Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief investment strategist Brian Belski made three changes to his North American Dividend Growth portfolio, adding Intact Financial and removing Brookfield Corp. and Procter and Gamble. The benchmark for the portfolio is a blended 60 per cent S&P 500 Dividend Aristocrats and 40 per cent S&P/TSX Dividend Aristocrats,
“The S&P/TSX declined 0.5% on a total return basis in Q2, while the S&P 500 delivered a 4.3% return. Although Canadian equity performance has remained more sluggish than we expected, we continue to believe Canada remains well positioned for an extended period of normalization that we expect to unfold over the coming years. From our perspective we have seen ebbs and flows with regards to broadening out of performance, which we have consistently argued will be a key tailwind for Canadian equities in the second half of the year. Overall, we continue to believe Canada remains the contrarian call in terms of developed markets in 2024, even as the TSX hit a new all-time high … 60-70% of portfolio made up of core dividend names, 10-30% tactical weighting in high yield focus names, and 10-30% tactical weighting in dividend growth names”
The entire portfolio was not provided but Enbridge Inc., Bank of America Corp., Royal Bank of Canada, TD Bank and TC Energy Corp were listed as top five holdings. Only one Canadian stock appeared among top performers Apple Inc., Texas Instruments Inc., Amgen Inc., Goldman Sachs Group and Manulife Financial. Worst returns came from Target Corp., Restaurant Brands International Inc., Comcast Corp., McDonald’s Corp and Canadian National Railway Co.
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CIBC Capital Markets real estate analyst Dean Wilkinson wonders whether REIT valuations have bottomed in his monthly report called Wake Me Up When September Ends,
“While the BoC’s initial 25 bps rate cut is unquestionably positive, the short-lived strength in the sector leads us to believe that a much more material reduction is required in order to spur a return to historical valuation levels (or, at a minimum, approach them). We believe additional cuts are needed to the short end of the curve to result in a further flattening and outperformance of the REIT sector at large … Valuation—Are We There Yet? REITs within our coverage universe are trading at an average ~23% discount to NAV (vs. a ~10% historical average) and a ~12.5x 2024E P/FFO multiple (vs. a ~13x historical average). While the discount may seem punitive at face value, should interest rates remain elevated (but stable), we may see a modest increase in consensus [cap rates] beyond those which have already occurred, ultimately serving to narrow the current discount and put the focus back where it belongs—fundamentals … Within our coverage universe, Northview Residential REIT (+13%) and Dream Residential REIT (+6%) posted the largest positive gains, while Inovalis REIT (-20%) and Slate Office REIT (‑61%) lagged. Year to date, asset class performance is as follows: Hotel (‑43%), Office (-29%), Industrial (-10%), Retail (-6%), Diversified (-3%), Seniors (-3%) and Apartments (-1%)”
Mr. Wilkinson has outperform ratings on Flagship Communities REIT, Chartwell Retirement Residences, Brookfield Corp., SmartCentres REIT, BSR REIT, Dream Residential REIT, RioCan REIT, Killam Apartment REIT, Minto Apartment REIT, European Residential REIT, Morguard North American Residential REIT and First Capital REIT.
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Citi strategist Drew Pettit recommends clients take profits on leading AI stocks,
“We continue to suggest investors take profits in AI highfliers, notably the enablers (ex. semiconductors), and rebalance towards a broader array of AI stocks across the value chain … Lofty Fundamental Expectations - sell-side consensus expects high AI exposure stocks to grow free cash flow +25% annually over the next five years. We estimate the market is pricing +19-27% growth. However, nearly 60% of the market cap of this group has market-implied growth rates above consensus - the most since 2019. This setup in our backtest often comes with significantly more volatility … is AI a bubble? Broadly, we say no, for now … Our estimates suggest stock prices imply lofty expectations, but long-run consensus estimates suggest most are attainable … "
The stocks Mr. Pettit previously suggested for AI exposure outside of Nvidia Corp., Microsoft Corp. and the other current highflyers include Airbnb Inc., Apple Inc., Visa Inc., Autodesk Inc., Docusign Inc. and Aptiv PLC.
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Diversion: “AI-powered Super Soldiers Are More Than Just a Pipe Dream” – Wired (soft paywall)