Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
There are four changes to RBC Capital Markets quantitatively driven top 40 list of Canadian stock picks. Enerplus Corp. and First Quantum Minerals Ltd. have been added, while CI Financial Corp. and Ritchie Brothers Auctioneers Inc. were removed,
“Our Canada Overall Top 40 declined 2.4 per cent last month; however, the Portfolio outperformed the 3.2-per-cent drop of the S&P/TSX Composite. Year-to-date the Portfolio has gained 4.8 per cent compared to the 0.1-per-cent gain of the S&P/TSX Composite. The drop last month was primarily attributable to declines in the Financials and Communication Services groups. Both additions this month realized improved Value and Momentum scores, while the deletions had worsening Predictability ranks”
The remaining names in the portfolio are Imperial Oil Ltd, Ovintiv Inc., Suncor Energy Inc., Canadian Natural Resources Ltd., Pason Systems Inc., ARC Resources, Stella-Jones Inc., Labrador Iron Ore Royalty Corp., Dundee Precious Metals Inc., CCL Industries Inc., Richelieu Hardware Ltd., Toromont Industries Ltd., Thomson Reuters Corp., Finning International Inc., TFI International Inc., Magna International Inc., Metro. Inc., Loblaw Companies Ltd., North West Co. Ltd., Great-West Lifeco Inc., Equitable Group Inc., Intact Financial Corp., Bank Of Montreal, IA Financial Corp., TMX Group Ltd., Bank Of Nova Scotia, Fairfax Financial Holdings, Open Text Corp., Enghouse Systems Ltd., Celestica Inc., CGI Inc., Constellation Software Inc., Quebecor Inc., Cogeco Communications Inc., Roqers Communications Inc., TransAlta Corp. and FirstService Corp.
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CIBC analyst Dean Wilkinson published his monthly report arguing that now might be a profitable time to buy REITs despite higher for longer interest rates,
“Higher for longer continues to seem the path of least resistance when it comes to the rate environment over the near to medium term … the market appears to be more macro rate driven at the moment than anything else, a dynamic we have seen play out over the past decade at times of heightened uncertainty. If history is any indicator (and keeping very much at the forefront that past performance is no guarantee of anything at all), the current levels of the REIT sector may prove to be an attractive entry point for patient investors while collecting an above-average yield … If we assume the current rate environment persisted through most REITs’ debt ladders, the impact to FFO [funds from operations] would imply roughly a [P/FFO] multiple closer to prior-period lows (in the 11-13 times range) vs. the current 9.5 times”.
Mr. Wilkinson has an “outperformer” rating on Automotive Properties REIT, Brookfield Corporation, BSR REIT, Chartwell Retirement Residences, Crombie REIT, Dream Industrial REIT, Dream Residential REIT, European Residential REIT, First Capital REIT, Granite REIT, H&R REIT, Killam Apartment REIT, Minto Apartment REIT, Morguard North American REIT, Primaris REIT, RioCan REIT, SmartCentres REIT and Tricon Residential Inc.
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BMO senior economist Sal Guatieri warned clients about a weak winter for the domestic housing market,
“Canada’s housing market is cooling again due to rising mortgage rates and recession fears. If not for healthy job growth and a booming population, the market would be even colder, given the worst affordability in more than three decades. Demand will stay depressed until the Bank of Canada cuts rates, possibly next summer … Existing home sales have fallen for three straight months to September to below normal levels and are likely to stay down in the first half of next year. New listings have risen above normal. Benchmark prices, which fell for the first time in six months amid slumping demand and rising supply, are still down 10 per cent after peaking in early 2022, and could sag another 6 per cent before the market finds a footing. Strength in a few regions, notably Alberta amid decent affordability and strong population inflows, won’t offset weakness in more expensive places such as Toronto, Vancouver, and much of Southern Ontario”.
Focus: Canada’s perennial productivity puzzle” - BMO Economics
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Diversion: “Five Thoughts About the Beatles’ Last Song, “Now and Then”” – The Ringer
Scott Barlow