08-05-2025
BMO chief strategist recommends these high quality Canadian stocks
Daily roundup of research and analysis from The Globe and Mail's market strategist Scott Barlow
BMO chief investment strategist Brian Belski recommended that clients add quality domestic stocks where earnings expectations are turning negative,
'We recently adjusted our 2025 EPS target for the TSX down 3% (from $1,600 to $1,550), reflecting what we believe is a minor 'tweak' when considering all the emotion, rhetoric, and frankly, unsubstantiated 'noise' that has bullied many analysts, companies, and macro-observers … TSX earnings estimates will likely remain under pressure over the near term. In fact, forward earnings revision trends, which had been stagnant throughout the year as analysts assessed the trade risks, have started to decidedly swing negative since the end of March. From our perspective, Canadian stocks are exhibiting a well-anticipated negative revision cycle, one we believe has already been fully priced in… As such, we believe investors should not be reactionary to negative guidance and instead use the downward revision cycle for what it truly represents – an historically tested and proven contrarian indicator. Overall, we continue to believe investors should remain focused on high-quality Canadian companies, while also overlaying a contrarian revision tilt. As such, we have included a screen of high-quality Canadian companies that have exhibited decelerating breadth of positive revisions over the past several months'
The stock screening process involved low beta stocks with earnings below market average, positive free cash flow, return on equity above market average, where the percentage of upward to total earnings revisions is below 45 per cent.
The stocks are ATCO Ltd. Class 1, Alimentation Couche-Tard Inc., Bank of Montreal, Cogeco Communications Inc., CCL Industries Inc., Canadian National Railway Company, Constellation Software Inc., Dollarama Inc., Enghouse Systems Limited, CGI Inc., Great-West Lifeco Inc., iA Financial Corporation Inc., Intact Financial Corporation, IGM Financial Inc., Killam Apartment REIT, Manulife Financial Corporation, National Bank of Canada, North West Company Inc., Quebecor Inc., Restaurant Brands International Inc., Rogers Communications Inc., Royal Bank of Canada, Sun Life Financial Inc., Suncor Energy Inc., TransAlta Corporation, TC Energy Corporation and George Weston Limited.
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Scotiabank strategist Robert Hope raised his valuation expectations in the utilities sector,
'OUR TAKE: Neutral. Canadian Utilities (CU) results were in line with our expectations, while ATCO beat our and consensus estimates. There were no material project updates and our go-forward estimates do not materially move. The market is rewarding high-quality, defensive companies, such as the utilities, with higher valuations. As such, we increase our target P/E multiple by 0.5x to 15.0x, which is roughly where the shares are trading on 2026 estimates. As a result, our CU target increases to $40 from $39, and our ATCO target price increases to $54 from $53. We see CU trading at 14.9x 2026E P/E, a discount to Emera at 18.0x, Fortis at 19.1x, and Hydro One at 24.5x. Our $40.00 target price is predicated on a 15.0x 2027E P/E, which is a discount to Emera at 17.25x, Fortis at 18.5x, and Hydro One at 20.0x. We see ATCO trading at a ~17% discount to our estimated NAV, versus the long term average of ~26%'
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Jefferies analyst Blayne Curtis report on Advanced Micro Devices earnings has implications for the AI investing theme,
'Co. reported 1Q results last night beating on both the top and bottom lines. However, the outlook for AI growth was disappointing as it will require a significant 2H ramp to hit this year's expectations and is tied to the MI350 launch. In our view, the growth outlook for the year is at risk and we think this might not be the last cut to AI revenue estimates. Additionally, the PC market is expected to be 'sub-seasonal' in 2H which we think is conservative given the stronger than expected 2H last year and before considering any tariff driven demand destruction. We remain on the sidelines as there is no real upside without a viable AI story. Our '25 & '25 EPS estimates remain below consensus'
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Bluesky post of the day:
Diversion: 'These authors were sold a romantasy convention. Instead, they got the Fyre Festival of the book world' – CBC
