• Thu. Feb 22nd, 2024

    Analysts Provide Insights on Profitability and Top Picks in Various Sectors

    ByJames Forsyth

    Jan 29, 2024
    Analysts Provide Insights on Profitability and Top Picks in Various Sectors

    Scotiabank analyst Mario Saric recently conducted a review of profitability levels in his sector and shared his top picks in each major subsector. According to Saric, increasing deal volumes tied to clearer monetary policies from the Bank of Canada (BoC) and the Federal Reserve (Fed) could act as a key catalyst for Canadian REITs and provide support for an estimated 18% REIT NAV discount. Saric also believes that Apartment REITs have the potential to outperform in the next 6-9 months, especially in a Hard Landing scenario. This is due to factors such as near maximum occupancy, opportunities for mark-to-market rent adjustments, and rent control. CAR, Canadian Apartment Properties REIT, is noted as Saric’s favorite pick for a Hard Landing, while IIP, InteRrent REIT, provides additional potential in a Soft Landing. Saric also mentions that industrial fundamentals have slowed down in Q4/23 but are reflected in the current valuations of GRT and DIR, his top picks in the industrial sector. Furthermore, Saric suggests that CAD Office REITs could perform well in a Soft Landing scenario given their discounted valuations. Lastly, Saric points out that seniors housing is a favorable investment in a hard landing scenario due to strong demand and a slowdown in new supply. He raised his target on CSH, Chartwell Retirement Residences, to $14.00.

    On the other hand, BofA Securities U.S. quantitative strategist Savita Subramanian recommends technology and real estate stocks for the near future. Subramanian highlights accelerating profits, an impending Fed easing cycle, and positive earnings trends as key factors supporting her bullish view on these sectors. She also mentions that cyclical sectors, such as real estate and banks/financials, are currently neglected and offer attractive valuations. Additionally, she advises overweight positions in Consumer Discretionary and Energy sectors. For the first quarter, Subramanian suggests owning TMT (technology, media, telecommunications) and real estate stocks while selling materials and healthcare stocks. She remains positive on earnings and points to encouraging signs from early cycle industries like trucking and semiconductors.

    Goldman Sachs U.S. equity strategist David Kostin, despite warning signs from the U.S. yield curve, remains bullish. He emphasizes that growth, rather than changes in yields or the shape of the curve, is the most significant driver for equity returns. Kostin explains that the relationship between growth and yields impacts sector and factor performance differently during bear steepening and bull steepening episodes. Financials, value stocks, and small-cap stocks tend to perform better during bear steepening episodes, while healthcare and high-profit margin stocks outperform during bull steepening episodes. Kostin believes that understanding the underlying economic environments is crucial when analyzing equity returns.

    In conclusion, analysts continue to provide valuable insights into the profitability levels and top picks across various sectors. Their views and recommendations contribute to investors’ understanding of market trends and potential investment opportunities.

    FAQ Section:

    1. What are the key catalysts for Canadian REITs?
    – According to Scotiabank analyst Mario Saric, increasing deal volumes tied to clearer monetary policies from the Bank of Canada (BoC) and the Federal Reserve (Fed) could act as key catalysts for Canadian REITs.

    2. Which subsector of REITs has the potential to outperform in the next 6-9 months?
    – Apartment REITs have the potential to outperform, especially in a Hard Landing scenario, according to Saric. Factors such as near maximum occupancy, opportunities for mark-to-market rent adjustments, and rent control contribute to this potential.

    3. What are Saric’s favorite picks for a Hard Landing in the REIT sector?
    – Saric’s favorite pick for a Hard Landing in the REIT sector is CAR (Canadian Apartment Properties REIT). He also mentions IIP (InteRrent REIT) as providing additional potential in a Soft Landing.

    4. Which subsector does Saric highlight as having slowed down in Q4/23?
    – Industrial fundamentals have slowed down, according to Saric. His top picks in the industrial sector are GRT and DIR.

    5. Which sector could perform well in a Soft Landing scenario?
    – CAD Office REITs could perform well in a Soft Landing scenario, according to Saric. This is due to discounted valuations.

    6. What does Saric suggest as a favorable investment in a hard landing scenario?
    – Saric suggests that seniors housing is a favorable investment in a hard landing scenario, citing strong demand and a slowdown in new supply. He raises his target on CSH (Chartwell Retirement Residences) to $14.00.

    7. Which sectors does BofA Securities U.S. quantitative strategist Savita Subramanian recommend for the near future?
    – Subramanian recommends technology and real estate stocks for the near future. She highlights accelerating profits, an impending Fed easing cycle, and positive earnings trends as key factors supporting her bullish view on these sectors.

    8. Which sectors does Subramanian advise overweight positions in?
    – Subramanian advises overweight positions in Consumer Discretionary and Energy sectors.

    9. Which sectors does Subramanian suggest owning in the first quarter and selling?
    – Subramanian suggests owning TMT (technology, media, telecommunications) and real estate stocks in the first quarter, while selling materials and healthcare stocks.

    10. Despite warning signs, who remains bullish according to Goldman Sachs U.S. equity strategist David Kostin?
    – Despite warning signs from the U.S. yield curve, David Kostin remains bullish.

    Definitions:

    – REIT: Real Estate Investment Trust. It is a company that owns, operates, or finances income-generating real estate.
    – NAV: Net Asset Value. It represents the underlying value of an investment, calculated by subtracting liabilities from the total value of assets.
    – Occupancy: The percentage of units or space that is currently rented or occupied.
    – Mark-to-market: A valuation method that measures the current market value of an asset or liability.
    – Rent control: Government-imposed regulations on the amount landlords can increase rental prices.
    – Valuations: The process of determining the worth or value of an asset or company.
    – Fed easing cycle: The Federal Reserve reducing interest rates or implementing policies to stimulate the economy.
    – Overweight positions: Holding a higher amount of a particular asset or sector relative to its representation in the overall market.
    – TMT: Technology, Media, and Telecommunications sector.
    – Bull steepening: A steepening of the yield curve, where long-term interest rates rise faster than short-term rates.
    – Bear steepening: A steepening of the yield curve, where short-term interest rates rise faster than long-term rates.
    – Small-cap stocks: Stocks of companies with a relatively small market capitalization.
    – Growth: The rate at which a company or economy is expanding or increasing its output.
    – Equity returns: The gains or losses an investor receives from holding stocks or shares in a company.

    Suggested related links:
    Scotiabank (Scotiabank’s official website)
    Bank of Canada (Bank of Canada’s official website)
    Federal Reserve (Federal Reserve’s official website)
    BofA Securities (BofA Securities’ official website)
    Goldman Sachs (Goldman Sachs’ official website)