Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Goldman Sachs chief U.S. equity strategist David Kostin published his monthly Where to Invest Now? report, emphasizing companies able to dodge the negative effects of inflation pressure. Noting that producer raw materials costs are up by 53 per cent year over year (intermediate goods 23 per cent, finished goods nine per cent), he recommends companies with the ability to pass these costs through to consumers by raising prices.
He presented a list of U.S. companies with the strongest pricing power that is too long to list. Stocks most likely to be of interest to Canadian investors include Activision Blizzard Inc., Under Armour Inc., Williams-Sonoma Inc., Colgate Palmolive Co., Procter & Gamble Co., Zoetis Inc., Danaher Corp., Roper Technologies Inc., Adobe Inc., Verisign Inc., Oracle Corp., Fortinet Inc., PPG Industries Inc., Valvoline Inc., Avery Dennison Corp. and Vulcan Materials Co.
“@SBarlow_ROB GS: Stocks with pricing power’ – (full table) Twitter
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Morgan Stanley analysts Adam Virgadamo and Josh Pokrzywinski published a list of stocks and sectors they expect will benefit most from an expected surge in corporate investment.
“Historically, sales in Construction & Engineering and Industrial Conglomerates show the greatest correlation with capex. Ranking 60+ GICS industries by the correlation of sales growth vs the market with capex vs GDP growth, the team finds C&E and Conglomerates both rank in the top 5 among all industries, both with statistically significant positive correlations, on a one year lag… [the analysts] see three key drivers of accelerating, sustained strength in capex creating investment opportunities: (1) near-shoring, (2) labor shortages increasing demand for automation and digital transformation, and (3) ESG and energy transitions. In the team’s view, these new drivers are far more durable than the typical 1-2 years of demonstrable capex outperformance that have defined the last 10-20 years. Josh’s favorite stocks to play the theme are Rockwell (OW[overweight], $313 PT[price target]) and Eaton (OW, $180 PT).”
I mentioned Rockwell Automation and the onshoring and automation trends in Wednesday’s Inside the Market newsletter.
“@SBarlow_ROB MS: how to play the upcoming surge in capex” – (research excerpt) Twitter
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Citi’s New York-based energy analyst Prashant Rao turned his attention to Canada, and likes Imperial Oil in the short term and Cenovus Energy Inc. for the longer term,
“The commodity outlook supports 2H21E CFFO [cash flow from operations] run-rates comfortably above pre-pandemic levels. No surprise then that cash returns to shareholders on less-levered balance sheets drive relative valuation premia, and here Neutral-rated IMO’s shares look like the least-risky near-term opportunity: 0.6x ND[net debt]/CFFO leverage and consensus 8% ntm [next 12 months] return of mkt cap… the overall potential still looks greatest at Buy-rated CVE, where high oil price torque and asset disposals could drive headroom towards 20% of market cap returned over the next 12 months, presently discounted at ~3.5x 2022E DACF[debt-adjusted cash flow].
“@SBarlow_ROB Citi’s top picks in Cdn oil” – (research excerpt) Twitter
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Diversion: “Pfizer wants to give you a booster shot—but experts say it’s too soon” – M.I.T. Technology Review
Tweet of the Day: “@LizAnnSonders Only half of stocks in S&P 500 are > 50d moving average even less for NASDAQ & Russell 2000; beneath surface, weakest sectors are Materials, Utilities, Financials & Energy” – Twitter
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Scott Barlow