Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities equity and quant strategist Savita Subramanian argues that U.S. stocks are worth their high valuation,
“Even after the recent pullback, the S&P 500 is statistically expensive vs. history on almost every common metric. But does this math make sense? Today’s index is far from the index of the ‘00s, ‘90s, or ‘80s. The S&P 500 is less levered, more asset light, has a higher margin sector mix and lower earnings volatility. And in our (decidedly non[1]consensus) view, the equity risk premium can fall further. A lot of bad news is behind us: a pandemic, two wars, 0 to 5 in rates, deglobalization underway, and a subsiding in record rates/inflation volatility. Real wage growth amid a structurally tight labor force and better balance sheets keep consumers spending, but labor squeeze risks have been nimbly navigated by corporates via cost cutting and a focus on efficiency … For investors with a 1- to 3-month horizon, our quant sector framework ranks Comm. Svcs. and Tech as #1 and #2, respectively, but we see risks in IT on crowding and decelerating EPS growth. Energy has improved, now #3, and we are structurally o/w due to its capital discipline and inflation-protected yield”
See also: “Why value investing no longer works” - Inside the Market (newsletter)
***
Citi analyst Filippo Falorni retained his “sell” rating on Molson Coors Brewing Co. despite strong quarterly results. The company continues to struggle against two trends – the switch from beer to wine and spirits and the sharply lower alcohol consumption by younger generations,
“Implications — As previewed and largely expected by the market TAP’s delivered a 1Q’24 EPS beat, driven by better topline on shipments above depletions and GM upside. TAP reiterated 2024 topline/EPS guidance, but we believe commentary on depletion trends in April and Q2 (as TAP cycles the benefits from the Bud Light controversy) will be key in driving the stock reaction, given the recent slowdown in scanner data with volumes down … in the last few weeks. Key areas of focus on the earnings call will be: (1) thoughts on trends in April and 2Q’24, when TAP cycles the benefits from the Bud Light controversy, (2) spring shelf-space resets and TAP ability to grow sales/volumes … (3) outlook for GM [gross margin] and cost inflation, (4) level of advertising spend, (5) other assumptions in 2024 guidance”
***
BMO economist Shelly Kaushik discussed Canada’s ‘Gross Diminishing Product’,
“Canada’s economy expanded 0.2% in February, according to StatCan. While that’s below expectations, a slowdown from January’s hot start had been anticipated. More importantly, a flat March flash flagged further easing, in line with earlier indicators of slower activity to end the first quarter. The preliminary estimate for Q1 GDP is pegged at 2.5% a.r. [annualized rate], matching our estimate and slightly below the BoC’s forecast from April. While that’s a solid growth figure for the quarter, momentum clearly stalled heading into Q2. The early-year strength and subsequent cooldown evoke the 2023 pattern, suggesting some unaccounted-for seasonality in the data. Regardless, that deceleration is the big takeaway here, and adds to pressure on the Bank of Canada to start cutting in June. We’ll get additional clarity with the April inflation report later in May (the 21st, to be exact), though U.S. persistence on that front continues to complicate matters for the BoC”
***
I have the changes, but not the full lists for BMO’s Top 15 Fundamental stock lists and the Investment Strategy portfolios.
Of note, the North American Dividend Growth portfolio saw Brookfield Corp and Procter and Gamble removed and Intact Financial Corp. added.
In the North American Income Top 15, BCE Inc., Barrick Gold Corp. and Thomson Reuters Corp. were removed, while Royal Bank of Canada, Agnico Eagle Mines Ltd. and Manulife Financial Corp. were added.
===
Diversion: “How I Think About Debt” – Collaborative Fund
Scott Barlow