Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank quantitative strategist Hugo Ste-Marie believes Canadian insurance stocks will continue to outperform he banks,
“The TSX insurance sector outperformed its TSX bank counterpart by more than 20 per cent over the past 12 months (up 15 per cent versus down 8.6 per cent) and by 38 per cent since June 2022. Still, our preference remains unchanged for now – we prefer Insurance. Not only are insurance stocks enjoying superior forward earnings momentum compared to banks, which helps them outperform, but, despite the large outperformance, Insurance remains more attractively valued than Banks. Unfortunately for the banks, the recent bounce has come with falling forward EPS, which has pushed the forward P/E ratio to 10.5 times (versus 9.5 times for the insurance sector). In addition, if the recent weakness in U.S. regional banks persists, it could weigh on the broader banking space in North America”
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CIBC deputy chief economist Benjamin Tal argued that The housing crisis is a planning crisis,
“The current recessionary conditions in the Canadian housing market will hardly dent the affordability crisis home buyers and renters currently face … The recent cap on the number of foreign students is a bold move in the right direction but it is insufficient. The housing shortage issue is largely a planning issue with official planning targets falling notably short of actual population growth. You cannot build an adequate supply of housing for population growth that you fail to forecast … When Statistics Canada and CMHC forecasted population and housing demand for back a decade ago, they projected that the Canadian population would reach 38.7 million. That was a big miss. The reality is that today municipalities are facing 1.4 million more people than they were told they needed to plan for — in total that’s a shortfall of almost 3 years of housing supply … The latest population projection from Statistics Canada released in August 2022 is already short of the actual population count”
“The housing crisis is a planning crisis” – CIBC Economics
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Goldman Sachs derivatives analyst John Marshall compiled options exposure, retail trading, short interest, returns and valuation to assess how overcrowded artificial intelligence-related stocks have become,
“The rapid run in share prices for stocks that are associated with the Artificial Intelligence theme has driven a big increase in client questions on crowding. Determining whether a stock is crowded is difficult. Investors are skilled at forecasting an increase in earnings and pricing it into stocks before it is reflected in published consensus growth estimates. Using valuation as a measure of crowding has shortcomings; the more far-reaching the technological innovation, the longer high valuations can persist as adoption is continuously underestimated”.
Perhaps surprisingly, none of the Magnificent Seven stocks are in the top 15 most overcrowded stocks which are Autodesk Inc., Vertiv Holdings Co., Arista Networks Inc., Crowdstrike Holdings, Advanced Micro Devices, Intel Corp., Taiwan Semi, Datadog Inc., Marvell Technology, Palantir, Palo Alto Networks Inc., Applied Materials Inc., Dell Technologies, Broadcom Inc. and Workday Inc. The first Magnificent Sevens stock is Meta Platforms at number 21.
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Diversion: “Are these the most meaningful songs in the world?” – A Journal of Musical Things
Scott Barlow