CIBC analyst reveals his top picks in the ‘arguably ailing' REIT sector

Globe and Mail

2 days ago

Daily roundup of research and analysis from The Globe and Mail's market strategist Scott Barlow
CIBC REIT analyst Dean Wilkinson sees his sector as cheap, but there are complications,
'The first major M&A announcement of the year may have provided a shot in the arm to an arguably ailing sector, but beyond the clear implication of the stark value proposition the sector offers, investor attention (much to the chagrin of many) is still squarely focused, we believe, on the rate trade. With a great degree of volatility, the REIT complex is now trading, on average, at a 15-per-cent discount to NAV, a level that has historically been quite attractive and coincided with increased investor demand … However (there's always a but…) … a 50 basis points steeping of the curve at the long end would imply the REIT sector is, in fact, trading at NAV parity and perhaps a much less compelling investment opportunity than the deep discount we believe the market is currently pricing. We continue to believe/expect the normalization of the yield curve comes from downward pressure on the front end of the curve (being a positive for the REIT complex), acknowledging the path is perhaps taking a good deal longer than was originally expected … By asset class, we continue to favour seniors housing (Chartwell and Sienna) and multi-family (Killam [Canada] and BSR and Flagship [U.S.]) followed by 'defensive' retail (Crombie and Choice), and then the industrial REITs. We continue to view BN as a long‑term core holding'
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Scotiabank strategist Hugo Ste-Marie is leaning bearish, titling his most recent report Equities: Short-Term Risk-Reward Profile Not Compelling,
'Near-term risk-reward profile not great. Investors believe the US administration will continue to back down on tariffs, which has unleashed a buying frenzy again (FOMO). Still, the US equity benchmark is back to the pre-tariffs world both in terms of level and valuation. For the time being, maybe we have some sideways price action until we have better clarity on the trade situation. Following our recent marketing tour, it seems that the pain trade for the majority of our clients is for stocks to keep pressing higher. International equities have been trading sideways since mid-May in local currency, while the TSX keeps making new highs (but recent leadership is not what you would expect from an index making new all-time highs on a daily basis). After a 4k+ points recovery since April, the TSX could also be due for a digestion phase. We're taking a look at the USD, where we believe downside risk grows. We're downgrading the dollar to UW from neutral'.
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BofA Securities chief quantitative strategist Savita Subramanian updated her top U.S. stock picks for growth and value investors,
'Growth 10″ Inclusion Criteria: (1) BofA vs. Cons. EPS Surprise Rating of '1' [highest rating, most often beat consensus earnings projections] , (2) BofA 'Buy' Opinion [rating], 3) Must be rated top 1 or 2 by BofA vs. Consensus EPS Surprise Model for < 10 mos. (4) Select 10 Stocks with highest 5-Yr. Proj. EPS growth rate. 'Value 10' Inclusion Criteria: 1) BofA vs. Cons. EPS Surprise Rating of '1'. 2) BofA 'Buy' Opinion. 3) Must be rated top 1 or 2 by BofA vs. Cons. EPS Surprise Model for < 10 mos. (4) Select 10 Stocks with lowest trailing 12-Month P/E'
The growth stocks are Allstate Corp., Axon Ent Inc, Gilead Sciences Inc, KKR & Co. Inc, Eli Lilly, Meta Platforms, Merck, TKO Group, Warner Bros. and Welltower. The value stocks are Aflac, Allstate Corp., Aptiv PLC, Eastman Chemical, Hewlett-Packard, MetLife, Merck, Nucor, Steel Dynamics and Synchrony Financial.
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BMO chief economist Brian Belski noted that domestic stocks underperformed the U.S. in May for the first time this year,
'The S&P/TSX gained a solid 5.4 per cent on a price return basis in May, underperforming the S&P 500 for the first time this year. On a sector return basis, the market clearly shifted back to a more cyclical orientation market and away from the more defensive sectors that have been outperforming over the last few months. Indeed, Technology, Industrials and Consumer Discretionary were the best performing sectors this month, while Utilities and Consumer Staples were among the worst performing sectors. From our perspective, this is a clear acknowledgement by the market that economic and market risks around trade are fading, which we believe will continue to favour these more cyclical areas and ultimately US equities. While we have started to neutralize our Canadian overweight, we continue to believe that Canada remains a relative value play with a rebounding growth profile'
Mr. Belski recommends what he calls capital deployment strategies – dividend growth, cash flow and GARP.
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Bluesky post of the day:
Diversion: 'Five Shows to Watch While You Wait for 'Severance' Season 3' – Lifehacker