be able to achieve this “escape velocity” from this pandemic well before Canada given the relative pace of vaccinations. To us this suggests that the Canadian Banks with relatively higher exposure to the US will have an advantage over their more domestically focused peers. Our favorite name to play this mismatch in recovery timing is BMO, which is one key reason why we are upgrading the stock from Sector Perform to Sector Outperform in this report.’
“@SBarlow_ROB BNS: This Canadian bank stock will achieve ‘escape velocity’ soonest” – Twitter
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Column: “Investment bubble in hydrogen power stocks building rapidly” – Barlow, Inside the Market (Monday)
Diversion: “Seriously Gruesome Death of an Egyptian Pharaoh Detailed in New Study” – Gizmodo
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