Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief strategist Brian Belski is bullish on Canadian small caps,
“Canadian small-cap equities represent value within a value market and continue to show improving and relatively strong earnings growth (not a value trap) versus their large-cap peers. As such, we prefer to lean on the Canadian small-cap universe for both attractive value and GARP opportunities. Indeed, while small caps have remained largely ignored by the majority of investors over the last few years, there has been a clear upswing in acquisition activity that we believe reflects an increasing recognition of the fundamental value these stocks possess. In fact, the Canadian SMID-cap universe has already exhibited 13 completed and/or pending acquisitions so far this year, the strongest acquisition activity in the first seven months of the year since 2007. From our perspective, this is yet another data point that should provide a strong signal to investors that there is significant value and opportunity within small caps in Canada”
The strategist’s small cap portfolio consists of Altus Group, Algonquin Power & Utilities, Aritizia, Brookfield Business Partners, Black Diamond Group, Bird Construction Inc., Boardwalk REIT, Boralex, B2Gold, Boyd Group Services Inc., Canfor, Celestica, Capstone Copper, Canadian Western Bank, Definity Financial, Dream Industrial REIT, Dye & Durham, BRP, EQB, Evertz Technologies, Guardian Capital Group Limited, Hudbay Minerals, Headwater Exploration, Interfor, InterRent REIT, Jamieson Wellness, Kelt Exploration, Kinaxis, Linamar, Lightspeed Commerce, Maple Leaf Foods, Martinrea International, Mullen Group, NFI Group Inc., Nuvista Energy, Nuvei, Osisko Mining, Premium Brands Holdings, Pason Systems, PrairieSky Royalty, Quebecor, Topaz Energy, Trisura Group, Veren Inc and Sleep Country Canada
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Wells Fargo strategist Christopher Harvey sees today’s markets as similar to 1998,
“The 1998 Analogy. We see similarities between today and the 1998 easing cycle. Then, it was mega-caps vs small caps; “New Economy” vs “Old”; and Growth vs Value. Then it was LTCM; today, it’s the global carry trade. For bulls, the 1998 comp is great news because the SPX rallied 19% in the three months after the first cut (9/29/98). However, large caps did have a peak-to-trough slump of 19% from mid-July through October 1998 … July’s oversold small cap bounce is fading fast. The R2000 is now only +1.2% YTD vs +9.9% for the SPX. The group has not given everything back (on a relative basis), but trailing the market by ~9% YTD feels mainly like a “moral victory.” Greater uncertainty and market stress is not a positive for small caps … Our barbell of Comms [communications] (50%), Banks (30%), Utes (20%) held serve on Monday and gained ground on Tue/Wed, and is +13.3% YTD (SPX: +9.9%). Utilities, which we upgraded at the end of 2023, is becoming more of a consensus idea (+17.7% YTD)”.
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Citi analyst Christopher Danely thinks it’s time to buy well-positioned semiconductor stocks,
“We believe the sell-off in semi stocks is due to macro factors combined with high expectations and disappointing results. Consensus estimates declined 11% during earnings, driven mostly by downside from Intel, GFS, MCHP, and NXPI as analog inventory replenishment is not happening as soon as expected, and we see downside risk from the auto end market (14% of semi demand). However, we remain bullish on the space as the main reasons we are positive – AI and memory strength – remain intact. Micron is our top pick, and we believe it’s time to double down as the DRAM upturn should persist given reduced capacity and DRAM pricing in 3Q24 is better than expected. Other Buy-rated names include AMD, AVGO, ADI, MCHP, NVDA, and KLAC.”
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Diversion: “What I Learned at the Police Academy” – The Atlantic
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