Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
My inbox is chock full of trade ideas this morning beginning with Merrill Lynch's global strategy team reiterating the company's bullish stance on biotechnology stocks,
"Biotech is currently trading at more than a 20% discount to the S&P 500 on forward P/E vs a nearly 30% premium historically. It trades at just 14x forward earnings, compared to large cap Pharma which trades at 16.0x, but has among the highest long-term growth potential of S&P 500 sectors and industries. With positioning at close to a seven-year low, and valuations near all-time lows, political and regulatory risks appear to be overly discounted, particularly as large cap Biotech may be less impacted by drug price scrutiny or a repeal/replace of the Affordable Care Act… highlight CELG and REGN."
I wrote about biotech on Friday and bought a small position in a biotech ETF. I want to make two points of clarification. One, I am obviously fine with the risk/reward outlook (to the extent I can estimate it), but the sector is volatile and may not fit all risk tolerances. Two, I will be putting in a stop loss in the next few days to limit potential losses.
"@SBarlow_ROB ML reiterates biotech bullishness " – (research excerpt) Twitter
"Why I just bought this sector ETF" – Barlow, Inside the Market
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Citi strategist Tobia Levkovich recommends an overweight position in energy stocks,
"Citi's commodity research team still believes that WTI will close 2017 above $60/barrel and oil prices have an inordinate impact on sector relative performance. In many respects, the focus on the Energy names has fallen off sharply given client questions amidst short-term performance pressures. Plus, valuation got more challenging. Nonetheless, an overweight stance seems appropriate now as a buying opportunity has developed despite some seasonality trading risks."
"SBarlow_ROB Citi: stay long energy" (Research excerpt) Twitter
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Credit Suisse is pounding the table on alternative asset manager stocks,
"[we are] more positive on the U.S. Alternative Asset Managers for three reasons: (1) Attractive valuations relative to future dividend distributions & international peers; (2) Secular growth and less fee pressure; (3) Tax reform (using a 50% probability) could trigger the industry to convert from their current [partnership] structure to C-Corp, which could lift valuations 20-30%. He reiterated Blackstone (BX) as his top idea, and also upgraded the Carlyle Group (CG) and Ares Management (ARES) to Outperform."
This is not an idea I would follow – too much leverage to equity market returns for my taste.
"@SBarlow_ROB CS likes BX, china consumer stocks" – (research) Twitter
See also: "6 Long-Term Economic and Investment Themes" – Bloomberg
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An important research report from CIBC estimates the scale of domestic subprime mortgages,
"Private and Regulated Lenders originate an estimated 9% of volume (based on our analysis of Ontario Teranet data). Private Lenders Alt-A/Subprime estimated at ~5% of unit originations and 2% of volume. The smaller volume is due to participation in second mortgages. Regulated Alt-A Lenders estimated at ~7% of volume originations. Using an alternative measure (the broker channel) we get a similar number. So at this point, it is fair to assume that Alt-A/Subprime account for just under 10% of new mortgages. The likelihood is that growth in this market will soften in the coming quarters."
"@SBarlow_ROB CIBC estimates the scale of Canadian subprime mortgages" – (research excerpt) Twitter
"@LJKawa Goldman: Canada has been overbuilding, the U.S. has been underbuilding. #cdnecon " – (chart) Twitter
"Home Capital's 'Unique' Woes Are Contained, Poloz Says" – Bloomberg
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Tweet of the day: " @mark_dow Long equities deep into a cycle always feels like you're short options: you can only make money slowly & can lose it very quickly. #NotEasy " – Twitter
Diversion: "These 6 common vegetables are actually all the same plant species" – Business Insider
Scott Barlow