JMRD Market Observer for June 30th, 2017 – BoC Policy Monitor – July rate hike: It’s in the bag

June 30, 2017

In This Week’s JMRD Market Observer

 

 

  • BoC Policy Monitor – July rate hike: It’s in the bag

  • NBF Hot Charts – Canada: It’s time to go long S&P/TSX

  • Technology (Thematic Research): Another Perspective on Valuation

  • Thomson Analyst awards: NBF placed in 11 categories

  • Veresen/Pembina Proxy Information

  • JMRD Basket Corner

  • Retirement Corner

  • Reads of the Week

  • Economic Calendar

  • Earnings Reports

 

 

BoC Policy Monitor – July rate hike: It’s in the bag

 

Mr. Poloz went out of his way yesterday during an interview with CNBC to keep the July interest rate decision meeting “live” by downplaying last week’s feeble CPI report to instead emphasize his more bullish outlook for the Canadian economy. The Governor said that “extraordinarily low interest rates” had done their job in keeping the economy afloat in the aftermath of the 2014 oil shock. With the Bank of Canada acknowledging that most of the transition is completed and reiterating its expectation of above-potential growth in the coming quarters, the current stance of monetary policy is no longer justified. The time has come to remove the 2015 rate cut insurance policy and return the overnight rate to 1%. In our opinion, Mr. Poloz’s game plan is to raise rates as soon as July 12. We anticipate the upcoming BoC Business Outlook Survey on June 30 to confirm that conditions are ripe for such a move.

Bottom-line: A rate hike by the Bank of Canada on July 12 appears to be a foregone conclusion (it would take a disastrous jobs report on July 7 to prevent such a move). We think that this will be followed by another rate hike in October. Our forecast calling for an overnight rate of 1% by the year end has not changed.

 

See the full article

 

CNBC Transcript: Stephen Poloz, Bank of Canada Governor

 

 

NBF Hot Charts – Canada: It’s time to go long S&P/TSX

 

Market Watch – At mid-year the S&P/TSX remains one of the worst-performing country benchmarks. Energy, Banks and Materials have all struggled in Q2. We expect these sectors to do better in the second half of the year. The domestic economy remains sound and corporate profits have rebounded. We are changing our asset allocation today by reducing our cash position in favour of Canadian equities. Our decision is based on our view that global economic momentum will improve in the second half of the year. This development argues for a reflation trade scenario, implying a somewhat weaker U.S. dollar and stronger commodity prices. That should buoy the S&P/TSX, which is currently trading at a significant discount to the S&P 500. As today’s Hot Chart shows, the spread between the 12-month-forward P/Es of the S&P 500 and the S&P/TSX is the widest since 2004. See the full article.

 

 

Technology (Thematic Research): Another Perspective on Valuation

 

Event: An alternative take on valuation.

Key Takeaways:

If you follow the U.S. names in any way, you’ll know the big move in stocks over the past year has come from the Technology sector. At the time of writing, the S&P 500 Technology Sector is up ~17% YTD. For its part, the TSX Information Technology Sector has also been strong (up ~11% YTD). The question is whether the big move has made the tech stocks, as a group, expensive. On a valuation basis, the P/E for the S&P 500 Technology Sector is at 23.7x P/E versus a 10-year average of 18.1x P/E. While those relative valuations obviously are a reason for pause, we tried to take a different perspective by looking out how much growth the stocks are pricing in – we were surprised by the findings – they may not be expensive after all. See the full article

 


Thomson Analyst awards: NBF placed in 11 categories

 

The StarMine Analyst Award winners for 2017 have been released.  The top 3 Earnings Estimators and Stock Pickers by industry and the top 10 overall Earnings Estimators and Stock Pickers are recognized each year by StarMine.  NBF placed 3rd overall with analysts ranked in 11 categories. The top 10 Overall Earnings Estimators and Stock Pickers, top 3 Industry Earnings Estimators and Stock Pickers, and top 3 Award-Winning Brokers are recognized each year by Thomson Reuters. 

 

Congratulations to our 2017 winners!:

  • Top Earnings Estimators:
    • Vishal Shreedhar:  6th Overall
    • Adam Shine:  1st Media
    • Steve Parsons:  2nd Metals & Mining
    • Vishal Shreedhar:  2nd Retail

 

  • Top Stock Pickers
    • Adam Melnyk:  5th Overall
    • Maxim Sytchev:  9th Overall
    • Greg Colman: 1st Energy Equipment & Services
    • Adam Shine: 2nd Telecommunication Services
    • Rupert Merer: 2nd Chemicals & Utilities
    • Adam Melnyk: 2nd Metals & Mining
    • Trevor Johnson: 3rd Diversified Industrials

 

  • Top Award-Winning Brokers
    • RBC Capital Markets:  16 awards
    • CIBC World Markets: 13 awards
    • National Bank Financial Markets: 11 awards

 

Link to Report:

http://www.analystawards.com/awards.php?t=2

 

 

Veresen/Pembina Proxy Information

 

As we have mentioned in past Market Observers, The JMRD DIG Basket component Veresen Inc. is being acquired by Pembina Pipelines.  Those that hold Veresen common and preferred shares have most likely received some proxy literature to vote your shares.  We are in support of the proposed transaction and we wanted to let you know that we will ensure your Veresen common and preferred shares are tendered to the offer.  The preferred shares will convert to Pembina shares with the same original terms.  Do not hesitate to call if you have any questions.

 

 

JMRD Basket Corner

 

DIG Basket

 

Northland Power (NPI) – Independent Power Producers: Still more growth to come; stocks could endure rising yields: Renewable energy penetration continues to grow globally and so does the outlook for further growth. Lower costs of renewable power and storage could lead to an evolution of the grid for the next twenty years, despite negative political headlines. Stock prices have been strong, with forecasted CAFD and dividend growth in our coverage universe that could offset rising rates (we are looking for 25 bps in the near term). Although share price gains could moderate, we maintain a positive view, with the most upside to target (for OP rated stocks) for AXY, INE and PEGI. (Innergex Renewable is held in JMRD’S All-Cap Growth Basket). See the full article

 

All-Cap Growth Basket

 

Crius Energy Trust (KWH.un) – KWH is acquiring U.S. Gas & Electric (USGE), a retailer of electricity and natural gas since 2003 to commercial and residential customers in Connecticut, D.C, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio and Pennsylvania. USGE is to be acquired for and aggregate purchase price of US$152.5 mln plus ~US$20 mln in working capital, which implies a 4.7x LTM acquisition multiple. We highlight the implied transaction multiple represents a significant discount to comparable integrated retailers and industry transactions (typically 6x-9x). The transaction is expected to close early Q3/17 pending regulatory approval. See the full article

 

U.S. Growth Basket

 

Arista Networks (ANET) – Arista Networks Inc Stock Is the Shape of Clouds to Come

 

Marriott International (MAR) – Ritz-Carlton Is Building the Anti-Cruise Ship

 

 

Retirement Corner

 

 

 

Reads of the week

 

  • Happy 150th Canada! A coast-to-coast tour of Canada – From the grasslands of Saskatchewan to the vast boreal forests of Yukon, here are stories from every province and territory

 

 

 

 

 

 

 

Economic Reports

 

Monday July 3rd – Canadian markets closed for Canada day; US Manufacturing PMI and ISM Manufacturing

Tuesday July 4th – Canada Manufacturing PMI; U.S. markets closed for Independence Day

Wednesday July 5th – US FOMC Minutes

Thursday July 6th – Canada Building Permits; US Initial Jobless Claims, US ISM Non-Manufacturing

Friday July 7th – Canada and US Employment Change and Unemployment Rate

 

 

Earnings Reports

 

Monday July 3rd – None

Tuesday July 4th – None

Wednesday July 5th – None

Thursday July 6th – Sandvine Corp

Friday July 7th – None

 

 

Enjoy the Canada Day long weekend!

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