Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC analyst Dean Wilkinson detailed the main takeaways from the firm’s annual real estate conference,
“The interest rate environment remains the ultimate question mark, and while that is almost globally accepted at this point, we point out that on an individual REIT basis, operating fundamentals remain rather strong. Multi-family residential remains top of class; however, spreads are beginning to catch up as current rental rates are brought to those of the market. One panelist continues to find the more defensive grocery-anchored retail attractive, while private operators who are slightly less risk averse are still willing to look at opportunistic deals in out-of-favour sectors (read: office) … [One] panel raised concerns that if Canada were to begin an interest rate cutting cycle while the U.S. economy remained robust (leaving interest rates unchanged), it could cause a further devaluing of the Canadian dollar relative to the U.S. dollar. The devaluation scenario would subsequently increase inflation … Bid/ask spreads remain relatively wide, but are beginning to shrink. Two panelists agreed that waiting for unit prices to revert to a historical spread to NAV may not be an attractive strategy”
Mr. Wilkinson has “outperformer” ratings on BSR REIT, Chartwell Retirement Residences, Minto Apartment REIT, European Residential REIT, Smartcentres REIT, Killam Apartment REIT, Morguard North American Residential REIT, Dream Residential REIT, RioCan REIT, Brookfield Corp. and First Capital REIT.
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TD Cowen analyst Aaron Bilkoski sees the opportunity for higher dividends in the energy sector,
“Potential Dividend Bumps For Certain Operators: Among the conventional producers, we see ARC Resources (ARX-T) potentially modestly increasing the dividend with Q1 results by approximately the amount of shares repurchased last year (like in 2023). We also believe CVE and IMO could hike their base dividends which would be a repeat of Q1/2023 … Environmental Risks to Become Increasingly Topical: Due to the dry winter, two related environmental issues are likely to be addressed with more clarity: 1) water availability for fraccing (i.e., storage, licenses, etc.), and 2) wildfires impacting activity (and/or triggering downtime). We highlight that there are already 12 wildfires burning in Alberta”
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Canadian government policy was mentioned in BofA Securities investment strategist Michael Hartnett’s weekly Flow Show report,
“Zeitgeist: Canada jacking up capital gains tax rates from 50% to 67%...highly indebted Western governments have promises to keep, wars to fund…means higher inflation, higher yields & higher taxation…until likely central bank bailout of public sector … bears say watch US growth stocks (struggling to break to new highs) & HY bonds to signal more sinister transition to “bad news = bad … weird to see simultaneous strength in tech (annualizing 21% YTD), commodities (47%) & US dollar (16%); happened in only 5 of past 60 years…1969, 1983, 1999, 2016, 2021 (see ranked asset price returns by decade - Charts 4-10)…years of stimulus-induced booms (Reagan “twin deficits” in ‘83, COVID in ‘21), bubbles (’99) & inflection (’69…start of stagflation, ‘16…onset of de-globalization)”
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Cybersecurity remains a top performer within technology. Morgan Stanley’s daily research package included a summary of analyst Hamza Fodderwala’s top picks within the theme,
“Cybersecurity remains a relative bright spot and is likely to outperform, in Hamza’s view, as rising threats, regulatory requirements and board-level engagement drive more durable demand in a tight spending environment. Hamza is incrementally bullish on PANW (OW, $360 PT) given the recent positive checks, derisked guide, and attractive valuation at 23X EV/CY25 FCF. CRWD (OW, $372 PT) is also one of Hamza’s most preferred names given the improving win rates, broader platform traction, and best-in-class profitability. Lastly, Hamza sees opportunities in SMID-cap stocks given historically high valuation discounts and M&A backstop. This includes RPD (EW, $60 PT), which is the cheapest stock in Hamza’s coverage and likely bottoming out at 3X CY25 revs and 17X CY25 FCF. Hamza’s three reasons for getting more positive include: 1) rising threats and corporate breach costs; 2) a healthy spending environment and easier comps; and 3) valuations are more favorable and M&A backstop, as nearly half of security stocks in Hamza’s coverage are also trading below historical average M&A multiples”
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Diversion: " Who likes loud cars? Ontario study suggests they skew young, male and score high on psychopathy and sadism” – CBC
Scott Barlow