Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank REIT analyst Mario Saric recaps top picks, and details his belief that private deals will signal a soft landing for the sector,
“CAD REIT avg. Q1 year-over-year FFOPU [funds from operations per unit] and SSNOI [same store net operating income] growth = 1.4% (Q4 = +1.6%) and 4,3%, with FFOPU +0.4% and -0.6% vs. Scotia and consensus. Our 2024E/2025E AFFOPU [adjusted funds from operations] fell 0.4%/0.6% vs. 0.7%/1.0% for consensus; IFRS FV [fair value]as % of unit price fell 1% vs. 3% in Q4 and 5% in Q3 (lowest FV loss since Q3/22). Both Scotia and IFRS NAV cap were +5bp q/q, while implied cap fell 3bp q/q. Our avg. REIT NAVPU [net asset value per unit] fell 1.5% q/q vs. 2% Growth in Q4/23. Ratings changes: We upgraded Sienna Senior Living to SO [sector outperform], while downgraded Dream Residential, ERE, and RioCan (link) to SP. We recently initiated coverage on FirstService Corp (FSV) - link to our initiation. Our Top Growth Picks = BAM, CAR, CSH, GRT, IIP, SVI. Top Value Picks = AP, BN, DIR. Top Income Picks = AP, BAM, CHP, CRR, CRT, SIA. We still point to accelerated private market deals (towards end of year; Q1 = lowest in 4 years per Morguard) as part of a “Soft Landing” and start of BoC/Fed rate cuts as a key catalyst for CAD REIT sentiment (i.e., substantiating our sector avg. ~20% P/NAV discount). We still expect the sector to trade sideways in the interim”
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RBC Capital Markets analyst Sam Crittenden sees copper prices ahead of themselves but expects only a pause in a longer-term rally,
“After starting the year stuck in a range around $ 3 .75/lb, the dam finally burst in mid -March when Chinese smelters acknowledged they did not have enough concentrate and announced plans to reduce production (which hasn’t actually happened yet). Since then, copper is up 22 % to $ 4 .65/lb and recently made new all -time highs over $ 5.00/lb on the Comex exchange. We expect prices to remain elevated throughout this year and raise our 2024 estimate to $ 4 .39/lb from $ 4.25/lb (which implies ~ $ 4.70/lb for the balance of the year with the price averaging $ 4 .05/lb YTD) due to ongoing supply constraints and limited inventories ; however, our view is tempered by our expectations for improving supply into 2025 and tepid demand in China … We believe the energy transition including renewable energy, EVs and the associated grid improvements can drive strong demand for copper while the data center build out could also add a new layer of demand. This growing demand is set against an aging supply base without much new supply committed to come online post 2025 and it’s getting harder to build new mines due to rising costs and social issues. For this reason, we believe a period of higher prices is needed to spur investment in new copper mines and we have raised our price estimate from 2026 -2028 to $ 5.00/lb from $ 4.50/lb”
The analyst has outperform ratings on Teck Resources, Ivanhoe Mines, Capstone Mining, Hudbay Minerals and First Quantum.
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BMO chief investment strategist Brian Belski continues to bang the drum for Canadian equities,
“Despite lagging the S&P 500 year to date, we believe the TSX remains poised to reverse course and begin to overtake its neighbour to the south for the remainder of 2024. As a reminder, we recently increased both our S&P 500 and S&P/TSX price targets to 5,600 and 24,500 respectively. These new targets imply a near 5.5% return for the S&P 500 and a solid 9.5% return for the S&P/TSX into year end … we believe the upside in Canadian equities will be driven by the strong relative value position, improving fundamental sentiment, returning foreign flows and the overall broadening of equity performance from the US mega-caps. Furthermore, when we analyze current Canadian index performance, two of the three largest sectors in the TSX (Energy and Materials) are already sharply outperforming the TSX this year. In fact, our work shows the TSX typically outperforms the SPX when two out of three are outperforming and rarely underperforms when ALL three of the big-three sectors are working”
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Diversion: “How to Pick Stocks Like You’re in Congress” - The New Yorker